Should You Exit From This Small-Cap Insurance Provider – IGIC

Mar 31, 2022 12:00 AM PDT | Team Kalkine
Should You Exit From This Small-Cap Insurance Provider – IGIC

International General Insurance Holdings Ltd.

International General Insurance Holdings Ltd. (NASDAQ: IGIC) is primarily involved in the insurance and reinsurance industries. In more than 200 countries and territories, it underwrites a portfolio of specialized risks such as energy, property, construction and engineering, ports and terminals, general aviation, political violence, casualty, financial institutions, marine liability, and treaty reinsurance.

Why Should Investors Makes an Exit?

  • Decline in Investment Income: In the fourth quarter of 2021, total investment income was a loss of USD 4.0 million, compared to a gain of USD 4.5 million in the fourth quarter of 2020. The Q4FY21 includes a USD 7.0 million share of loss from associates related to the company's share of Lebanon-based real estate, which has been impacted by a significant decline in the fair value of commercial properties due to ongoing local geopolitical issues combined with Lebanon's prevailing hyperinflationary environment.
  • Reliance on Brokers: IGIC sells insurance and reinsurance through insurance and reinsurance brokers worldwide. Brokers are independent of the insurers with whom they work. Its top five overseas brokers generated 64.7% of its gross written premiums for the fiscal year ended December 31, 2019, and 67.4% for the fiscal year ended December 31, 2020. The loss of all or a significant portion of the business provided by one or more of these brokers could adversely affect the company's operations.
  • Technical Bearishness: On the daily chart, IGIC prices are sustaining below the horizontal trend line and facing resistance of the same. Moreover, the momentum oscillator RSI (14-period) is trading at ~59.10 level, reversing from the higher levels. On the weekly charts the prices are trading below the trend-following indicators 21-period and 50-period SMA, which may act as a resistance level for the stock. An important support level for the stock, is placed at USD 7.00 while the key resistance level is placed at USD 8.40.

Valuation Methodology: Price/Book Value Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's FY1 trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation:

IGIC's stock price has been relatively stable throughout the year, fallen 15.91% in the past nine months and is currently leaning towards the lower-band of the 52-week range of USD 6.75 to USD 11.05. The stock is currently trading between its 50 and 200 DMA levels, and its RSI Index is 59.10, approaching the overbought zone. We have valued the stock using the Price/Book Value-based relative valuation methodology and arrived at a target price of USD 7.00.

Considering the current trading levels, reliance on brokers, technical bearishness, decline in fundamentals, and current valuation, we recommend a "Sell" rating on the stock at the closing price of USD 7.82, down 1.64% as of March 30, 2022.