Adamjee Life to get listed at PSX
Adamjee Insurance Company Limited’s (AICL) subsidiary, Adamjee Life Assurance Company (ALAC) has announced its listing plans at the Pakistan Stock Exchange (PSX) through the offer for sale, with a floor price of Rs28/share, which is expected to be listed by the first quarter of CY22.
The market price still seems to only reflect the investment portfolio of Rs32 (post 30 per cent discount) and partial valuations of the core operations at the prevailing stock price of Rs39.
This means an investor is currently getting the general insurance business (Rs16/share) and the life insurance business (Rs18/share) and future upside of Hyundai Nishat Motors (no valuation assigned) for almost a negligible value.
A lion’s share of 40 per cent to AICL’s investment portfolio valuations is contributed by the MCB alone, and 15 per cent is invested in the company’s unlisted group companies, with the remaining 45 per cent scattered in various listed companies.
Among the unlisted group companies are Adamjee Life Assurance Co, Security General and Hyundai Nishat Motors.
The company holds 7 per cent of Pakgen Power (PKGP) and Lalpir Power (LPL) each, where any scenario of outstanding circular debt settlement and one-time hefty dividends from the respective IPPs would also benefit AICL.
The dividend payout of every Rs5/share by each IPP would result in incremental EPS of Rs0.65 (+10 per cent to base case earnings).
The auto sector growth may remain comparatively lower given the ongoing increase in the policy rate (decreasing auto financing) and increase in auto prices, impacting the potential auto sales.
Analysts forecast the underwriting profits to post a meagre 5-year CAGR 6 per cent, where motor segment is expected to outperform; and maintain the claims ratio above 60 per cent.
The company reported nine months of CY21 net profit of Rs2.27 billion (up 91 per cent YoY). Improvement in underwriting income and hefty dividends from the banking sector in the period under review (accumulated with suspended dividend of CY20) were the key reasons for the outstanding growth.
During the nine months of CY21, the motor segment remained the dominating contributor to core income (43 per cent of the total underwriting income); followed by fire and property (29 per cent of the total underwriting income). On the investment income front, more than 80 per cent has so far streamed from dividends.
Meezan Bank’s deposit base grows significantly
The Meezan Bank Limited (MEBL) has been able to quickly grow its deposit base, which it has managed without compromising on the quality of deposit mix. To this end, the growth has come about, while improving the mix, as the current accounts rose to 42 per cent of the deposits in the third quarter of CY21, second only to Bank Alfalah Limited.
The absence of a rate floor on savings deposits (27 per cent of the mix) together with a sticky individual depositor base should afford a significant funding cost advantage to the Meezan Bank, particularly in a rising interest rate environment.
A low-cost deposit franchise, amid higher interest rates should spearhead 18.4 per cent YoY net interest income (NII) growth, on an average.
The Meezan Bank’s fee and commission income stagnated during CY20 and CY21, as the State Bank of Pakistan (SBP) removed IBFT charges on transactions as part of the broader measures taken to support the economy during the Covid-19. However, as the economy emerges from the pandemic, the central bank is rolling back the incentives it had earlier provided to the customers, which includes fee exemption on the IBFT transactions.
Reinstatement of the IBFT charges is expected to help the bank’s fee and commission income grow where analysts expect the same to grow by a CAGR of 11.7 per cent opposed to 6.2 per cent growth between CY17 and CY20.
The non-performing loans (NPLs) remained flat during the nine months of CY21; following the large subjective downgrade in the fourth quarter of CY20 (as the management completely provided bank’s exposure of Hascol of Rs4 billion).
The bank’s specific coverage remained stable around 91 per cent , while raising its general provisions to Rs5.8 billion (or over 0.9 per cent of the total loans), taking the total coverage to 140.1 per cent.
The Meezan Bank Limited is expected to maintain its growth momentum, while, at the same time, managing to maintain a payout of 46.3 per cent on an average between CY22-CY25.
Hence, analysts expect branch expansion, a dominant part of the strategy of the bank, to continue in the near-term, resulting in administrative expenses registering a three-year CAGR of 16.4 per cent.
Nishat Mills core earnings likely to grow
The reputation of Nishat Mills Limited (NML) of being one of the top vertically integrated textile companies in Pakistan stems from its presence across textile value chain along with strong diversified investment portfolio.
Analysts expect core earnings to continue the current trajectory of growth along with portfolio businesses to keep NML in the limelight, going forward.
The Nishat Mills impressive other income stream comes from investments in bank, cement, textile, power, insurance, dairy and auto sectors.
A major chunk of this income comes from the MCB (contribution of 54/38 per cent in dividend income/other income in the last five-year and it is expected to contribute 55/43 per cent in the same in FY21/24) with other notable contribution coming from the Nishat Power Limited (NPL), Nishat Chunian Limited (NCL) and D G Khan Cement.
Besides, investments in terry business has started to reap benefits, whereas initial investment of Rs524 million in Nishat Sutas has been backed by further investment outlay of Rs426 million, expected to be released by the second half of CY22.
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