By Udeme Ekwere

Monday, 22 Nov 2010

Ten newly-listed companies on the Nigerian Stock Exchange have lost 15 per cent of their cumulative listing value in the last one year.

The companies, quoted in the First-Tier Securities sector of the NSE between August 2009 and November 2010, lost N339bn from a cumulative listing value of N2.328tn to close at N1.989tn on Friday.

According to experts, the sharp drop in the market capitalisation of the equities is as a result of investors’ cautious moves in a fluctuating capital market.

Market capitalisation is the value of the total shares on issue, multiplied by the current market price of the stocks on the NSE’s official list. The value lost, therefore, represents the level of depreciation in the share prices of the affected companies in the review period.

The companies in the newly-listed category are Beco Petroleum Plc, Honeywell Flour Mills Plc, African Alliance Insurance Company Plc, GTA Assurance Plc, Resort Savings and Loans Plc, Unity Kapital Assurance Plc and Union Homes Real Estate Investment Trust Plc.

Others are Dangote Cement Plc, Paints and Coatings Manufacturers Nigeria Plc and Multi-trex Integrated Foods Plc.

Aside the global economic meltdown, which crashed world stock prices, the Central Bank of Nigeria’s banking sector reforms, which began in August 2009, also impacted negatively on the Nigerian capital market. This was mainly because the banking sector, at the beginning of the reforms, accounted for over 60 per cent of total market capitalisation.

After the first and second rounds of the CBN’s stress test, investors engaged in panic selling of shares, especially those of banks declared stressed by the regulator. This made the share prices of quoted companies to fall at an alarming rate, with some stocks dropping below one-third of their original prices.

However, despite experts’ position that, with the market’s “free fall” status, only daring companies would attempt to list their shares on the Exchange, a few companies braved the storm. Beco Petroleum, which was the first to list after the CBN Tsunami, listed 3.7 billion units at N2.50 per share in October 2009. The value of the shares at that time stood at N9.25bn.

As at Friday, however, the value of the petroleum marketing stock, which currently trades at 77 kobo per share, had dropped to N2.8bn. This translates into a N6.45bn decrease in one year.

Honeywell was also listed in October 2009, at N8.50 per share. The market value of its shares, currently trading at N5.33 per share, dropped by N25.05bn or 37 per cent, from a market value of N67.15bn at listing, to N42.10bn on Friday.

African Alliance and GT Assurance were both quoted in the insurance sub-sector of the NSE in November 2009, with market values of N16.7bn and N30bn, respectively. The price of African Alliance fell from N3.50 per share to 50 kobo per share on Friday, while its value dropped to N10.25bn.

The value of GT Assurance, listed at N3 per share, also decreased by N12bn or 40 per cent, to close at N18bn on Friday. The stock is currently trading at N1.80 per share.

Resort Savings and Loans dropped from a value of N12.53bn at the time of listing in November last year, to N6.59bn; Unity Kapital Assurance fell from a value of N30.75bn to N6.50bn; and Union Homes REIT dropped marginally, from N12.87bn to N12.50bn on Friday.

The market value of Dangote Cement, which listed 15.49 billion shares at N135 per share last month, dropped from N2.091tn at listing to N1.876tn on Friday, at a current price of N121.35 per share. Multi-trex dropped in value from N13.02bn at listing to N11.16bn, while Paints and Coatings remained unchanged at N3.08bn.

Reacting to the development, the Managing Director, Ideal Securities Limited, Mr. George Okafor, said that, apart from the CBN’s reforms, the decline in share prices showed that the market regulators had not been carrying out due diligence on the stocks before prices were fixed.

He noted that various factors must be considered before approving prices for shares to be listed on the Exchange.

“The fact that companies, which listed within the last one year, have lost so much value simply exposes the regulators’ poor and inefficient price determination mechanism of the proper price at listing. Also, the current apathy in the market cannot be ruled out as a reason for this significant drop,” he said.

According to the Chief Responsibility Officer, Value Investing Limited, Mr. Seye Adetunmbi, some investors try to make some gain from the capital they invest in companies during their private placements, which may also result in losses on stocks.

He said, “More often than not, this is one of the factors that make the prices of most of the newly-quoted shares to drop. As a matter of fact, this is one thing that was grossly abused in the era of all shades of compromised private placements in the Nigerian stock market, which contributed to the crash in the market.

“In some quarters, over-priced quoted companies is yet another factor, and the reality of a few willing or able investors to take position at perceived high quoted prices of the newly listed companies can contribute to making these prices fall.”

Another financial analyst, who spoke on the condition of anonymity, noted that issuers sometimes created problems for themselves by over-pricing their stocks.

According to him, “A few years ago, SEC deregulated pricing of new issues. Consequently, issuers assumed the responsibility of fixing their prices. There is a wide-spread feeling that the premiums on those prices at listing are excessive in many cases, and so, post-listing fundamentals of the companies may eventually lead to a market-based valuation of their shares.”

He, however, added that, even when the fundamentals of the company might justify the listing prices, the prices could still be depressed if the liquidity state of the entire market was unfavourable, as occasioned by the recent global meltdown or policy-induced market slowdown.

 

Source: Punch