Investigation into the flow of stocks’ performance on the Nigerian Stock Exchange (NSE) shows that 61 companies’ equities were dormant in 2014 trading year. A review of their performance in 2015 showed that majority still lay dormant as at April 30, 2015. Looking at the trading activities of the dormant stocks in the month of April 2015, there were only 495 deals on them, which is mere 0.42 per cent of the total 107,758 deals carried out in the Stock Market in April 2015. There was a total of 1.257 billion dormant stocks worth N755.39 million which is 11.7 and 0.73 per cent of the total stock market trades of 10.718 billion shares worth N103.43 billion respectively.
Among the moribund stocks as at April 2015, only Arbico, Etranzact and Unity Bank Plc appreciated in terms of equity price. As at April 30, 2015 Arbico was worth N5.30, Etranzact was worth N3.39 while Unity Bank stock worth N3.89. All the stocks worth N0.50 in unit prices the preceding year. Aside the three stocks. the others still maintained their nominal values or a little bit above them.
Explaining the reasons behind the moribund stature of the affected stocks, experts said it was due to low trading on them. The demand for these stocks is low and that is why their prices never appreciated in 2014.
Mr Ebokaiwe Onyx of Onyx and Co, a financial consultancy firm, said most investors buy stocks to make profit. The profits come in either in form of dividend they would receive at the end of every business year or through resale of the stock when the value appreciates. To achieve their goal of profit making, the investors invest in stocks that are likely to appreciate in value during a short period of time. They also invest in companies which would be able to pay dividend at the end of the financial year because only companies that made profit pay dividend.
On why the value of the shares remained the same for so long, he said: “As the law of demand and supply states, the higher the demand the higher the price and vice versa”. This is also how it works in the stock market, the more people demand for a particular stock the more the value of the stock appreciates. If there is no demand at all for a company’s stocks then the value would never appreciate rather it would depreciate. Mr Sola Oni of Sofonix Investment and Communication Ltd corroborated Mr Onyx explanation. He said most of these companies whose share prices do not appreciate do not announce their results especially publishing it at the Nigerian Stock Exchange.
“The only way to know if a company is doing well is through its financial reports. Since they do not announce their reports, investors would not know if the company is actually making profit so as to invest in it”. Most of the companies that announce their result do not declare dividend to their shareholder which is a major reason why investors invest in a company’s shares. Truly most of the companies concerned did not submit their 2014 annual report to the Nigerian Stock Exchange.
Mr Anthony Ikpea a stockbroker said, if a company is perceived to be on the verge of collapse, its stocks would be abandoned since no one is willing to buy such stocks. Going further he said that the share value would not improve if the company is under technical suspension or full suspension and so trading is not carried out on those stocks during these periods. On why most insurance companies seemed not to be doing well in terms of their share value with most having share values of just N0.50, Mr Ikpea said Insurance is not a booming sector in Nigeria hence most investors don’t think it profitable to invest in it..
Most Nigerians are under-insured and it will take only legislative intervention to change this. Why did the existing shareholders buy these dormant stocks in the first place? Mr Ndubuisi Ekpo of Vinings Investment Ltd said that the present investors in dormant stocks invested during the capital market boom in 2007.
Due to the manipulation of the stock market then, these penny stocks seemed to be rapidly appreciating in value and so most investors went in and bought into them. The crash of the capital market led to the depreciation of the stock prices most to their nominal values (N0.50). The investors lost their investment; since no one wants to buy such stocks which are not profitable the shareholders have are saddled with these stocks since then.
Mr Anthony Ikpea said the Unity Bank was not doing well for a very long time because the bank had a lot of debtors which had serious negative impact on its profitability. The tremendous turnaround is due to their publishing the names of their debtors and drastic measures taken by them to retrieve their unpaid loans from these debtors. Asked if the dormant stocks would pick up this year, Ikpea said he had faith that the insurance companies would do well very soon due to steps taken by the regulatory body, National Insurance Commission (NICOM) to revive the sector and also with legislative measures taken by the government the insurance sector would come to life.
A lot has to be done by companies to improve on the profitability of their businesses. Except for the banking sector which has declared significant improvement in their profit for the first quarter, the other sectors seem to have started poorly this year as most of the quarterly reports released showed a fall in profit level. With this type of results it would be difficult to say if there is hope for share price improvement among the moribund stocks.