By Niyi Jacobs
In a market often dominated by banking and industrial stocks, the Nigerian insurance sector has struggled to capture significant investor attention. Yet, Sunu Assurances Plc has managed to break through, becoming one of the standout performers of 2024. As of December 20, the company has posted a remarkable 581% year-to-date (YtD) gain, making it not only the top performer in the insurance sector but also the second-best performer across the entire Nigerian Exchange (NGX).
This extraordinary performance follows a 279% YtD gain in 2023, prompting analysts and investors to ask: What is driving Sunu’s impressive rise, and can it sustain this momentum into 2025?
Sunu’s exceptional performance is part of a larger revival in Nigeria’s insurance sector. Across the 22 listed insurance companies on the NGX, the average YtD gain in 2024 stands at 89%, far surpassing many other sectors on the exchange. This marks a significant turnaround compared to the 76.18% average growth seen in 2023. For context, the NGX Insurance Index has yielded a 92.49% YtD return, while the broader NGX All Share Index saw a much more modest gain of 35.25%.
Meanwhile, the banking sector has experienced a sharp decline, with an average YtD return of just 23.30% in 2024, down from an impressive 128% in 2023. In this environment, Sunu Assurances has emerged as one of the most resilient and high-performing stocks in the market, providing inflation-beating returns to its investors.
Founded in 1984 as Equity Assurance, Sunu Assurances underwent a transformation after being acquired by the pan-African SUNU Group, which operates across 17 African countries. This shift has led to a dramatic improvement in the company’s financial health. Since reporting a pre-tax loss of N266 million in 2019, Sunu has posted steady profits.
In 2023, the company saw its profit before tax (PBT) surge by 290%, reaching N2.817 billion. By the end of the first nine months of 2024, Sunu had already exceeded that total, with a PBT of N5.216 billion—85% higher than its full-year 2023 performance. The company’s insurance revenue has also experienced impressive growth, with a compound annual growth rate (CAGR) of 44% over the past five years. In the first three quarters of 2024, revenue rose by 69%, surpassing 2023’s full-year revenue by 15%.
Efficiency Improvements Driving Success
One of the key drivers of Sunu’s growth has been its focus on operational efficiency. A critical metric here is the claims payout ratio, which measures how much the company is paying out in claims relative to the premiums it collects. Sunu has significantly improved this figure, reducing its claims payout ratio from 36.69% in the first nine months of 2023 to just 21.49% in the same period of 2024. This improvement suggests the company is effectively managing risk and retaining more of its earnings.
Furthermore, Sunu has improved its unearned premium-to-gross premium written ratio from 16.10% to 13.31% over the same period, indicating better revenue recognition and a decrease in liabilities.
Dependence on Foreign Exchange Gains
Despite its impressive operational performance, there are underlying risks that investors should consider. A significant portion of Sunu’s PBT—approximately 62%—in the first nine months of 2024 came from foreign exchange gains. These gains, while providing a short-term boost to profits, are non-operating and not sustainable over the long term. This reliance on one-off gains is a concern, as it could potentially create volatility in the company’s earnings going forward.
Additionally, investment income—at just N976 million—remains a small contributor to the company’s overall earnings. This suggests that Sunu’s revenue base is highly concentrated in its core insurance operations, leaving the company exposed to potential shocks in the insurance sector.
Stock Performance and Valuation
Sunu’s stock price has been nothing short of remarkable, closing at N7.49 on December 20, 2024. This marks new highs for both the past five years and the past 52 weeks, with the company’s market capitalization now standing at N43.5 billion. The stock has also seen significant trading activity, with 125 million shares exchanged over the past three months, making it the 46th most traded stock on the NGX.
Despite its strong performance, Sunu’s stock is currently trading at a price-to-earnings (P/E) multiple of 7.98x, which is significantly higher than the insurance sector’s average of 2.72x. While the company’s return on equity (ROE) of 32% comfortably exceeds its cost of equity (17%), this premium valuation reflects heightened expectations from investors.
For those considering buying or holding the stock, the question remains whether the company’s strong growth trajectory justifies paying a higher price for its shares, especially given the risks related to its reliance on foreign exchange gains and the concentrated nature of its revenue streams.
Looking ahead, BusinessNG Analysts is forecasting a PBT of N4.43 billion for Q4 2024, and given its strong track record, it is likely to exceed this estimate. The company’s price-to-earnings growth (PEG) ratio of 0.04 suggests it is more expensive relative to its growth potential compared to industry peers, whose average PEG ratio stands at 0.01.
However, Sunu’s rapid profit and revenue growth could justify this premium, especially for investors who believe in the company’s ability to continue expanding.
Technical analysis also supports a strong buy recommendation for the stock, but this is tempered by the company’s dependence on non-operating gains and limited diversification in its income streams.
Sunu Assurances has provided exceptional returns for investors in 2024, with a theoretical capital gain of 581%. This performance outshines many of its peers and has offered inflation-beating returns. However, the stock’s reliance on foreign exchange gains and its concentrated revenue base mean that caution is necessary for anyone looking to hold on to these gains.
In conclusion, while Sunu’s fundamentals indicate strong growth potential, investors must remain vigilant, monitoring the company’s ability to sustain its growth and diversify its revenue streams. If Sunu can address these risks, its extraordinary rally may well continue into 2025 and beyond
