Holding onto value stocks can come with a lot of advantages over the long term but discerning Nigerian investors seem not to have made such decisions for penny stocks.
BusinessDay check in the past eleven (11) months shows many penny stocks trading on the Lagos Bourse have not attracted reasonable buyers leading to them further underperforming the NSE All Share Index.
Many of the penny stocks got off to worse price levels following the January 29, 2018 implementation of new rules on par value and share price methodology by the Nigerian Stock Exchange (NSE).
A look at the price list of NSE-listed stocks as at December 13 reveals the negatives recorded by many penny stocks, most of which are insurance stocks.
For instance, from a 50 kobo per share price as at January 26, 2018, John Holt Plc at 44 kobo represents 12 percent decline this year.
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Also, AG Leventis Plc at 25 kobo has lost 64.3 percent of its price this year; ABC Transport Plc at 25 kobo has also lost 50 percent of its share price this year.
“Now we can go and start trading more penny stocks. I am waiting for them at 2kobo,” a Lagos-based analyst had told BusinessDay at the commencement of the new rules on pricing methodology and par value.
Cornerstone Insurance Plc at 20kobo per share has lost 60 percent of its value this year; same as Courteville value at 20kobo, representing a year-to-date (ytd) decline of 60percent.
Having lost 20percent of its value this year, Daar Communications Plc is valued at 40kobo. Diamond Bank Plc is valued at 87kobo, representing Ytd decline of 42percent.
Others are First Aluminum priced at 30kobo (-40percent); Jaiz Bank Plc at 47kobo (-25.4percent); Japaul Oil Plc at 22kobo (-56percent); Lasaco Plc at 29kobo (-42percent); and Law Union & Rock at 51kobo representing decline of 33.8percent this year.
Some of these stocks may witness further dip amidst growing political concerns ahead 2019 elections and the absence of a positive market trigger.
Linkage Assurance Plc which trades at 60kobo has lost 9.1percent of its value this year; Livestock Feeds Plc share price at 47kobo represents a decline of 43.4percent; Mutual Benefit Plc trades at 20kobo (-60percent); Meyer Plc at 59kobo has lost 15.7percent of its value; Multiverse Plc at 20kobo (-60percent); Neimeth Pharmaceuticals Plc is down by 24percent this year to 57kobo.
Niger Insurance Plc at 21kobo has lost 58percent of its value, and Prestige Assurance Plc trades at 47kobo (-6percent). Also, Regency Alliance Plc stood at 21kobo as at December 13, 2018, which implies 58percent decline; Royal Exchange at 20kobo has declined by 60percent this year; while RTBriscoe at 38kobo represents a decline of 24percent.
“Penny stocks are like a surgical knife. If used by a doctor (experienced), it could save lives (make money). On the other hand, if used by a goon (amateur) it could kill (make you bankrupt). In my opinion, penny stocks can only be a good lesson rather than a potential earning source,” said Rohit Dalal, a New Delhi-based finance analyst.
Penny stocks get their name from the fact that they are cheap and a lot of people when starting out on investment tend to go in for cheaper stocks as their first investment. They do this because they are deemed to have higher returns when things go according to plan. Some of these securities which hitherto did not trade above 50kobo for a long time were targets of ‘Pump and Dump’ investors recently.
“Some investors will continue to tread carefully in the equity market, particularly because of election considerations. We reiterate that the market has strong growth potential for investors with a medium-to-long-term view,” said research analysts at Lagos-based FSDH.
Barely on year ago, the price floor for listed companies was 50kobo but with the implementation of the Par Value Rule the price floor became one kobo. It was expected to increase market liquidity and improve price discovery especially for lowly priced stocks.
“The amended stratification of price movements, price limits and tick sizes aims at improving liquidity, narrowing spreads, and ensuring that all price improving (up/down) transactions are material, making the market more efficient for all participants,” the NSE had said.
The price of every share listed on the Exchange is now determined by the market, except that no share trades below a price floor of one kobo. Since this year, the total value of stocks listed on the NSE has decrease by over N2trillion, fuelled among others by record free fall of many penny stocks.
