Analysis of Custodian Investment Plc’s 2020 Q3 results revealed that investment in stocks rescued the company from reporting a loss in 2020 Q3. The company would have made a loss if not for gains on quoted investment stocks.
The company had operated poorly in the period under consideration. Even though gross revenues had increased by 42% to N22.5 billion and other investment and operating income by 47% to N19.8 billion in the period under consideration; the 97% increase in operating expenses to N23.8 billion eroded the gains.
The pressure on its gross margins was due to higher payment of claims leading to an underwriting loss of N4 billion for the quarter. underwriting losses year to date is now N5.6 billion.
Summarily, it was the significant rise in the net fair value gains on quoted investments that delivered the company, so that it recorded increased pre-tax, post-tax profits, and Earnings Per Share in the period under consideration. The net fair value gains on quoted investments surged from N503.5 million loss in the same period last year to N4.75 billion in the period under consideration.
Insurance company business models are hinged on investing premiums in fixed income securities or equities. Custodian’s investment in equities over fixed income securities paid off leading to the gain of N4.7 billion in Q3 alone. Year to date, gains on investments is N10.1 billion already surpassing the N5.2 billion gain it earned in the whole of 2019.
This has helped boost bottom line as pre-tax profits increased by 2.8% to N1.73 billion and Earnings Per Share increased by 9.1% to 24 kobo in the period under consideration.
In line with Custodian Investment Plc’s strategy to diversify its financial service offerings, the company, on 30 September 2016, invested in the equity of Interstate Securities Limited, a stockbroking firm and a dealing member of the Nigerian Stock Exchange.
The investment is made up of 321,626,098 ordinary shares representing 46.9% of the company’s issued ordinary shares and 82,500,000 5% Convertible Preference shares.
It was recently reported that Custodian Investment Plc had agreed to buy a majority stake in UPDC. The report indicated that the company planned to acquire a 51% stake in UPDC, a real estate company.
The company noted that it believes the deal will provide Custodian with a platform to capture arising real estate opportunities. It also immediately provides recurring cash flow visibility and attractive yields as a result of its direct exposure to Nigeria’s leading real estate investment trust (“UPDC REIT”) — with a track record of profitability and annual dividend distribution, which offers a good compliment for our product portfolio.