NEM Insurance has been on a strong rally this year, closing at N13.20 per share on Friday, February 7, 2025, marking a 9.5% gain from its previous closing price of N12.05.
This makes it the best-performing insurance stock YtD and 34th overall on the NGX.
Beyond its impressive stock price movement, NEM has delivered robust financial growth, with a 41% YoY rise in pre-tax profit and a 76% surge in post-tax profit in 2024.
With a trailing dividend yield of 5.48% and a year-to-date share price return of 74% in 2024, NEM Insurance delivered a total return that outpaced the closing inflation rate. The key question now is: Can this momentum be sustained? Should investors take a position?
Latest financial performance
NEM Insurance’s 2024 financial report showcases impressive performance, marked by substantial growth across key indicators for the year.
Key highlights (2024 vs 2023):
- Insurance revenue: N97.109 billion +86.77% YoY
- Insurance service expenses: N55.621 billion +63.03% YoY
- Net expenses on reinsurance contracts; N23.253 billion +81.73% YoY
- Insurance service results; N18.235 billion +258.81% YoY
- Investment income: N6.639 billion +150.72% YoY
- Net foreign exchange gain: N7.745 billion -31.99% YoY
- Net investment result: N16.698 billion -13.57% YoY.
- Net insurance and investment results: N34.901 billion +43.94% YoY
- Management expenses: N7.921billion +61.22% YoY
- Profit after tax: N23.314 billion +75.90% YoY.
- Cash and Cash equivalents N2.781 billion -64.83% YoY
- Total Assets N110.158 billion +48.29% YoY
- Shareholders’ funds: N59.671 billion +54.21% YoY
This growth was driven by various factors, especially the substantial growth in net insurance results, driven by the growth in non-life insurance revenue.
- Net insurance results grew by 258.81%, and its contribution to net insurance and investment income increased by 52% compared to the 20.96% contribution in 2023.
- This also moderated investment income contribution to the net results. In 2023, the contribution was 79.68% but came down to 47.84% in 2024.
NEM Insurance’s insurance revenue growth was entirely driven by non-life insurance income, totalling N97.109 billion. The key growth drivers among non-life segments were:
- Motor Insurance: Motor insurance recorded a 51% YoY growth, contributing 25% of total insurance revenue. This reflects the impact of the new motor insurance rates introduced by the National Insurance Commission (NAICOM) in December 2022.
- Oil and Gas Insurance: +183% YoY growth, contributing 32% of total insurance revenue.
- Fire Insurance: +46% YoY growth, contributing 17% of total insurance revenue.
This indicates that NEM’s strong underwriting performance in non-life insurance, particularly in high-risk, high-premium sectors like oil and gas, was a major revenue catalyst.
The diversification across multiple segments (motor, fire, oil & gas) also shows a balanced risk distribution.
However, amidst these successes, NEM Insurance encountered a surge in expenses.
The company incurred N26.714 billion in claims, marking a substantial 79% YoY increase from the previous year.
The potential for continuous expense overruns could indeed erode investor confidence, ultimately resulting in a decline in the company’s stock price and dissuading potential investors.
Past Earnings Performance
Over the past five years (2019–2023), NEM Insurance has demonstrated consistent earnings growth, with pre-tax profit increasing at a compound annual growth rate (CAGR) of 77% and profit after tax growing at 52.5% CAGR.
The five-year growth trend highlights NEM Insurance’s ability to generate steady earnings.
The 76% rise in post-tax profit in 2024, significantly outpacing the longer-term pre-tax profit growth, suggests improved cost efficiency, possible tax benefits, or operational optimizations.
Given its historical double-digit growth rates, investors seeking consistent returns in the insurance sector may find NEM Insurance appealing.
If the company maintains this trajectory, investors can anticipate continued earnings growth, making NEM Insurance an attractive long-term play in the Nigerian insurance sector.
Financial Health
NEM Insurance appears to have a robust balance sheet, highlighted by its healthy shareholder equity of N59.671 billion and absence of debt, which indicates low leverage.
The low leverage, as reflected in its financial leverage ratio of 1.8x and debt-to-equity ratio of zero, suggests a stable financial foundation less susceptible to risks associated with debt.
Dividend
NEM Insurance has consistently rewarded its shareholders with regular dividend payments, demonstrating a commitment to shareholder value.
Over the past five years (2019-2023), NEM Insurance has maintained consistent dividend payments, steadily increasing its dividend payout at a compound annual growth rate of 39.6%.
In 2023, the company doubled its dividend, increasing it by 100% YoY to 60 kobo (N3 billion), representing 23% of its earnings.
With a 76% YoY growth in net profit in 2024, market expectations are high for another dividend increase.
A higher payout could further strengthen investor confidence and support the stock’s momentum.
Looking ahead:
Looking ahead, NEM Insurance anticipates sustaining its strong performance in its core business.
It forecasts insurance revenue of N40.652 billion, representing 42% of its 2024 full-year insurance revenue.
This is expected to elevate insurance service results to N10.688 billion, 59% of its 2024 full-year insurance service result.
However, it is noteworthy that NEM Insurance adopted a conservative approach in projecting FX and fair value gains.
This cautious stance contributed to the projected decline in profitability compared to Q4 2024.
NEM Insurance has projected a pre-tax profit of N8.323 billion and post-tax profit of N7.158 billion for Q1 2025, representing a decline from Q4 2024 pre-tax profit of N11.306 billion and post-tax profit of N9.757 billion.
However, it is important to note that the Q1 2025 forecast accounts for about 31% of the company’s full-year 2024 pre-tax and post-tax profits.
This suggests that NEM is on track for another strong year, provided it achieves/beats its Q1 2025 forecast and its forecasts in subsequent quarters.
Beating or missing these forecasts will undoubtedly impact various aspects, including investor sentiment, market reaction, and ultimately, the valuation of NEM Insurance.
Additionally, the company has expanded its portfolio with the introduction of NEM Health Limited, which commenced operations in 2023. While its impact on 2024 performance appears minimal, it is expected to contribute more meaningfully in 2025, reinforcing NEM’s commitment to diversification and long-term growth.
As investors await the release of Q1 2025 results, they must closely monitor these developments to make informed investment decisions.
