Satyendra Pathak Doha
The joint announcement by Gulf International Services (GIS) and Doha Insurance Group (DIG) that they have entered into initial negotiations regarding a potential merger of Al Koot with Doha Insurance in an all-share swap deal could create a number one local insurance powerhouse in terms of gross written premium GWP worth QR1.45 billion as per the current valuations, QNB Financial Services (QNBFS) has said in a company report released on Sunday.According to the report, the combined company will have QR1.45 billion in GWP as of the first half of 2022 with 59 percent contribution from Doha Insurance worth QR859.4 million and 41 percent from Al Koot worth QR588.2 million.“This would make the new entity the number one insurance player in Qatar, easily exceeding Qatar Insurance Company which had roughly QR945 million in domestic GWP as of the first half of 2022. Qatar Insurance Company has a market cap of QR1.15 billion, while GIS has a market cap of QR3.86 billion,” the report said.Highlighting that Al Koot and Doha Insurance have limited business overlap, the report said, “While Al Koot is exclusively focused on the corporate segment through general insurance predominately oil and gas or energy and medical insurance, Doha Insurance has a presence in both corporate and retail through fire and general accident insurance (low overlap with Al Koot) and motor, marine and aviation insurance (no overlap in motor, where Doha Insurance has second largest market share after Qatar Insurance Company.”“Doha Insurance also has a Sharia-compliant Takaful licence in Qatar, providing motor, travel and medical insurance. Finally, Doha Insurance has a small international presence, providing reinsurance underwriting from Dubai and Beirut,” the report said.According to the joint press release released on Saturday, this possible merger could create one of the largest local insurance companies with increased competitive potential and financial strength, providing world-class insurance services in various segments in line with Qatar National Vision 2030.Thus, a successful deal could create the leading player in this segment – a local champion with economies of scale, enhanced growth prospects and potential for capturing commercial and operational synergies.“We note that the Qatar Central Bank has already provided an “in-principle no-objection” to both companies subject to compliance with all provisions of Articles 162 & 163 of Law No. 13 (2012) on the Issuance of the QCB Law and Regulation of Financial Institutions. The potential merger and its structure are subject to a detailed joint valuation exercise, shareholder/regulatory approvals, along with other customary closing requirements,” the report said.“We maintain our accumulate rating on GIS and will likely raise our target price from QR2.1 shortly. We continue to envision acceleration in momentum in the drilling segment in 2022 and onward. We expect earnings to continue to improve in 2022 with the drilling segment achieving profitability or near-profitability. Other segments should also contribute positively, while continued progress in cost reduction should help boost earnings,” the report said.In terms of catalysts, the report said, “Positive newsflow, performance on the drilling front and continued growth in the other segments should help. Further details on the merger of Al Koot with Doha Insurance and of Amwaj, the catering arm of GIS, with Shaqab should also help drive sentiment.“We stay longer-term positive on GIS and continue to expect improving financial performance to drive stock price performance over the next 12 months. Moreover, we believe the progress made in cost reduction thus far should dovetail with improving market fundamentals as we move forward. Favourable updates on debt restructuring, which was put on the back burner due to COVID-19, could also please equity investors.”
