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Is Universal Insurance a bargain or a value trap at 88 kobo? · Green Ticker Tales

• 0:00
  All right, so universal insurance numbers came out last week. Let's look at them. Thank you to everyone who takes out the time to like, to share, to subscribe. Every time you do so, you bring us one step closer to gold. The goal is quite simple, to educate as many people as we can about financial markets, especially Nigerian equities market. It is important to state that this is not financial or trading or personal finance advice. I or other members of the team may or may not have a position in this stock or may decide to take a position in this stock.
• 0:28
  subsequent to this video right let's get into the numbers afs 2025 now on face value you might say okay the numbers aren't bad but if you strip away the gains now your normal your unadjusted profit after tax came in at 1.99 billion marginally higher compared to 2024 but if you strip away the fair value gains which i've done on my rights and i can blow this up if you strip away the fair value gains
• 0:57
  um billion in fair value gain on financial assets triple with 323 million fair value gain online investment properties you'd have an adjusted loss after tax of uh uh 1.5 um billion naira so clearly these numbers are weak and you can clearly see the fair value gains here 3.2 billion in fair value gains in fact if you remove the fair value gains from the net investment income uh this frame probably would have made about 700 million in
• 1:26
  net investment income but one of the reasons why a lot of people don't like insurance stocks in nigeria is that core insurance numbers are rather weak and why do i say so you can clearly see insurance service results came in at 991 million so 20.4 billion insurance revenue strip away your claims expenses strip away your insurance expenses add your insurance payments and all that you're left with just a belly billionaire so in other words
• 1:54
  even with adjusted investment income your insurance income about a billionaire um it's just slightly higher it's almost so they almost power doesn't make sense typically you want to see your insurance income way higher than your investment income because your insurance income before your investment income you know so um this is a rather weak set of numbers pretty really big set of numbers and the q126 numbers are much better for q126 numbers actually was because
• 2:25
  uh there was a big bounce in claims and that was it an oil and gas uh thingy and for more context you can go read the the article i'll drop the link in the comment section once i'm done uh you had a big bounce in insurance service expenses you had a slight drop in insurance revenue so your insurance revenue down service expenses higher you're going to get squeezed your insurance expenses high as well
• 2:53
  it means that insurance segments recorded a loss of 4.3 billion huge right now let's come to investment income fine fair value gains came in 2.4 2.58 so it means your net investment income is about 2.59 if you strip away the fair value gains it means that this firm made about 20 million or less than 20 million in net investment income right so it was rather
• 3:20
  poor set of numbers. And you can clearly see that the adjusted numbers, if you adjust for the fair value gains, you'd have made a loss of 4.8 billion naira. Now, book value per share is at 1 naira and 4 kubo. Stock is trading at 88 kubo, meaning it's trading slightly below book value. So some would argue, okay, maybe 10, 15, 20% upside. But when you look at the numbers in the long term, right?
• 3:50
  You have them. You can clearly see that. You can argue that this firm is in value trap. Why? Look at the return on equity in the last five years. The highest we've done is 10.78%. And these are unadjusted numbers. If I adjust it for the lower profit after tax, we probably would have negative returns for 2025. But that's for simplicity's sake. Leave it as it is. Return on equity at 10.78%.
• 4:16
  It's lower than what average inflation is in Nigeria for the period. Even if you want to be conservative and say maybe inflation is 12, 13, 14%. In the last couple of years, this one hasn't really delivered return on equity less than inflation. So why hold? That's one hand. On the other hand, it's also not paid a dividend in a long while. So you don't have core numbers that have been quite where you don't have a dividend. So why hold?
• 4:42
  Now, you look at your blended cost of equity, and why do I use a blended cost of equity? In the last two, three years or so, you have a much higher cost of equity compared to prior to debt. So that's why you have your blended cost of equity. Subtract your blended cost of equity from return on equity, and equity is essentially what's invested in the business. Return on equity is of the capital of equity that the funds are put into the business. What's my return? So for every 100 Naira, maybe you're getting a return of 10 Naira. If you're getting a return of 10 Naira, your cost of equity is about 22.25.
• 5:11
  essentially for the last few years this firm has destroyed the value so it's fundamentally speaking this is a rather weak firm but let's look at what technicals have to say um because if you can't play fundamentally can we at least see if we can play in terms of technicals technicals where are we switch uh year to date what are we yesterday the stock is down almost 30 percent last one year the stock is up 42 percent okay
• 5:39
  But yet today, it's lagging behind the index, which is up a bit over 40-something percent. But what do the technicals tell us? Technicals have it as a sell. So let's look at where is the support and resistance for the stock. Sell, sell, sell. One day, sell, sell. One week, sell. One month, neutral. But let's look at the daily, right? On a daily, RSI is neutral at 38. Stock 96 says buy. But where are the moving averages?
• 6:07
  literally almost all moving averages are sell um resistance we're at 88 couple so we're just between the s1 zone and the pivot point uh first of all zone is 77 couple next is 63 cover so even for a technical play maybe the best time to get into the stock i think would be 70 really 70 so 70 75 couple so technicals have this talk as a cell
• 6:36
  At best, even if you want to say that, look, Q1 frame ticket body punch. The challenge with this is you probably would have to wait to Q3 to be able to analyze these numbers properly. Why do I say so? The fair value gains that you see here, right? The 2.5 billion would load the numbers. So you need to wait to Q3 and then you can now have nine months. Essentially, you're done with the year.
• 7:06
  After that, you can now decide to say, look, if I subtract the fair value gains from the profit after tax or if there's a loss after tax, what does it give me? So I hope you found this educative. Catch you in a couple of hours from now where we'll be discussing stocks on my radar for the coming Trading Weeks session. Have yourselves a lovely rest of the day.