Most NSE stock prices not fair value – Shareholders
March 29, 2016

Stanley Opara

The prices of most stocks quoted on the floor of the Nigerian Stock Exchange have been described as ‘not fair’ considering the positions of the firms in question and the level of investment in them by shareholders.

Some shareholders, who spoke to our correspondent on the issue, pointed out that most of the stocks were undervalued.

They, however, did not rule out the fact that a few stocks were overvalued.

To this end, the President, Renaissance Shareholders Association of Nigeria, Mr. Olufemi Timothy, said. “Most NSE stock prices are not fair value, and they cannot be passed as the true prices considering all the market parameters.

“Many companies are undervalued while some are overvalued.”

In advising shareholders on the steps to take to maximise returns on their investments, Timothy said investors should consider capitalising on the undervalued shares. “Shareholders should look at buying more of these undervalued shares. There is a likelihood that their prices will go up,” he added.

He urged the NSE to drive the market with the required policies, stressing that the country could not afford to have an Exchange that ccould not guarantee stability in the market given the strategic role the NSE plays in the economy.

The President, Constance Shareholders Association of Nigeria, Mr. Shehu Mikail, admitted that the current stock prices were not fair enough, but stressed that the happenings in the stock market were a reflection of the country’s economic stance.

He said the country was currently plagued with serious economic and financial challenges, which had resulted in activities being slowed especially in the financial sphere, which included the NSE.

Mikail added, “The prices can be better if things turn around economically. The 2016 budget had been passed and the implication of the passage would start filtering into the economy in due course. This and other factors put together, will bring some relief to the economy.”

He, therefore, noted that most investors were “waiting and looking” to see if there would be meaningful change.

A shareholder, Mr. Erasmus Alaoma, who spoke to our correspondent on the current state of his investment on the NSE, said although he had yet to have a reason to sell-off his holdings in some companies he had shares in, it would be unfortunate to sell at this time.

According to him, the values of most of his shares have seriously eroded in recent times, which had made him to relegate dealings in them for the long run.

Alaoma called on the NSE to do everything possible to restore confidence in the market, saying it was not enough for the Exchange to continue to blame the woes of the market on current national economic situation.

Compare to other Exchanges in the world, the shareholder said the negative news emanating from the NSE was becoming very embarrassing for shareholders.

The market capitalisation of the NSE had fallen by N811bn from the first trading day of this year up till mid March. Similarly, 10 out of the 12 market indices were also in the red as of that date.

The NSE market capitalisation dropped from N9.75tn on January 4, 2016 to N8.939tn, while the All-Share Index also closed at 25,988.40 basis points from the 28,643.67 basis points recorded on the first trading day of the year.

For the third year running, investors made huge losses in the Nigerian equities market last year as the market capitalisation (equities only) of the NSE shed a total of N2.354tn between December 2014 and December 2015.

In the first seven trading days of this year, equity investors in the country’s capital market lost N804tn of their investments’ worth.

The market capitalisation, which was N9.75tn on January 4, depreciated to N8.95tn after seven days of trading.

In mid-March this year, the NSE had 10 out of its 12 market indices in red when compared to the performance of the market from the beginning of the year. This represents about 83.33 per cent fall year-to-date.

The NSE All-Share Index, Premium Index, Main Board Index, 30 Index, Banking Index, Insurance Index, Consumer Goods Index, Lotus II Index, Industrial Goods Index and Pension Index closed negative year-to-date as of the last trading day.

Only two of the indices, the Alternative Securities Market Index and Oil & Gas Index, recorded gains of 0.10 and 4.97 per cent year-to-date, respectively. Both closed at 1,209.89 and 374.29 basis points on Friday.

The NSE All-Share Index closed at 25,988.40 basis points, falling by 9.27 per cent year-to-date; Premium Index closed at 1,491.63 basis points, shedding 5.89 per cent year-to-date; the Main Board Index closed at 1,188.74 basis points, with a loss of 11.15 per cent year-to-date; while the NSE 30 Index ended mid-March at 1,147.60 basis points, falling by 10.88 per cent.

The NSE Banking Index closed at 247.08 basis points, shedding 7.97 per cent year-to-date; the Insurance Index closed at 131.68 basis points, having lost 7.66 per cent; the Consumer Goods Index closed at 604.22 basis points, shedding 19.03 per cent; the Lotus Islamic Index ended at 1,799.77 basis points, depreciating by 9.96 per cent; the Industrial Goods Index closed at 2,014.87 basis points, shedding 7.01 per cent; and the Pension Index also shed 11.39 per cent year-to-date to close at 722.34 basis points on Friday.

A stock index is a measurement of the value of a section of the market. It is computed from the prices of selected stocks (typically a weighted average). It is a tool used by investors and financial managers to describe the market and to compare the return on specific investments.

A market index is a quick measure to judge the overall direction of the market and the scope of its movements.