CIC Insurance, which plans to list at the Nairobi Stock Exchange by the first quarter of next year, has seen the value of its shares nearly triple over a five-month period, as investors position themselves for the firm’s upcoming initial public offering.
The insurer’s shares are currently trading at Sh90 each, a 333 per cent increase from the discounted December rights issue price of Sh27.
As a public, non-listed company, trading of CIC’s shares is restricted to the over the counter (OTC) market, which was trading at Sh35 in December.
Analysts said the doubling of the insurer’s profits for 2010 and a proposed share split during Saturday’s annual general meeting is driving demand for the stock as investors eye capital gains expected from the planned public sale of the company.
“Earnings of the company have gone up and the AGM where shareholders will resolve the share split are driving demand,” said Suntra Investment Bank research analyst Johnson Nderi.
Rise in profits
The company’s net profit increased by 106 per cent to Sh512 million last year from Sh246 million in 2009.
CIC raised Sh730 million through a private share sale and a rights issue between November and December 2010.
Its shares are held by 1,350 co-operative societies and individuals. Co-operative Bank owns 21.88 per cent of CIC Insurance.
One of the proposals at the company’s upcoming AGM is to split the firm’s shares 20 times.
The insurer is set to raise Sh1.7 billion by listing at the Nairobi Stock Exchange in first quarter of next year in a process that promises to turn most of its shareholders into instant millionaires.
The CIC Insurance shareholders are classified into two with class A shareholders being co-operative societies who are only allowed to trade among themselves and class B who are mainly individuals and they are allowed to sell their shares privately and freely, but don’t enjoy voting rights.
The firm increased its share capital to Sh1.2 billion from Sh611 million, setting the stage for Saturday’s proposed split of the bank’s shares.
The capital restructuring will also include the part conversion of Sh932 million, the excess subscription amount after December’s offer, into ordinary shares which will increase the capital to Sh1.2 billion made of 60 million shares of Sh20 par value.
After this, 90 million more shares of Sh20 which will give the firm an authorised capital of Sh3 billion.
The insurer wants to get extra cash to finance its expansion, both locally and regionally with Malawi, Rwanda, Tanzania and Southern Sudan being the targeted investment destinations- a move that analysts say offers the firm great potential for future earnings.
Eric Musau, a research analyst at African Alliance Investment Bank, said the firm also has room for local growth since Kenya’s industry has a big gap to be filled relative to its more mature peers such as South Africa.
Insurance penetration in the long-term business is 0.9 per cent while in the general business it stands at 1.9 per cent of GDP which is far from the 10 per cent average for economies such as South Africa.