Ibrahim Bello, Lagos, October 22, 2010

 

For investors in Investment and Allied Assurance Plc (IAINSURE – N0.50k – on Suspension), the last two years has been a torrid experience better forgotten. From a successful private placement, listing on the bourse and periodic bouts of gains; the stock has come to a situation where its going concern has become an issue for the regulators – The Securities & Exchange Commission (SEC) and the National Insurance Commission (NAICOM).

 

 

Currently, and due to a myriad of complaints ranging from non-refund of sums due to investors, non-insurance related transactions and disputes which involve the EFCC; a number of changes have occurred which continue to agitate the minds of investors.

 

These concerns have led to the company taking a number of decisions that is hoped would ultimately protect the going concern status of the company and protect shareholders investments in the company.

 

The SEC and NAICOM jointly and severally has indicted members of the board for not instituting the right safeguards to ensure a regime of corporate governance as evidenced from the investigations and fact-finding missions conducted.

 

NAICOM in particular, is currently working with the firm and reviewing plans for the following:

1. Holding of an AGM to consider the financials of the company and plans for restructuring the board and indeed the company;

2. A planned recapitalisation exercise under consideration;

3. Opening of the locked offices of the IAA Plc since two months back based on a court order obtained by Access Bank Plc over transactions involving Home Trust Savings and Loans Limited but backed by guarantees from IAA Limited (before going public). There exists both legal and transaction disputes over this matter for which the regulators are looking into.

 

A Future Foretold?

 

Recall that in 2009 we wrote that :“On May 9, 2009, after the listing of IAA on the NSE, the stock price gained N.098k or 72.1% to N2.34k during the next 15 trading days. However, on May 28, 2008, approximately 3 weeks after its listing, the stock began a gradual decline breaking through all its major Fibonacci targets. The stock declined by N1.62k or 69.2% to N0.72K on July 23, 2008, and subsequently tried to recover from the down trend by gaining N0.09k, or 12.5% to N.081k through August 24, 2008, before succumbing to more selling pressure that dropped the price of the stock back down to 0.74K. At the current price, the stock is down 55.2% from its listing price. 

 

However, at the current price of 0.74k, the stock is trading at its 10day and 20day cumulative simple moving averages (CSMA), but below its 50day CMA of N0.75K as shown in the graph.It is easy, unscientifically, to ascribe the reason for the decline in the stock price to the downturn in the NSE. However, it is evident that at the peak price of N2.34k, the stock price was N1.40, or 149% above our calculated fair value of N0.94k. That is a lofty price for a stock in the current market condition. Therefore, since the stock was trading above its fair value and paying very minimal dividends, astute investors must have sold into the uptrend to protect their profits.”

 

Other Developments

 

1. Compliance Issues

 

The last set of accounts submitted relate to September 30, 2008 where it declared a profit of N496.65mn. The non-compliance with the listing requirements of the stock exchange lead to the October 5, 2010 suspension of the company – along with eleven (11) others; further compounding its woes

 

2. Management & Board Changes

The company, governed by a 10-member board has had a change at its very top necessitated by the ongoing developments in the company and the need to restructure and reposition the business. Mr. Abayomi Disu, former chairman of the board has resigned and since been replaced by Aminu Baba Nabegu. Mr. Olusegun Akinyemi, the Managing Director/CEO of the company resigned in August 2010 and a replacement for him is yet to be announced. Mr. Funmi Adenmosun, Vice Chairman continues to serve on the board.

 

3. Unpaid Claims and Staff Salaries

 

Due to the shut offices and countless dislocations caused by visits from numerous agencies in the last few months, the firm who has a good history of claims may have been set back now by the inability to meet its obligations to staff and about N40m worth of claims. The members of staff represent that this should be addressed in November 2010 when the court case comes up and the company should have its doors open again.

Closing Comments

 

For those long suffering investors of the company who continue to make representations to the Share Support Service, their wish is NAICOM and SEC to be proactive on these matters and stop foot dragging around the civil service bureaucracy it finds so convenient when the multiplier effect of an action on one means for others. For if the truth must be told, what is happening at IAA Plc is equally present in a few other insurance companies that emerged during the boom era.

What happened to the sums raised? This remains the question no one has been able to answer?

The culpability of these regulatory institutions is well established and the damage to investor psyche in not acting to protect investments in these companies must be one they should accept responsibility for.

For over three years now, the company has been embroiled in one crisis after the other – No accounts submitted no dividend payments, no bonuses, no communication, unending notices of reconstruction, no new information etc.

This is a business that was touted and positioned to be the difference. What went wrong?

 

 

 

Source: Proshare