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BizDay Zimbabwe

Afre posts flattering results


Harare, April 01, 2013 – Afre Corporation reported a set of robust financial results underpinned by a 10% growth in gross premium written to USD 88.6m in what analysts have described as “flattering” in an environment which is experiencing a credit crunch.

Africa First ReNaissance Corporation Limited changed to Afre Corporation after First Mutual Limited adopted the new name in March 2008.

First Mutual Life Assurance Company wrote premiums of USD 22.4m slightly lower than the prior year figure of USD 23.5m. Employee benefits premium was 9% to USD 12.6m due to challenges relating to low salaries in the market and the withdrawal of some schemes during the year.

Individual Life premium declined from USD 10.7m to USD 10.1m due to the termination of the Ecolife product.

The claims ratio for the division declined from 42% to 27% and the reinsurance ratio was maintained at 1%.

Compared to other insurance with collection rate of 60% FML Assurance has a very high collection rate of 89%, an increase of 3% on last year figures.

FMRE Life and Health increased gross premium written by 89% to USD 1.8m with Health business contributing 73%, life contributed 22% and individual life contributed 5% of the gross premium written.

On Health Insurance business FML Health Care company increased gross premium written by 16% to USD 36.3m mainly as result of a 20% increase in membership from 66,259 to 79,242. The claims ratio for this division declined from 74% to 68% and collection increased from 85% to 87%.

Tristar insurance increased gross premium written by 8% to USD 9m with motor insurance contributing 43% followed by fire at 20% and accident at 20%. Pearl Properties achieved a rental yield of 8.7%( 2011:9.8%) due to slower growth in rental relative to the appreciation in investment property values. The average rental per square metre achieved was USD 7.87(2011: USD 7.33). The vacancy rate was at 19.8% compared to 22.5% in 2011 as more space is getting occupied.

Operating cash flow declined slightly from USD 12.3m to USD 11.2m due to investment in working capital of USD 2.9m compared to a divesture of USD 3.6m last year same period.

Net cash utilised in investing activities declined from USD 5.0m to USD 2.3m. During the year Afre borrowed funds to the tune of USD 6.6m thus resulting in a net cash increase for the group of USD 15.0m compared to USD 7.0m last year. Overall the closing cash position for the group was USD 24.2m compared to USD 8.6m in the prior year.

The balance sheet strengthened by 16% due to increases in investment properties and increase in accounts receivables. The reclassification of retained profit for the noncontrolling stake in Pearl properties reduced the previous period retained income thus the NAV of the company resultantly was USD 2.3m for 2011.

Comparatively NAV grew from USD 2.3m to USD 16.2m due to an USD 8.0m injection from the rights issue and a USD 7.7m retained income for the current financial statement.

The separation of policy holders’ funds from shareholders’ funds is a distinction that Afre has with other local insures who continue to lamp the two even in the face of imminent changes on the matter from accounting standard setters.

The promise to increase disclosure by management at Afre is indicative of the quality of management onboard at the company and the reclassification of the previous results will improve the quality of information that analysts and the investment community will use to value the business.

Although the insurer lost the Ecolife business management indicated that they are working hard to reposition the company in this space. Management is targeting a gross premium written of USD 100m by end of financial year 2013 and from the king of growth that have been witnessed ever since the change guard these numbers are within reach and we believe Afre will get market share from small players but Old Mutual will remain the dominant player.

Analysts say although there is no expectation that the insurance sector will outperform in the current environment, Afre present a compelling investment case that is driven by astute management with a clear vision.

The group did not declare a dividend as they look to strengthen the balance to underwrite more risk and grow the regional operations. Management indicated that 30% of income by 2017 should be region related and staff cost are targeted at 15% of revenue by next financial year. Ratings are undemanding with PER 1.8x and a PBV OF 3.44x we therefore recommend investors to BUY at current levels.