STOCKS DORMANCY, INVESTORS CAVEAT EMPTOR

STOCKS DORMANCY, INVESTORS CAVEAT EMPTOR

Friday Ekeoba, Lagos[investment Guide]

Investment across the globe is one sure area, where individuals and corporate organisations leverage on to increase their income so as to mix both immediate and futuristic demands; these ordinary they would not have been able to savage, should they refuse to put something aside for investments

As students of economics would readily want to make entrepreneurship out of everybody they have interaction with; investment in equities has always taken the front burner when it comes to making quick return on one’s investment.

Equity investments, put differently, could be investing one’s money in company’s shares, Bond (both Government and corporate organisation), mutual funds and even derivatives as the case may be. All this attempt on investment is geared towards a similar goal; making additional income aside the regular once.

Although, this mode of making quick returns on one’s investment through investment in equities is true especially when considered within companies whose stocks are thriving on the exchanges, there is a caveat on those stocks which are deemed to be dormant.

When recently the Director-General of the Nigerian Stock Exchange (NSE), Dr. (Mrs) Ndi Okereke-Onyuike reeled out the growth in operations of the Exchange last year, describing it as been excellent, she noted that, the primary market and the secondary market recorded a significant rise in activity as a result of high lending rates in the money market, improved economic conditions of the nation, profit-taking and Stock Switching by investors.

She said, activity in the secondary market was influenced by the improved awareness of the opportunities in the stock market improved operating results by some quoted companies, available large float especially in the banking sector, the influx of pension funds, and low interest rates on deposits in the money market.

She said, turnover on the Exchange closed the year at N470.25 billion, up by 79 percent on the N262.9 billion recorded in 2005. Average daily activity rose from 107.6 million shares worth N1.1 billion in 2005 to 150.9 billion shares valued at N1.94 billion in 2006.

“The bulk of the transactions were in equities , which accounted for N468.6 billion or 99.6 percent of the turnover value, up from the 96.9 percent recorded in 2005.

She added that, the Federal Government Development stocks sector recorded a turnover of N1.6 billion, as against 580 million units valued at 624.81 billion recorded in 5,448 deals in the over-the-counter (OTC) market that commenced operation during the year, stating that, in 2005, turnover on “Federal government bonds on the Exchange stood at N7.32 billion. “The industrial loans and preference stocks sub sectors were inactive on the Exchange in 200. The Exchange’s Turnover Ratio sustained its improvement, rising from 12.42 percent in 2005 to 14.70 percent in 2006. She said.

As Lucid as the NSE DG review of the market in 2006 seeks to explain operational activities on the Exchange, it is worthy to note that not all listed equity of companies on the daily official list, added value to the market.

Some stocks have remained dormant for some time now, and investors are beginning to ask questions as to what is the fate of their investment in such companies, who from economic indications shows that things are not really right.

Like it has been argued, the market in information driven, that is the major thing that drives the market, apart from that, the returns on investment, coupled with giving feed backs to investors on what a company is doing helps in no small measure in guiding against dormancy in stocks.

Also, if one have regular returns on investment which come in form of dividend, that is capital appreciation, companies stocks will not be dormant. On the other hand, may be because of the nature of their industry, they have a lot of statutory requirement, to meet, it really affect their stock price, that is, they the company don’t really give much profit at the end of the day.

A female stockbroker who prefer not to mention in print, said, like the banks their profit is always small compared to their counterpart in the business world. “So if you are not declaring bonus, what is going to drive your stocks; nothing.

As much as investors want to put their money aside for investment, so as to have a solid ground to mitt future demands are concerned, caution should be employed in deciding on what companies stocks to invest in.

An x-ray of the 32 sub sectors on The Exchange will readily explain in fact and figure which company is actually arrive to its responsibilities or which is just swimming along with the crowd”

Taking the Emerging markets for instances, except for CUTIX Plc, JULI Plc and to some extent Adswitch Plc, every other company in this sub-sector are not trimming. Business done in the shares of those companies’ dates back to 1998, 2001, 2003 and 2005 respectively.

In the Agriculture/Agro Allied sub-sector, the company whose shares is still been actually traded on is Presco Plc, while that of Livestock, Okitipupa Oil Palm Plc and Okomu Oil Palm Plc seems to epileptic in nature.

For the Aviation sub-sector, after the disaster that befell the Aviation Development Company Plc(ADC), following the companies plane in an air accident last year, the only thriving company in this sub-sector is Nigerian Aviation Handling Co. Albarka Air Pc shares was last traded on November 16, 2006.

The automobile and tyre sub-sector have Dunlop Nigeria Plc doing a little bit well; RT Briscoe Plc seems to dominate here, while others are just existing..

Banking sub sector appears the most favored by investors, wherein on a daily basis several millions in volume of shares exchange hands. Virtually all the sub sector players are alive.

The Breweries sub-sector, only have Guinness Nigeria Plc Nigerian Breweries and just recently, the Champion Breweries, having their shares being traded on while others investors can only hope things should be turned around in the soonest future.

On the Chemical & Paints sub sectors, activities are still higher in the shares of Berger Paints Plc. CAP Plc, DN Meyer Plc, IPWA Plc and Nigerian-German chemicals Plc.

Computer and Office Equipment sub sector still have NCR (Nigeria) Plc, Thomas WYATT Nig. PLC, Tipple Gee Company Plc shares has been traded on active.

The Conglomerates sub sector, Construction sub sector, Food/Beverages and Tobacco sub sector, Healthcare, Industrial/ Domestic products sub sectors, Insurance Industry sub sector, Maritime sub sectors, Real Estate sub sectors, Printing and Publishing and the Petroleum (Marketing) sub sectors, all have payers in their various sub sectors still very active except for a handful of them, whose future is very weeks for investors.

Speaking on the stocks dormancy, a financial analyst, Mr. Olisa Egbuneke, said the prevailing banking interest rate, which is between 23 and 25 percent would not make growing manufacturing concern to stand.

“That again, coupled with the fact that, before this time, the regime was in the throes of 32 percent and that is why if you look at their books you would see the debt profile they have, not being able to liquidate it and there us even no feature that they would liquidate it.

He said, more importantly again, why it will be very difficult for them to survive is because of the epileptic nature of power (energy) adding that for seven good years, the government have not been able to handle the power issue; no going concern except the multinational would survive on machine.

He said, one of the cost implication, apart from buying the diesel, “how about the machine themselves, the life span of the machine that is use for steady manufacturing is 2 years, and this are indigenous companies, they cannot survive.

“And again most of the things they are managing; because of what I said, our inability for government to support agriculture, to support the economy so that people would diversify into real agriculture production, the source of their raw material is equally epileptic and nobody set up an industry to loose, everybody set up industry to gain”

He said, if actually they have been loosing over this time, it will be a kind of psyche; they will lose interest in manufacturing and they will cut down the level of manufacturing, which will have ripple effect in lose of jobs for workers. “So what they will be doing now is what is called subsistent manufacturing; base on arrangement. If you meet somebody that needs particular goods, he pays you and you manufacture and close shop thereafter; and go about scouting for another. He added.

Egbuneke explained that, because if you are not manufacturing; there is no way your stock will be liquid, adding that, people invest out the profit, out of the insight, out of the believe; knowledge that, that company will make profit and it is that profit that actively moderate the capital appreciation.

He said, it is that profit that companies made, one on one that they share profit, “we call it dividend. It is out of the fellowship that the company’s has, that they give investors script adding that a company that is not performing would not pay dividend. Definitely they would run into a loss, they would not thing about giving people bonus issues. So, that is some of the things that are impacting negatively on the companies”

“And because the larger percent of investors understand if they would not buy the shares. They would be looking for where to offload and nobody will be ready to pick. Invariably, all this commutate and make the stocks remain dormant” He noted.