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Penny stocks: 44 perform above average

News » Business


Date: June 5, 2013



•12 are laggards


How-priced stocks, otherwise known as penny or kobo stocks because of their relatively share prices, dominated the best-return table for the five-month period ended May 31, 2013. With the highly capitalised stocks rallying into new highs, several investors appear to have turned to low-priced stocks, often time taking profits from some matured investments to take positions ahead of expected rallies. The strategy worked for investors that turned to lowest-priced stocks in some highly active sectors. While 44 stocks altogether made above average return, penny stocks accounted for four out of five stocks that recorded three-digit percentage return.

Average return at the stock market for the five months stood at 34.60 per cent, nearly the same level with the full-year return of 35.45 per cent recorded for the whole of 2012. Five stocks more than doubled their market considerations during the period in an exceedingly bullish market that saw most stocks closing with positive returns.


The performers

Evans Medical Plc recorded the highest return of 256.32 per cent to close the fifth month at its highest price. The healthcare company reflected the underlying optimism in thegenerally-low-priced healthcare sector during the period. Evans medical, which had opened at 87 kobo, rode on the back of improved fundamentals and earnings prospects to reach a high of N3.10, its opening price for this week. McNichols Plc, a second-tier stock listed on the Alternative Securities Market (ASEM) of the Nigerian Stock Exchange (NSE), recorded the second highest return of 179.01 per cent. It was trailed closely by Livestock Feeds Plc, which rode on the crest of the successful completion of the sale of its majority equity stake to UAC of Nigeria (UACN) to post a return of 177.08 per cent. Wema Bank recorded the highest gain in the banking subsector with a return of 128.85 per cent, the fourth highest return by any stock. Wema Bank rose from its year’s opening value of 52 kobo to close the period at N1.19 per share. Cement Company of Northern Nigeria (CCNN), the lowest-priced cement manufacturing stock, doubled its share price with a return of 102.83 per cent to close at N10.75 per share. It had opened at N5.30.

But while penny stocks led the percentage return chart, mid to large cap stocks continued to consolidate on historic pricing trends that have seen several highly capitalised stocks reaching all-time highest price levels. Mid and high cap stocks dominated the above-average return list with at least 22 mid-high cap stocks returning more than 34.6 per cent. Given the liquidity and impact of gains by mid-high cap stocks, this means that mid-high cap stocks were the main drivers of the overtly bullish market so far this year.

Cadbury Nigeria, the turnaround food company that made its first dividend in seven years this year, was on the double with a return of 91.34 per cent. The company had paid a dividend per share of 50 kobo, after earnings report for 2012 showed full recovery and stable profit. United Bank for Africa (UBA) Plc, which saw a major improvement in fundamentals in the last audited year, recorded the highest gain of 86.62 per cent in the influential banking subsector. UBA witnessed the highest growth in profitability in percentage terms in the banking sector in 2012 as the lender’s profit rose by 905 per cent to about N55 billion. Audited report and accounts of the bank for the year ended December 31, 2012 showed that it recovered from the N6.8 billion loss it recorded in the previous year on account of loan provisioning that it did to clean up its balance sheet to post a profit of N54.8 billion in 2012.

Profit before tax rose by 295 per cent to N52 billion in 2012, compared with a loss of N26.60 billion in the previous year. Associated Bus Company (ABC), a penny stock that closed the period at 92 kobo, recorded capital gains of 84 per cent. Large conglomerate, PZ Cussons Nigeria, posted an impressive return of 82.14 per cent while Forte Oil’s share price increased by 81.11 per cent.

Further analysis showed that 16 other stocks returned not less than 50 per cent during the period. These included Presco Plc, 76.47 per cent; Julius Berger Nigeria, 62.34 per cent; International Breweries, 62.22 per cent; Dangote Sugar Refinery, 58.33 per cent; Honeywell Flour Mills, 51.20 per cent; Union Bank of Nigeria, 54.15 per cent; Continental Reinsurance, 57.89 per cent and Wapic Insurance 53.45 per cent. Also included are Fidson Healthcare, 69.81 per cent; Ashaka Cement, 50.42 per cent; CAP, 60.71 per cent; Lafarge Cement Wapco Nigeria, 67.50 per cent; Eterna, 56.28 per cent and Red Star Express, a courier and logistics company, which returned 50 per cent in five months.

Beyond the percentage returns, perhaps the two most outstanding stocks in the market during the period were Nestle Nigeria Plc and Dangote Cement. Dangote Cement, the most capitalised stock at the NSE with about a 27 per cent total equities capitalisation, recorded capital gains of 49.1 per cent during the period. Dangote Cement alone accounted for N1.07 trillion in capital gains during the five-month period. Nestle Nigeria, the stock market highest-priced stock, rallied to cross into the thousand naira thresholds with a return of 43 per cent. Nestle Nigeria, which had opened the year at N400 per share, rallied to a high of N1, 088 before closing the year at N1, 001.01.

Substantial gains by several stocks reflected on the market. The stock market closed the period with whooping capital gains of N3.10 trillion within the five-month period. Aggregate market capitalisation of all equities closed May at N12.075 trillion as against the year’s opening value of N8.974 trillion, indicating an increase of N3.10 trillion. The All Share Index (ASI), the main value index that tracks changes in prices of all equities on the NSE, indicated a five-month average return of 34.60 per cent. It had made a full-year return of 35.45 per cent for the entire 2012. ASI closed May at 37,794.75 points as against its index-on-board of 28,078.81 points. ASI had closed 2012 at 28,078.81 points as against its opening index of 20,730.63 points for the year. Aggregate market capitalisation of all quoted equities also rose from its opening value of N6.533 trillion to close the year at N8.974 trillion, indicating capital gains of N2.441 trillion.

Segmental return analysis showed that companies that engage in manufacturing of industrial goods such as cement and paints have generated the highest returns for investors. The NSE Industrial Goods Index posted a five-month return of 61.27 per cent. Drawing from the bullishness of several industrial goods stocks, most of which are ethical stocks, the NSE-Lotus Islamic Index recorded the second highest gain of 52.28 per cent. The NSE 30 Index, which tracks the 30 most capitalised stocks, returned 35.47 per cent in the past five months.

Also, the NSE Consumer Goods Index showed average return of 31.61 per cent. Banking index had year-to-date return of 28.70 per cent while insurance index and oil and gas index open on Monday at 22.15 per cent and 24.93 per cent respectively. The benchmark index for the newly reactivated Alternative Securities Market (ASeM) indicated a modest five-month return of 1.92 per cent.

The average return of 34.60 per cent places equities as the best-return class of investments. With inflation rate at 9.1 per cent and benchmark Monetary Policy Rate (MPR) at 12 per cent, average return still indicates substantial net adjusted return for an average investor. Nearly all other asset classes carry negative returns when adjusted for inflation rate alone, without the combining effect of interest rate or cost of capital. Nigerian average equity return also ranks within the best returns globally, underlining the attractiveness of emerging markets to foreign portfolio investors.


The worst performers

However, 12 stocks recorded substantial losses during the period with John Holt Plc leading the pack with a loss of 52.94 per cent. Multi-Trex Integrated recorded a loss of 47.37 per cent. Costain West Africa recorded negative return of 40.23 per cent. Morison Industries dropped by 35.73 per cent. Deap capital Plc lost 33.66 per cent while MRS Oil and Gas declined by 31.82 per cent.

Other stocks with substantial losses included Juli Plc, 18.63 per cent; Capital Hotel, 26.79 per cent, Paints and Coatings Manufacturing Company, 28.57 per cent, Pharma-Deko, 20.38 per cent; Vono Products, 26.74 per cent while Premier Breweries recorded negative return of 20 per cent.

Market pundits said the stock market has performed beyond expectations, though it remains within the confines of positive pricing trend predicted earlier in the year. Managing director, GTI Securities, Mr. Tunde Oyekunle, said the market’s performance was driven by stronger fundamentals amidst other variables.

Managing Director, Financial Derivatives Company (FDC), Mr Bismarck Rewane, said the market had surpassed expectations of moderation in May to rally to new highs. He noted that many pundits had expected the market to close in May almost flat as investors were thought to be interested in large profit-taking transactions.


Article Credit: The Nation Newspaper

Updated 6 Years ago

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