UAE investors widely share the view that insurance sector shares have performed oustandingly this year. An analysis of the sector will however throw some interesting findings.
Among insurance companies with a market capitalization higher than Dh300 million and a Trailing Twelve Month (TTM) revenue greater than Dh200 million and net profit margin higher than 10 per cent, only two companies delivered 30 per cent plus price gains in the year-to-date (YTD). Or to be precise, a majority did not even give a positive YTD performance..
It must be noted that a total of 29 insurance sector companies were studied for this purpose and the two companies which came out on the top are Abu Dhabi National Insurance Company (ADNIC) and Islamic Arab Insurance company (Salama). It can be said these two companies are fundamentally strong and one good feature is they have zero long term debt as per their latest financial statements.
Salama has improved its liquidity position significantly and recently sold 4.5 million shares of Salama Cooperative Insurance Company, a Saudi joint stock company, to raise nearly 66 million riyals. This amount will be used to issue dividends as well as pursue investment opportunities in the UAE insurance market. Salama currently has an annual dividend yield of 3.66 per cent.
The strong fundamentals of Salama is reflected in its valuation as well. When compared to Salama’s TTM revenue of Dh225 million, RAK National Insurance has Dh416 million and Al Ain Ahlia Insurance company has Dh399 million. Nonetheless, when it comes to market capitalization, Salama is a clear winner with Dh966 million, while RAK National Insurance and Al Ain Ahlia have Dh363 million and Dh527 million, respectively. It’s pretty evident that investors have a big liking for Salama which has assets to the tune of Dh4.4 billion.
Make no mistake, Abu Dhabi National Insurance Company is no slouch. With TTM revenue of Dh1.68 billion, it is the second largest, behind Oman Insurance which has Dh1.98 billion. The revenue of ADNIC has grown from Dh1.32 billion in 2017 to Dh1.69 billion in 2019.
ADNIC has in fact doubled its revenues from 2010. Investors in ADNIC are rewarded with a dividend yield of 7.79 per cent. Total assets amount to Dh8.4 billion.
One factor supporting UAE insurance industry is the demographic growth. Unlike Saudi Arabia which has adopted a restrictive labor policy, UAE is liberal. Once the pandemic crisis is over, UAE should again see population growth that would support the industry.
- Vijay Valecha is Chief Investment Officer at Century Financial.