Malath rights issue price ‘unjustified’ says Shuaa Cap

As Malath Cooperative Insurance Co.’s rights issue kicks off today, with rights set to start trading later in the day, Shuaa Capital said the stock’s recent price rally is unjustified.

The Dubai-based brokerage has recommended, “at a minimum, selling the rights.”

The shares, (which closed at SAR 16.02 on Sunday) are currently trading at more than 50 percent premium to theoretical ex-rights price of SAR 10.7 and implied rights value now stands at approximately SAR 6 versus theoretical value of SAR 0.7, Shuaa said in a note.

Malath is offering SAR 380 million in rights issue, raising the company’s capital by 316.7 percent to SAR 500 million from SAR 120 million. The trading period shall end next Monday while subscription will continue until Oct. 19.

Even though Malath saw major losses only in 2016, the insurer has been loss-making since 2013, which were some of the better years for the sector and peers, Shadi Salman, head of research, said in the note. 

A group policy with Abdul Lateef Jameel Finance (ALJF) was a major contributor to last year's losses, and the fact that past due premiums receivable grew significantly in 2016 “indicates other 'problem clients' and possible exposure to sectors experiencing delays in clearing payables.”

“We have seen no significant improvement in H1 2017 and Malath’s top five clients (now excluding ALJF) still account for over 50 percent of overall premiums receivables,” Salman said.

According to the brokerage, Malath's solvency margin was at least SAR 280 million in deficit at year-end 2016 which implied that much of the new capital increase will go to shoring up solvency and only approximately SAR 100 million will be available for 'new business', the note said. 

Also, Malath remains banned by SAMA from underwriting new motor insurance policies since August, and for the second time in less than a year, when it was last banned in November 2016 and for a period of approximately three months.

Write to Brinda Darasha at brinda.d@argaamplus.com