Lion Insurance SC has seen a highest per share bid of 50.5 Br per share, 202pc of its par value of 25 Br, during the first round of its share sales. However, there was no bid less than 400 shares. The auction was not divided into lots as previous shares have been. Instead, bidders were allowed to bid for as many shares as they wanted.
The Firm had 70,225 shares available for public subscription, worth a total of around 1.7 million Br. The first round saw 5,400 of those shares auctioned off.
“The Company’s strong performance in terms of dividends per share was one of the attractions. It was one of the highest in the industry,” said Amare G.Michael, one of the bidders. “That makes it an attractive investment.”
Lion’s dividend per share (DPS) for the latest fiscal year was around 20pc, in the midst of a year where it reported a 13pc profit decrease, with 15 million Br. The Firm’s earning per 1,000 Br share (EPS) was 237 Br, down from 280 Br the previous year.
Lion’s shareholders’ returns have been declining over the past three years, due to the increase in paid up capital. Lion’s current EPS is less than half of what it was in 2013.
The 220pc increase on the Firm’s par value was one of the larger bids seen so far.
“The Company has been showing a strong performance,” said Negassi Yoseph (PhD), CEO of Lion. “We have been steadily growing in terms of assets and market share, as well as outlet number, and technological advancement.”
The market share of Lion has reached 4.6pc last year from being one percent eight years ago during its first year of operation.
In spite of this, the Company’s first auction did not attract many bids; there were a total of nine.
“It could possibly have been because bidders during other auctions in the financial industry offered inflated prices,” explained Negassi. “Some bidders may have felt intimidated by the offers and felt reluctant.”
However, financial experts are not feeling nearly as confident about the bids that the Company received.
“The bids are still very inflated,” says an expert with over two decades of experience in the industry. “The dividends in the financial industry do not justify a 200pc increase on the par value.”
The whole national insurance industry had an insignificant contribution to the GDP, below one percent, and the per capita premium is close to three dollars. Despite the advancement of the insurance industry, insurers’ efforts to bring around new products and ideas have been slow. Instead, companies compete by undercutting each other’s prices.
However, the potential shareholders do not seem worried.
“The insurance business has many expenses,” Amare explained. “It’s a business based on paying out money for claims. Despite this, it still made a respectable profit, and has strong earnings.”
Last year, the insurance industry generated one billion Birr of net profit, which is eight times lower compared with neighbouring Kenya.
According to the banking business proclamation of 2009, foreign nationals or organisations fully or partially owned by foreign nationals are not allowed to own shares in Ethiopian banks. The directive was issued in time for the presentation of annual reports to shareholders by financial institutions. The restriction applies to all sections of the financial industry, including insurance companies.
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