1 August 2022

EGL 1H2022 Results: Profit growth slows on rising costs and falling investment yield

In brief

EGL published its unaudited 1H2022 financial results on Wednesday last week, posting 9.3% y/y growth in profit after tax. Net income increased by 22.6% y/y mainly on the back of strong growth in premiums. Contrary to our expectation, annual growth in net investment income slowed down despite the significant increase in the stock of investment securities. Sharp increases in insurance benefits and claims and other operating costs continued to bite hard at EGL’s fortunes, resulting in the single-digit growth in earnings.

Performance: Rising expenses and muted investment income growth slow earnings momentum

  • Profit after tax increased by 9.3% y/y to GHS 87.4m buoyed by robust growth in net income
  • Net income increased by 22.6% y/y to GHS 651.0m driven by growth in net insurance premium
  • Net investment income rose by 1.3% y/y despite the 29.1% y/y jump in investment securities. Yield on investment securities fell by 6.2pp y/y to 8.7%
  • Net insurance premium increased by 28.8% to GHS 484.6m
  • EGL’s net expenses increased by 24.7% y/y to GHS 563.8m driven by 45.0% y/y increase in insurance benefits and claims

Outlook: Cost pressures to persist

  • In a surprising turn of events, growth in investment income slowed down considerably despite the rising rates on government securities. We expect to see more robust growth in investment income in the subsequent quarters as the portfolio of securities is re-balanced to take advantage of rising rates
  • Although economic activity is projected to moderate further on account of rising inflation, we expect premium growth to remain strong as EGL maintains its market leadership across its businesses
  • Rise in net benefit and claims and operating expenses persisted in 2Q2022 as anticipated. We expect this trend to persist given the rising inflation and slowing economic activity. More importantly, high policyholder surrenders and partial encashment from the life business may continue to play out as it did in 2021 given the tough economic terrain
  • Nevertheless, we expect EGL to witness a soft-landing at the end of the year as revenue growth remains strong to offset rising expenses

Valuation: Under Review 

  • EGL is trading at a P/B value of 0.6x and we intend to re-initiate coverage in 2H2022