THE Nigerian Stock Exchange, NSE, on 29th January , 2018 , commenced the implementation of the new pricing methodology of which the key point is that prices of equities can now fall from the per value price of 50 kobo to I kobo.
This reflects that listed equities prices could decline to I kobo, yet enriched with values that could be b transformed to gold by key investors.
With the commencement of the new pricing method, in the NSE many stocks have traded below 50 kobo, far below their book value, and neglected by many investors.
However, when the strong fundamentals start manifesting, investors were caught unawares, while many others are still smiling to their banks .
Mallam Mikhail of the Constance Shareholders Association of Nigeria, told our correspondent that companies with value attract positive sentiments, but not all retail investors follow developmental or growth indices in listed companies.
He said that based on uncertainties in the Nigerian capital market and some listed companies, investors with funds shy away from the equities market for the fixed income market, yet more values are embedded in the equities market more than the bond market.
The fixed income investments guarantees secured returns as it tickles investors with higher returns compared to investments in the equities market, but the equities market guaranties surprise and higher earnings that would always tickle the investor.
Meanwhile, the author of Stock Market Miracles , Wade Cook in his book, pointed that investment in equities requires accurate knowledge , which should be timed and has to align with key measuring indices that support growth.
The knowledge, he said among other things , circles around knowing the PE ratio, which shows the returns on equities on going by the earnings shared among the outstanding shares. Cook said that he usually look out for low price stocks with huge potentials which many others overlook.
PE ratio: PE ratio is one of the most widely used tools for stock selection. It is calculated by dividing the current market price of the stock by its earning per share (EPS).
He said that not taking such growth trajectory into focus, such investors are unlikely to meet brick wall in their choice stocks , as most that do not take such PE measuring ratio serious always get their fingers burnt at the end.
Mr Jatau Nanpon Jake, an investment expert , told our correspondent that non- performing stocks in the equities market today, could be gold mines tomorrow, he said, adding that “under the economy, some people will be complaining of hardship, while many others will be coasting home with huge money, this is what you are seeing in the Nigerian equities and money market today”.
“If you apply those principles to this our business, you would begin to see that some low priced stocks have appeared to have no value in them, but over time, they would become very valuable and highly sought after”.
According to him, when stocks appear to have lost value, it could only mean that shareholders decided to dump the shares due to market negative hearsay and not that the company has really posted loss or in crisis.
Take first bank for instance, it traded as low as N3.00 per share, was it that first bank was that bad to be compared to the likes of third tier banks? , it was just a case of investors dumping their shares while others keep mopping up their shares and today, the company has gained over 400 per cent and still counting”.
However, as opportunities in the economy continue to unfold, as the Nigerian investment community continued to be awash with developments in the fixed income investment space which has continued to attract increasing interest, just as the recently launched Federal government Eurobond has demonstrated.
However, the SME’s and the real sector of the economy, which reflects the strength of the people’s fiscal strength, appears to be prettily docile.
While fresh investments are penetrating the fixed income market and equities market, the real sector is starved of funds, yet opportunities abound for new promoters to reinvigorate the real sector of the nation’s economy.
The sector , which shows the development of the SMEs or the real sector has remained in slumber over the year as the ASeM segment of the NSE has year to date remained virtually inactive.
Reinforcing the weak performance of the real sector market segment of the economy, NSE ASeM Index which portrays the SME’s close the week on -1.44 per cent year to date returns, the only ytd index among the NSE measuring indices.
A stock broker, who preferred to remain anonymous said that non- performing stocks could be weighed down by over diversification and needed to offload some of their subsidiaries to start generating value for their shareholders.
He said, “They can divert from non-performing stocks to a more active and hyper performing stocks.
According to him, the main issue is the companies identifying their weaknesses and strengths and focusing on the areas they have comparative advantage over.
He said ‘for instance, Nigerian Flour Mills divested from cement manufacturing and sales to focus on food and agro allied products which is their core areas”
Also, the broker recalled that International Breweries core owners divested their holdings in the company; and ‘now the new owner have returned value to shareholders through sound performance”.
The prevailing trend , he said, presents new opportunities to come into various sectors of the economy through the capital market.
The broker said that the need for more core investors to make fresh inroad into various listed companies on the equities was borne out of the facts that most of the companies have not been paying dividend and yet, their promoters have been living large to the detriment of the shareholders.
“Core benefit of investment in the market lies on dividend payment and not equities price appreciation, because in most cases most of the stocks have remained dormant, yet they have been maintaining their workforce, while their shareholders are left with nothing, but the core benefit of investing to the man on the street lies on receiving dividend payment’
According to him, value of investing lies on dividend payment for the retail investor and not on price growth.
“ We have left our core benefits in the capital market , which is dividend payment to face price appreciation, which is why many companies now pride that their company have potential for growth , not in paying higher dividend to shareholders, but through price growth’.
He said that when companies record price growth without strong fundamentals driving the growth, the retail shareholders usually fall victim, because investors who are keen on taking profit , may dump money on the low priced stocks and the price would start flying higher even when the company is posting losses or in a mess, yet unsuspecting investors will follow the herd and buy the non-performing stocks which has been recording price growth, and then, all of a sudden, the price would fall to a new low and that will begin another sad story of loss of value.