THE first initial public offer (IPO) of the year, regarded by many investors as the cheapest entry into the stock market, coming from another of the ZHL Holdings stable, Fide
lity Life Assurance Ltd, has been set on the roll.
The IPO is being underwritten by CBZ (The Jewel Bank) and Syfrets Corporate and Merchant Bank.
Analysts have said the offer was likely to pit the market’s natural affection towards IPOs on the one hand and the perceived general scepticism towards insurance stocks on the other.
The “lack of convincing basis for the offer” as some analysts postulate, would weaken the effort to garner market support the company has tried to bankroll.
An investment analyst said: “The insurance sector is not an exactly wanted counter considering the skyrocketing inflation which pushes claims congruently. The offer comes at a time when there is a general negative perception of insurance counters. This might affect the price in future. Unfortunately at $2,90 they have priced themselves a little on the high side which would be difficult to sustain and I think the share price would gradually retreat after the listing even if some brokers elect to support the counter on listing.”
But Fidelity managing director Simon Chapereka says the only assurance company to list on the local bourse’s share price would “phenomenally” gain from the offer price to between $10 and $13 in the next six months.
The share price, according to Chapereka, would firm up on the basis of the “phenomenal” income growth and a steady income growth the company has experienced in the past five years.
Gross premium income grew to $3,9 billion this year from only $369 million in 2000 while investment income rose 824% to $4,4 billion in 2003 from $476 million in 2000.
In the three months to March 31, gross premium income rose 208% to $803 million from $260 million during the same period last year.
Shareholders after tax profit followed the same upward trend recording a 4 141% increase to $1,3 billion from just $30 million in 2000 with the first three months of this financial year recording a 209% increase to $514 million from $166 million last year, Chapereka said.
“Performance level is sustainable coming from core business and is comparable with other financial counters on the Zimbabwe Stock Exchange (ZSE). Total market capacity is around six million people but only two million people have been covered so far leaving a potential capacity of four million people for our services,” he said.
According to Chapereka, 85% of individual life business from investment-linked products would sustain the business in the long-run.
Zimbabwe lags behind in terms of the products that are offered by insurance businesses around the world, he said.
The demerger and subsequent listing of Fidelity from the ZHL Holdings group comes hard on the heels of the NicozDiamond merger and listing and was in pursuit of the re-organisation of company activities to form sub-sector focused operations.
“The strategy is to enhance future shareholders’ value by creating bigger and better balance sheets that can withstand the now perennial challenges found in the units’ respective sub-sectors,” the group said.
The managing director said there was encouraging appetite for the stock from institutional investors and the company hopes to maintain the momentum.
He said: “Level of risk exposure associated with life assurance business is lower compared with short term insurance and that if the NicozDiamond results, which beat IPO forecasts, are anything to go by then Fidelity is a good counter paying value for money. Total claims have been subdued-the growth of business has not undermined the quality of businesses which we are underwriting.”
In the year to December 31 2002 results, Fidelity Life contributed 3% ($198 million) to the group’s gross premiums which ZHL chief operating officer, Solomon Tembo said was 3% of a big number, to help ZHL post a credible 355% increase in gross premiums to $24,8 billion from $5,4 billion the previous year.
Some analysts have said the listing may generate interest mainly from long-term investors in the market who are willing to buy and hold.
The NicozDiamond IPO created much hype but the share price prevailing has left short-term profit takers thinking twice about investing in insurance stocks.
“Although the environment does not seem favourable for insurance companies, there is steady business for life assurance providers,” said an investment analyst.
Fidelity comes to offer 698 643 969 shares at an offer price of $2,90 per share to raise $2 billion in addition to the $500 million raised through the ZHL Holdings rights issue held late last year to bring the total to $2,5 billion.
Half of the proceeds would be towards the computerisation project to experience the technological innovation with the use of faster, more efficient insurance software that process products rapidly.
The software project is estimated to cost US$650 000.
“The present system is semi-computerised and can only handle information relating to individual life products and the company has been losing business because the present system has limited capacity to handle large volumes of business,” the company sought to justify the one billion set for the computerization project.
Branch network expansion and product development would each gobble $500 million of the proceeds while $318 million and $208 million would be for underwriting capacity and IPO issue costs respectively.
ZHL has engaged the unbundling exercise taking a cue from THZ and the Astra group, which have been heralded as the successful symbols of unbundling.
“The group has felt that the market has not seen the advantages of taping into a diversified group and has decided to unbundling the units in order to make them concentrate on specific sectors thereby increasing sizes of balance sheets,” said an investment analyst.