Britam share slump costs PE firm AfricInvest Sh2.6bn

What you need to know:

Britam’s share price declined to the lowest level in 12 months this week
The insurers board of directors have not proposed a dividend pay for this year — the first time in more than five years.
The loss in Britam mirrored the declining fortunes of the insurance industry

Private equity firm AfricInvest has lost more than Sh2.6 billion in paper wealth due to a fall in the share price of Nairobi Securities Exchange #ticker:NSE (NSE)-listed insurer Britam.

This comes just less than a year after the equity firm bought into the insurer for Sh5.7 billion -- amounting to a 14.3 percent stake on May 18, 2018. The market value of the equity holding has since shrunk to Sh3.07 billion, a decline of Sh2.64 billion in about 11 months.

As of Monday this week, Britam’s share price declined to the lowest level in 12 months to stand at Sh8.48 as investors digested the Sh2.2 billion loss the company suffered in the year ended December 2018.

No dividend

And in what may be even more dire for investors in Britam, the insurers board of directors have not proposed a dividend pay for this year — the first time in more than five years.

Analysts at Nairobi-based Dyer and Blair Investment Bank recommended that the company should freeze dividend pay for the next three years to allow it recover from the 2018 financial loss.

“Assuming that Britam performs at the financial year 2017 level moving forward, we think that the group will need about three years without a dividend payout to recover,” said Dyer & Blair analysts.

“We think that divestments from struggling entities like HF could cut that timeline (to fewer than three years),” they further said.

Huge slump

In 2018, Britam suffered from a huge slump in the equities market with unrealised loss standing at Sh3.2 billion.

“The recovery of listed equities at the bourse in quarter one of 2019 translates to a reversal of the loss, pointing to improved earnings if the equities market sustains the performance,” said ApexAfrica Capital, another brokerage house in Nairobi.

ApexAfrica further noted that Britam’s attempt to diversify into real estate from equities and fixed-income assets had not been successful.

“The group has tried to diversify from equities and fixed income into real estate. This has however proven counter-productive with the lower investment income,” said ApexAfrica.

Britam shareholders approved the acquisition of the stake by AfricInvest in November 2017 and the PE fund completed the transaction last May.

The company subsequently took a board seat with AfricInvest East Africa managing director George Odo getting appointed director of Britam Holdings Plc.

Govt securities

The new funds Britam received were directed to accumulating government securities ahead of being invested in other areas.

One of those areas into which the insurer is seeking to invest currently is in acquisition of some undisclosed stake in a PE fund, Tiserin Capital.

The board has approved the investment in the PE and the insurer will become the anchor shareholder.

Leonard Lekishom, a research analyst with Sterling Capital, said Britam remain solid but the company has been let down by investments in subsidiaries.

“The way out for the firm is to diversify further,” he said.

The loss in Britam mirrored the declining fortunes of the insurance industry, which underwent an underwriting loss of Sh1.65 billion last year, the largest in 11 years.