Jubilee: A Compelling Buy, But Wait For A Pullback. - myStocks: Opinion and Commentary

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Jubilee: A Compelling Buy, But Wait For A Pullback.

By Rufus Mwanyasi
Comments Thursday, December 18, 2014 at 10:49 AM EAT

Jubilee has shown a consistent growth in both the top and bottom line over the years. Since 2007, premium income has grown at a Compounded Annual Growth Rates (CAGR) of 27.4% to KES 18.1 billion in FY2013 compared to industry average growth rates of 15.28% (2008-2012). Profit after tax has increased at a CAGR of 24.8% from Kshs.663.1 million in FY2007 to KES 2.5 billion in FY2013. The insurer has also made progress on its expense ratio and its efficiency ratio which improved to 23.5% in 2012 from 29% in 2007.

Looking at the table below, there is no doubt that the insurer has shown superior performance on the majority of financial metrics analysed. On the basis of Return on Average Equity (ROaE) and Return on Average assets (ROaA), the company’s performance has been quite good, posting these returns at 26.7% and 4.6% respectively as at the end of 2013. Admittedly, the insurer, which is currently the largest insurance company in the region with a presence in 5 countries, has shown less impressive profitability compared to its peers. Net profit margin stood at 12.7% in FY 2013, way below Kenya Re , Britam , CIC Insurance , Pan Africa and Liberty Kenya . However, I see this is as a short-term issue rather than a longer-term concern.

Income Statement (KES '000)FY 2011FY 2012FY 2013%
Gross Earned Premiums12,058,81615,399,51418,087,94615%
Outward reinsurances(4,716,820)(6,026,523)(7,314,561)16%
Net Earned premiums7,341,9969,372,98210,773,38514%
Investment income2,692,3873,156,9813,697,03211%
Commissions Earned863,6441,352,8481,684,34525%
Total Income10,568,86314,326,35818,042,63920%
Net Claims & Policyholders Benefits6,114,0198,555,53710,985,55422%
Commissions Payable1,580,4202,020,8572,345,15314%
Operating & Operating Expenses1,804,3312,203,8782,483,62811%
Profit before Tax2,143,8912,693,3033,151,18814%
Profit after Tax1,910,3902,284,5012,502,8179%


 Balance Sheet (KES '000) FY 2011FY 2012FY 2013
Investment Properties3,587,6233,752,7854,445,591
Investments in Associates5,078,2376,128,5666,465,583
Reinsurance arising out of direct Insurance Arrangements1,647,1111,918,4363,563,752
Deposits in Financial Institutions2,639,6795,540,9236,161,262
Total Assets38,039,83247,417,56261,159,185
Unearned premium Reserve4,681,4375,338,6206,355,840
Total Gross Insurance Liabilities10,493,01512,187,60315,274,972
Total Liabilities31,328,18138,717,87349,559,603
Shareholder Funds6,711,6518,699,68911,599,582

The partnership with CITADEL Micro Insurance and Umande aimed at boosting the insurer’s portfolio, investment in information Communication and Technology that is set to birth a new online sales platform, Bancassurance push through its partners: - Barclays Bank of Kenya , Standard Chartered Bank and Diamond Trust Bank , market leadership and regional presence are all ballasts that I expect to contribute to the relative valuation re-rating of the insurer.

With this in mind, it is not unrealistic to expect Jubilee to deliver 56.73 EPS next year, meaning the insurer still trades way below 10 times earnings and at only 1.84 times forward book value per share, far below than is the case with CIC Insurance Group, Britam and Liberty Insurance Group. However, according to the company’s historical P/E ratio trend, Jubilee is trading significantly above its 6-year Average P/E ratio-10.3 over 5.67, and investors would do well in waiting for a pull back to capture the full gains from share price depreciation. A pull-back of 22% would yield a price of Kshs.338, so in my opinion, a price range of KES 338 - 391 might be seen as a good entry point for value investors.


Labels: BBK,   BRIT,   CFCI,   CIC,   DTK,   JUB,   KNRE,   PAFR,   SCBK


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