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Why Custodian Plc may be the most undervalued stock on the NGX right now 

Why Custodian Plc may be the most undervalued stock on the NGX right now 

Why Custodian Investment Plc May Be the Most Undervalued Stock on the NGX in 2025

Introduction

Custodian Investment Plc, listed on the Nigerian Stock Exchange (NGX) under the ticker CUSTODIAN, has been highlighted as potentially the most undervalued stock on the NGX, as noted in a recent post by Nairametrics on May 17, 2025. This article explores the factors contributing to this assessment, focusing on the company’s financial performance, valuation metrics, and market position.

Company Overview

Custodian Investment Plc is a diversified financial services holding company with operations in life and non-life insurance, pension fund administration, trusteeship, and property development. Its subsidiaries, including Custodian and Allied Insurance, offer a range of products such as auto, home, accident, and specialized insurance for marine, aviation, and bank card protection. The company’s diversified portfolio and strong presence in Nigeria’s financial sector position it as a key player in the market.

Financial Performance

Custodian Investment Plc reported a remarkable profit before tax of N60.67 billion for the 2024 financial year, a 133% increase from N25.99 billion in 2023, as reported by MobilePunch on May 13, 2025. This significant growth reflects robust operational efficiency and strategic investments, particularly in high-yield market securities like treasury bills, which rose from N5.6 billion in 2016 to N9.7 billion in 2017. Historical data from 2017 shows revenue increasing from N38.5 billion to N43 billion, with profit after tax rising from N3.6 billion in 2013 to N7.3 billion in 2017, demonstrating consistent financial improvement.

The company’s first-quarter 2018 results further underscore its growth trajectory, with revenue jumping from N7.6 billion in 2017 to N11.4 billion and profit before tax increasing from N1.8 billion to N2.1 billion. These figures suggest a strong foundation for continued profitability, supported by diversified revenue streams and prudent financial management.

Valuation Metrics

Several key valuation metrics indicate that Custodian Investment Plc may be undervalued:

  • Price-to-Earnings (P/E) Ratio: While specific 2025 P/E ratios are not provided in recent data, Custodian’s historical performance suggests a low P/E ratio compared to industry peers, a common indicator of undervaluation. The company’s strong earnings growth, coupled with a share price of N9.00 as of April 19, 2024, suggests potential undervaluation if earnings continue to rise.
  • Price-to-Book (P/B) Ratio: A low P/B ratio is another sign of undervaluation. Custodian’s diversified operations and strong balance sheet, with a market capitalization of N52.9 billion (0.094% of the NGX equity market), suggest its market price may not fully reflect its intrinsic value.
  • Earnings Growth: The company’s consistent earnings growth, evidenced by a 133% profit increase in 2024, aligns with criteria for undervalued stocks, which typically exhibit strong fundamentals and growth potential not yet recognized by the market.

These metrics, when compared to industry averages, suggest that Custodian’s stock price may not fully reflect its financial health and growth prospects.

Market Position and Growth Prospects

Custodian Investment Plc is the highest-priced stock in Nigeria’s insurance sector, with a market capitalization that ranks it as the 44th most valuable stock on the NGX. Its diversified operations across insurance, pensions, and real estate provide resilience against sector-specific risks. The company’s strategic investments in treasury bills and its top ranking among listed insurance companies in 2017 for balance sheet strength, net assets, and gross premium income further enhance its attractiveness.

The insurance and financial services sectors in Nigeria are poised for growth due to increasing demand for insurance products and pension services amid economic recovery. Custodian’s ability to capitalize on these trends, combined with its strong historical performance, positions it for future growth, making it a compelling investment opportunity.

Risks and Considerations

While Custodian appears undervalued, investors should be cautious of potential risks:

  • Value Traps: Stocks may appear undervalued due to underlying issues such as poor management or declining growth prospects. However, Custodian’s consistent profitability and diversified operations mitigate this risk.
  • Market Volatility: Nigeria’s economic environment, including currency fluctuations and regulatory changes, could impact stock performance.
  • Market Recognition: There is no guarantee that the market will recognize Custodian’s intrinsic value in the near term, potentially delaying price appreciation.

Investors should conduct thorough due diligence, comparing Custodian’s valuation ratios to industry peers and assessing macroeconomic trends.

Custodian Investment Plc’s strong financial performance, diversified operations, and low valuation metrics make it a candidate for the most undervalued stock on the NGX in 2025. Its 133% profit growth in 2024, strategic investments, and leadership in the insurance sector highlight its potential for long-term value creation. However, investors should remain mindful of risks and monitor market conditions. For those seeking undervalued stocks with a margin of safety, Custodian presents a compelling opportunity, though professional financial advice is recommended before investing.

Sources: Nairametrics, MobilePunch, Bloomberg, Marketscreener, afx.kwayisi.org