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More Foreign Investors Eye Acquisitions in Nigeria’s Insurance Sector

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  • More Foreign Investors Eye Acquisitions in Nigeria’s Insurance Sector

Strong indications have emerged that more foreign investors are eying acquisitions in insurance sector by investing in companies they perceive can fetch significant returns.

Some market operators, who have links to insurance sector, said that following the low prices of some insurance stocks and the recent acquisition of 29.9 per cent stake in NEM Insurance by Advanced Finance and Investment Group, more foreign investors are making enquiries about the fundamentals of firms in the sector.

According to a stockbroker, who said his company is currently facilitating investment talks between foreign investors and a Nigerian insurance firm, the outlook for the sector is positive.

“As you are aware, insurance stocks are very affordable now since the Nigerian Stock Exchange (NSE) introduced a new pricing methodology and par value rule January last year.

“Some foreign investors had targeted some insurance firms to acquire before the new recapitalisation policy of the National Insurance Commission (NAICOM) stopped them. However, after the recapitalisation was cancelled, the investors are making their way back to the negotiation table,” the operator said.

He explained that some of the investors were prior to the botched recapitalisation exercise, actually waiting to see firms that would meet the recapitalisation policy before it was cancelled by the industry regulator.

“Now they are preparing to return because the recapitalisation burden has been removed and their value on the stock market look very attractive. That is why investors are now looking at some of the companies for possible acquisition,” he said.

However, checks showed that such discussions are ongoing, acquisitions may not crystalise until the second half of the year.

Over 14 stocks out of the 26 insurance on the NSE currently are trading below 50 kobo par value. Market analysts said although the lower prices offer new entry opportunities in some of stocks, investor apathy for insurance stocks are basically caused by two major factors.

“Investors’ low demand for insurance stocks stemmed mostly from their poor corporate performance, which often makes them to pay low dividends. Besides, low awareness about their operations equally discourages investors from the sector,” a stockbroker, Mr. Ayo Oguntayo, had said.

According to him, while some insurance companies have strong fundamentals and have put in place strategies to deliver improved returns to shareholders, most potential investors are not aware of such prospects.

While some of the companies were afraid of hostile take-over by corporate raiders, it was gathered that their attitude is beginning to change given the fact the competition in the industry is getting tougher.

“To succeed, you need technical and financial support, which can best be provided by foreign firms that have the experience and financial firepower. That is why the local operators are now welcoming acquisition talks,” another operator said.

Some insurance operators recently decried last year’s cancellation of the recapitalisation exercise for the industry. According to the operators, the development may lead to the channelling of big-ticket businesses to foreign insurers. They said the policy, which had increased operating capital of the industry by 300 per cent, if implemented would have strengthened indigenous insurers to retain huge insurance businesses often flown abroad and would have also increased the contribution of the sector to the nation’s Gross Domestic Product (GDP).

The insurers said in the light of the cancellation, most insurance companies would still lose businesses they used to underwrite as policyholders seemed poised to transfer their risks to underwriting firms with strong capital base.

Commenting on the cancellation, the President, Chartered Insurance Institute of Nigeria(CIIN) and Managing Director Consolidated Hallmark Insurance Plc, Eddie Efekoha stated: “Currently, insurance buyers especially big corporate buyers determine companies that will underwrite their business using capital as parameter of measurement of fitness of firms that will handle their business.

“Recently, a broker said his client had informed him not to place risks with any underwriting firm with less than N9 billion capital as proposed in the cancelled policy.

“With such developments, it is now immaterial whether the industry regulator withdraws the policy because it has opened the eyes of insurance consumers.”

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

Crude Oil

Brent Crude Oil Approaches $70 Per Barrel on Friday

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Nigerian Oil Approaches $70 Per Barrel Following OPEC+ Production Cuts Extension

Brent crude oil, against which Nigerian oil is priced, rose to $69 on Friday at 3:55 pm Nigerian time.

Oil price jumped after OPEC and allies, known as OPEC plus, agreed to role-over crude oil production cuts to further reduce global oil supplies and artificially sustain oil price in a move experts said could stoke inflationary pressure.

Brent crude oil rose from $63.86 per barrel on Wednesday to $69 per barrel on Friday as energy investors became more optimistic about the oil outlook.

While certain experts are worried that U.S crude oil production will eventually hurt OPEC strategy once the economy fully opens, few experts are saying production in the world’s largest economy won’t hit pre-pandemic highs.

According to Vicki Hollub, the CEO of Occidental, U.S oil production may not return to pre-pandemic levels given a shift in corporates’ value.

“I do believe that most companies have committed to value growth, rather than production growth,” she said during a CNBC Evolve conversation with Brian Sullivan. “And so I do believe that that’s going to be part of the reason that oil production in the United States does not get back to 13 million barrels a day.”

Hollub believes corporate organisations will focus on optimizing present operations and facilities, rather than seeking growth at all costs. She, however, noted that oil prices rebounded faster than expected, largely due to China, India and United States’ growing consumption.

The recovery looks more V-shaped than we had originally thought it would be,” she said. Occidental previous projection had oil production recovering to pre-pandemic levels by the middle of 2022. The CEO Now believes demand will return by the end of this year or the first few months of 2022.

I do believe we’re headed for a much healthier supply and demand environment” she said.

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Crude Oil

Oil Jumps to $67.70 as OPEC+ Extends Production Cuts

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Oil Jumps to $67.70 as OPEC+ Extends Production Cuts

Brent crude oil, against which Nigerian oil is priced, rose to $67.70 per barrel on Thursday following the decision of OPEC and allies, known as OPEC+, to extend production cuts.

OPEC and allies are presently debating whether to restore as much as 1.5 million barrels per day of crude oil in April, according to people with the knowledge of the meeting.

Experts have said OPEC+ continuous production cuts could increase global inflationary pressure with the rising price of could oil. However, Saudi Energy Minister Prince Abdulaziz bin Salman said “I don’t think it will overheat.”

Last year “we suffered alone, we as OPEC+” and now “it’s about being vigilant and being careful,” he said.

Saudi minister added that the additional 1 million barrel-a-day voluntary production cut the kingdom introduced in February was now open-ended. Meaning, OPEC+ will be withholding 7 million barrels a day or 7 percent of global demand from the market– even as fuel consumption recovers in many nations.

Experts have started predicting $75 a barrel by April.

“We expect oil prices to rise toward $70 to $75 a barrel during April,” said Ann-Louise Hittle, vice president of macro oils at consultant Wood Mackenzie Ltd. “The risk is these higher prices will dampen the tentative global recovery. But the Saudi energy minister is adamant OPEC+ must watch for concrete signs of a demand rise before he moves on production.”

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Gold

Gold Hits Eight-Month Low as Global Optimism Grows Amid Rising Demand for Bitcoin

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Gold Struggles Ahead of Economic Recovery as Bitcoin, New Gold, Surges

Global haven asset, gold, declined to the lowest in more than eight months on Tuesday as signs of global economic recovery became glaring with rising bond yields.

The price of the precious metal declined to $1,718 per ounce during London trading on Thursday, down from $2,072 it traded in August as more investors continue to cut down on their holdings of the metal.

The previous metal usually performs poorly with rising yields on other assets like bonds, especially given the fact that gold does not provide streams of interest payments. Investors have been jumping on US bonds ahead of President Joe Biden’s $1.9 trillion coronavirus stimulus package, expected to stoke stronger US price growth.

We see the rising bond yields as a sign of economic optimism, which has also prompted gold investors to sell some of their positions,” said Carsten Menke of Julius Baer.

Another analyst from Commerzbank, Carsten Fritsch, said that “gold’s reputation appears to have been tarnished considerably by the heavy losses of recent weeks, as evidenced by the ongoing outflows from gold ETFs”.

Experts at Investors King believed the growing demand for Bitcoin, now called the new gold, and other cryptocurrencies in recent months by institutional investors is hurting gold attractiveness.

In a recent report, analysts at Citigroup have started projecting mainstream acceptance for the unregulated dominant cryptocurrency, Bitcoin.

The price of Bitcoin has rallied by 60 percent to $52,000 this year alone. While Ethereum has risen by over 660 percent in 2021.

 

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