Author Topic: MOST STOCKS IN THE CAPITAL MARKET ARE UNDER PRICED  (Read 5869 times)

Offline Prince

  • Administrator
  • Honorable
  • *****
  • Posts: 32,950
  • Country: ng
  • Gender: Male
  • OS:
  • Windows NT 6.1 Windows NT 6.1
  • Browser:
  • Firefox 3.6.3 Firefox 3.6.3
    • View Profile
MOST STOCKS IN THE CAPITAL MARKET ARE UNDER PRICED
« on: May 06, 2010, 01:33:27 PM »
Most stocks in the capital market are under-priced  ?Agbapu, MD/CEO, Emerging Capital
By MADUKA NWEKE
Thursday, May 06, 2010


Agbapu

Mr. Chidozie Agbapu is a Chartered Stockbroker and Managing Director and Chief Executive Officer, Emerging Capital Limited who has been in both financial and capital market industry for long.

Delighted with the turn of events at the Nigerian Capital Market (NCM) as more returns come the way of investors as market recovers, he said that although all sectors in the market are lucrative, a lot of things must be done by government and the insurance industry for it to attract patronage from the investing public.

He noted that the insurance industry experienced consolidation the way and manner the banking industry did. However, the acceptance of insurance policies has not reached 30 per cent from the public compared to the way banking services are accepted. This has had a debilitating negative impact on the business contracts the sub-sector receives.

Chidozie implored investors to use facilities created by the leadership of the NCM to build their stock wealth. He fielded questions from Daily Sun on issues relating to Alternative Investment Market/Private Placement Window (AIMS/Private Placement) created by the Nigerian Stock Exchange (NSE) and other capital market related matters.

He sighted some reasons why the operation of the window is taking time and relationship with the private placements usually floated by private companies. He explained why the window is not against the call for Federal Government to compel big companies to come and list on the NSE as a way of deepening and widening the market.
Excerpts:

Neglect of insurance stocks by investors
Investors are neglecting insurance stocks because the companies have been unable to reward the investors who invested in them well enough. They have not been able to meet investors? expectations and that is why most investors are saying no to them. Their inability to meet investors? expectations is due to the fact that most of them do not have businesses to generate enough profit that could be used to pay either dividend or bonuses to shareholders.

So insurance sector is a no go area by now, unless such a time when the insurance companies begin to turn out good results that indicates that the companies have good future, investors should continue to shy away from them. The few ones that have been able to turn out good results in recent times are trading well above their peers.

An example is AIICO that is trading almost above N2.00 now, GTAssurance, Custodian Insurance. Most of these have been able to report good profits that the market has belief in them. Those companies trading below investors? expectations are having nominal value and investors do not look their directions.

Increasing profit in the insurance sector
There is so much for them to do to increase their mechanism for making profits. If you go to the street today you will understand that more than 40 per cent of third party insurance policies are fake. Nigerians have not got that insurance culture. That is why people should undertake insurance because the law says they should.

They now take minimum third party for vehicle insurance party not because they want to. It is left to the insurance industry to let people know that insurance works. And may be Government should make legislation to make it compulsory for people to take certain policies insurance. For example if you are using your property for collateral, banks must insist that such property must be insured. That will generate the required insurance education. We should not do that only to realize benefits. Certain things must be made mandatory if insurance sector will attract the benefits we expect from it.

What AIMS/Private Placement Window really is
First and foremost AIMS stands for Alternative Investment Markets is a window created recently by the Nigerian Stock Exchange (NSE) to bring within its ambit of regulation activities of unquoted stock trading and private placement exercise? If you notice in the last three years research actually revealed that there was so much in terms of volume and value the number of companies that accessed funds through the private placement modules.

Again there are so many unquoted companies whose stocks became quite active in the market. So having looked at that and the contributions from that sector, the NSE decided to create that window to help companies who are desirous of being listed to get a fast tract treatment to coming to the capital market at next to nothing in terms of fees. It is also meant to create a platform where those unquoted securities could be traded within rule that can regulate.

Meaning of alternative market
These are companies with strong fundamentals that are traded on yet they are not quoted on the Nigerian Stock Exchange. Nasdack for example, at a point has about 26,000 listed securities that are traded on yet they are not quoted. They are new securities traded on Nasdack but they are not quoted on the New York Stock Exchange (NYSE). Alternative market is an active market; very active market.

These are companies whose stocks are not quoted but they are very active. Stocks like Consolidated Breweries limited, West African Milk Company (WAMCO) limited. These are not quoted companies but their stocks are quite active. So I think it will be nice to some how, regulate them in a quasi manner because since these are companies that will eventually come for quotation.

Delay in bringing it into the system
So much does not seem to be happening but I want to believe that most of the companies concerned already know the window is there and they are making enquiries. You don?t also rule out the possibility that conditions necessary for them to be admitted would require them to go back to do thing in a particular way, for example, they need to put there records together, they need to audit their accounts and they may need to sort out tax issues.

So I want believe that so many enquiries have been made by prospective companies from the NSE. I understand that the NSE has made a presentation to the Securities and Exchange Commission (SEC) for approval being the regulatory authority. This will take a while because probably they would like stakeholders to make input before they take a decision. So I think it is going to be worth while for these companies and their securities when this comes into operation.

It is a new policy, a new product and product formation goes through stages. They come up with it work out the modalities send to the regulators. The regulators must have process through which they access policies like this and come up with document that will make it workable. However, people are saying the process is being delayed but I don?t think in that direction.

Nonetheless, it will be nice if all the parties concerned speed up action so that this comes into operation as fast as possible. I want to believe that all the people who are expected to work on it are working though it may not be as fast as we expect them to work but I guess they are working.

Relationship with usual private placement
If you go through most of the private placements, there are clauses that in those documents that are sweetener to investors. The fact is that they hoped to be listed on the Stock Exchange. Some of them actually put the time frame and just mention in their prospective that thereafter they hope to list on the Stock Exchange. That was actually the sweetener for most of them because that is where their platform for their ability will be found.

Compelling big companies to quote on the NSE
It is also inline with this because if one lists on the NSE, there are so many benefits for both the companies and the investors. NSE provides the platform upon which these stocks can change hands under terms and conditions that can be ascertained by anybody. If you are in doubt, if you have First Bank shares you want to sell any price you see on board is generally accepted to reflect the true value of First Bank shares unlike unquoted companies where the buyer and seller are the ones that determine pricing. And most times, where the investors are not sufficiently experienced in terms of valuation, you find out that one will be taking advantage of the other.

The essence of asking these companies to come and quote even though you cannot force any company to come and quote, but you can morally assuage some companies to come and quote so that their activities could be brought within the ambit of the regulations in the capital market. And again, let wider segments of the Nigerian community have the opportunity to buy shares of those companies.

If you look at most of those companies, we are in the captive market which means we create patronage for them. Part of profits they make comes from the numerous users out there. So asking them to come and quote means let majority of Nigerians come and partake in the profit they help to generate by giving you patronage.

Other means of deepening the market
For you to deepen or broaden the market you need to have a lot of listed companies; you need to have more of their shares in circulation. Of course the next thing is liquidity. On the left hand side is the supply of equities, the number of securities and companies, number of shares listed. Then on the right hand side is liquidity. That is what makes for a vibrant market.

Driving force of current market growth
Our market has not been in a safe stable platform as it is now. If you check there the market was and how much waste the market has shed, you will just agree with me that the market is out of the woods. If the market was a patient, the patient is recuperating. It is when you recuperate, regain your appetite, begin to eat well, begin to gain lost weight, it will take a while before you get to the point when you begin to have excess weight.

If you look at companies, so many results have been declared and if you look they are quite very good results. In the last few and half years when the conditions were quite adverse for the companies, most of them went back to drawing board. They became quite cost conscious, they had to retool their processes and operations, minimize loss, diversified into other areas, and again closed down arms of businesses that are not profitable, became more efficient in their operations, started imbibing tenets of good corporate governance and good social corporate responsibility.

And they are actually doing work as you can see in their result. So that is part of force driving the market. And again, the money market has not been very rewarding as it were for some reasons like; deposit rate crash and money will go to alternative issues that will give great returns. I guess that shift in liquidity flow from the money market to the capital market. And again, technically speaking, if you look at these companies and see how weight they shed in the last two years, if you look at it from the technical analysis point of view, all the stocks are treading below their intrinsic value.

And again the AMC as we all know is getting accelerated hearing and passage by both houses of the national assembly. So the announcement in effect is like solving the liquidity problem in the system in a very cost effective way by acquiring the toxic assets in the financial system. It is a policy that will add impetus to the activities in capital and financial market generally. So I think all these have made positive contribution to what happen in the market.

Position of ASHON on AMC
The idea of Asset Management Corporation of Nigeria originated from the capital market. The position of Association of Stockbroking Houses of Nigeria (ASHON) is that it should be more encompassing and should involve all stakeholders. That it should be done in a manner that will consider all shades of opinions from stakeholders. Processing of the bill in the National Assembly was delayed because of the little distractions in the Presidency; otherwise the bill would have been passed and signed into working document. However, with stability returning, there is expectation much will be achieved soon.

Explaining the current market growth
The market growth could be explained bearing in mind that when other markets that suffered the same faith with Nigerian?s were recovering, the Nigerian market did not recover. The bullish trend we are experiencing stemmed from the fact that most of the stocks are currently under priced. Those who saw that stocks are under priced started buying and with people willing to sell, people continued to buy causing the bullish trend to continue.

To support the position, CBN tinkered with monetary policy and that means reducing interest payable on standard deposit by commercial banks to CBN from one per cent to two per cent resulting in the banks shying away from lending.

The banks that will just pay interest from what CBN was paying them were now forced to begin to lend. Simultaneously, banks cut interest payable on deposit accounts from a high of between 15, 20 and 22 per cent to a low of 3 and 5 per cent as at today; so that, investors who ordinarily would have seated with the banks and enjoy whichever interest the banks were paying them, did not see those returns as attractive enough.

This resulted that some of those funds found themselves in the market pursuing the few stocks that have fundamentals and have been battered by the global financial meltdown. Such stocks like the Dangote Sugar moving from N4.00, GTB from N15 to N23, BCC from N20.00 to N66.70 of current, so what happen is that funds have moved from the money market to the capital market that is promising returns commensurate with the risks involved in investing in the capital market. Similarly, most of the equities of the banks rescued by the CBN are also in anticipation that as soon as the AMC Bill comes on stream, what will happen is that those stocks? fortune will increase. People are already taking position.

And within this year too, Nigerian economy has experienced a boom in terms of increased oil revenue with the oil prices moving up. This means that with increased revenue to the coffers of government, we know that money has a multiplying effect. This is because as more money gets to the coffers of government, spending will increase because some of that money will find themselves in the hands of people who will in turn like to come and invest it in the capital market.

And also with hitherto lower valuation of the equities listed on the floor of the Nigerian Stock Exchange (NSE), foreign investors who have seen value in these stocks have un-relentlessly pushed front to come and participate in the transactions of the market. You can see that the average daily volume has moved from N2 billion per day to between N5 and N6 billion per day indicating that activities in the market have really expanded. This means that more of the people who lost interest in the market are beginning to regain confidence.

Foreign investors
Most of them are here already. Most of these foreign investors trade through IBTC and Renaissance Capital because they are the people with foreign affiliation so they trade through them. For some times, if you watch the caliber of people buying, most of them who are foreign investors come through IBTC and Renaissance Capital.

The way you will know this is when the volume of transaction starts increase even when the prices are not investor attractive. The aim of foreign investors is not to make instant gains but to enter the company for the purpose of manipulating policies of the company through their massive holding. The only different and negative aspect of foreign participation in local stock transactions is the fact that when their local market begins to dwindle, they look in the direction of their investment to mop some funds to augment the losses made at the local market.

Investors shying away from the market
The investors should come and increase their stake in the market. If for any thing to average down the cost of stocks they bought at high prices that the market has brought down to such that when those stocks recover the average cost may have come down. An instance is CCNN N5.00 last year, N13 and N23.25 on Wednesday April 13, 2010.

That is about 100 per cent growth meaning that most of the stocks were punished by lack of confidence which is beginning to return. So there is nothing that will change as it is now because market will continue to rise, unless of course CBN decides to have a change in policy that will make some people to move their money from the capital market to the money market. But as it is now with reduced interest rate at the money market, it pays a wise investor to move his money from the money market to the capital market because it promises higher return.

Advertisements


Nigerian Best Forum . NBF

MOST STOCKS IN THE CAPITAL MARKET ARE UNDER PRICED
« on: May 06, 2010, 01:33:27 PM »

Enter Your Email Below For Daily Jobs Updates, It's Free

100% Free


Offline Prince

  • Administrator
  • Honorable
  • *****
  • Posts: 32,950
  • Country: ng
  • Gender: Male
  • OS:
  • Windows NT 6.1 Windows NT 6.1
  • Browser:
  • Firefox 3.6.3 Firefox 3.6.3
    • View Profile
Re: MOST STOCKS IN THE CAPITAL MARKET ARE UNDER PRICED
« Reply #1 on: May 06, 2010, 01:33:45 PM »
Saying the truth.

Advertisements


krisrichly

  • Guest
Re: MOST STOCKS IN THE CAPITAL MARKET ARE UNDER PRICED
« Reply #2 on: August 19, 2010, 03:55:34 PM »
cool

Offline AllenMass

  • Jr Poster
  • Posts: 29
  • Gender: Male
  • OS:
  • Windows XP Windows XP
  • Browser:
  • Firefox 2.0 Firefox 2.0
    • View Profile
Re: MOST STOCKS IN THE CAPITAL MARKET ARE UNDER PRICED
« Reply #3 on: August 25, 2010, 10:43:43 AM »
Well, that's good news of stock market.  Learn when to quit.  Since penny stocks have a very low share cost, the majority people tend to stick to hundreds of thousand of shares.  Thus, once the liquidity disappears, you will be pushed to sell at a low trading cost.  Don?t hold on to the shares for a long period, watch the market trades and know when to purchase or sell.

Thanks
Coolpennystocks. com

Offline forextrading

  • New
  • Posts: 1
  • Gender: Male
  • OS:
  • Windows XP Windows XP
  • Browser:
  • Firefox 3.6.8 Firefox 3.6.8
    • View Profile
Re: MOST STOCKS IN THE CAPITAL MARKET ARE UNDER PRICED
« Reply #4 on: September 02, 2010, 03:36:43 AM »
Hi
Investors looking to purchase restaurant stocks at their lowest points and ahead of an upswing projected by year?s end could prop up industry stock prices in the near term, despite the sector?s continued weak performance. 

www. forex-trading-softwares. info/
« Last Edit: September 02, 2010, 03:51:05 AM by forextrading »
Forex Trading

Offline MalcomWagon

  • Cadet
  • Posts: 10
  • Gender: Male
  • OS:
  • Windows XP Windows XP
  • Browser:
  • Firefox 3.0.19 Firefox 3.0.19
    • View Profile
Re: MOST STOCKS IN THE CAPITAL MARKET ARE UNDER PRICED
« Reply #5 on: December 03, 2010, 01:11:46 PM »
With their aggressive advertising campaign and lowered prices, this stock is greatly undervalued. 
www. madpennystocks. com

Offline SeanRivera

  • New Comer
  • Posts: 2
  • Gender: Male
  • OS:
  • Windows XP Windows XP
  • Browser:
  • Firefox 3.6.13 Firefox 3.6.13
    • View Profile
Re: MOST STOCKS IN THE CAPITAL MARKET ARE UNDER PRICED
« Reply #6 on: January 07, 2011, 12:04:33 PM »
Good news of stock market. Penny stocks have a very low share cost, the majority people tend to stick to hundreds of thousand of shares.

www. bullrally. com

Offline AltonDelmote

  • Semi Cadet
  • Posts: 6
  • Gender: Male
  • OS:
  • Windows XP Windows XP
  • Browser:
  • Firefox 2.0.0.20 Firefox 2.0.0.20
    • View Profile
Re: MOST STOCKS IN THE CAPITAL MARKET ARE UNDER PRICED
« Reply #7 on: June 23, 2011, 07:43:31 AM »
Penny stocks are high risk common stock that sells for less than a dollar a share. 
« Last Edit: June 23, 2011, 07:45:50 AM by AltonDelmote »

Offline IKOFX

  • Full Member
  • *
  • Posts: 112
  • Gender: Male
  • OS:
  • Windows XP Windows XP
  • Browser:
  • Firefox 3.6.18 Firefox 3.6.18
    • View Profile
Re: MOST STOCKS IN THE CAPITAL MARKET ARE UNDER PRICED
« Reply #8 on: July 28, 2011, 01:28:14 PM »
Its always ideal to know the statistics.  What's outnumbered or undervalued stocks information may matter a lot in decision making especially in forex trading.

Forex Trading
IKO Forex Limited - The Ideal Place for Forex Trading

Nigerian Best Forum . NBF

Re: MOST STOCKS IN THE CAPITAL MARKET ARE UNDER PRICED
« Reply #8 on: July 28, 2011, 01:28:14 PM »

 

ads

Enter Your Email Below For Daily Jobs Updates, It's Free

100% Free