Mansard’s 704% profit surge masks core operational concerns
Mansard’s recent Q1 2024 earnings report has captivated attention and applause.
With an astounding 704% surge in pre-tax profits, the company seems poised for outstanding performance in 2024.
However, beneath the surface of these noteworthy numbers lies a pressing need for Mansard to enhance its core operations; a necessity highlighted by the factors behind the seeming superlative financial performance.
The cornerstone of Mansard’s imperative to enhance its core operations lies in the composition of its gross written premium.
With the gross premium written skewed towards non-life insurance, the company is likely to face heightened risk volatility and an increased frequency of high claims, due to the nature of non-life insurance, which covers events such as natural disasters, accidents, and other large-scale incidents that can increase claims.
A cursory review of the company’s Q1 2024 results suggests that too.
The company recorded a 23% YoY growth in claims, which appears to be influenced by the 137% growth in non-life premium written, reaching N35.199 billion, which is 54.5% of the N64.640 billion of the gross premiums written.
This likely contributed to the moderation in the insurance service results to N4.703 billion in Q1 2024. However, the company recorded impressive bottom-line performance
The linchpin of the impressive bottom-line performance in Q1 2024 and the preceding year is foreign exchange gains.
In Q1 2024 alone, an impressive FX gain of N12.805 billion buoyed the reported pre-tax profit to N15.320 billion. Without this windfall, the pre-tax profit would have amounted to a mere N2.515 billion.
Similarly, in the 2023 fiscal year, Mansard’s bottom line was primarily salvaged by a substantial FX gain, averting a potential pre-tax loss of N207 million.
While Mansard’s impressive pre-tax profit surge is notable, the underlying volatility in non-life insurance claims highlights the need for strategic enhancements and/or diversification.
By diversifying its insurance portfolio, and implementing robust risk management practices, Mansard can achieve more stable and sustainable growth, ensuring long-term financial health and resilience.
This approach will enable the company to derive greater stability and resilience from its core operations, ensuring long-term financial health and fortitude, and ultimately delivering a favorable return to shareholders.
Such positive outcomes will undoubtedly influence investor sentiment, bolstering confidence in Mansard’s prospects and fostering continued support from the investment community.
Mansard has experienced a 6.6% decline in its share price year-to-date, in contrast to a Q1 2024 gain of 3.64% and a remarkable 175% year-to-date gain in 2023.
This suggests a potential shift in investor sentiment, possibly due to underlying concerns about the company’s operational vulnerabilities and/or an overall market shift influenced by the dynamics of interest rates interplay
Despite the strong financial performance in Q1 2024, the decline in share price suggests that investors may be cautious about the company’s long-term stability and growth prospects
However, looking at the company’s trailing twelve-month earnings per share, it is trading at a price-to-earnings ratio of 1.9x and lower than its peers; Consolidated Hallmark at 7.62x, AIICO at 4.25x, Africa Prudential at 14.18x, and Guinea Insurance at 10.67x.
The low P/E ratio relative to its peers indicates the potential undervaluation of its earnings. This could represent an attractive buying opportunity, especially if the company continues to report strong earnings growth
Also, the trailing twelve-month price to sales ratio of 1.21 suggests that the company is not highly valued in terms of its sales. This can indicate that the stock is potentially undervalued, making it an attractive buying opportunity if the company’s revenue is expected to grow.
That said, it is important to note that the declining share price of Mansard, also, could have contributed to its lower P/E and P/S ratios.
Investors should, therefore, remain vigilant regarding the risks and challenges influencing market perceptions. It is crucial to closely monitor the company’s strategic initiatives aimed at addressing any underlying issues and ensuring sustained earnings growth.
