investigation has shown that 45 companies out of a total of 198 companies listed on the Nigerian Stock Exchange (NSE) are trading at par value, representing 24.2 percent.
The nominal value is the face value of a stock and such stock is not permitted to fall below its par value. It is the value stated in the corporate charter below which shares of that class cannot be sold upon initial offering. In the Nigerian Stock Exchange, the par value of quoted companies is 50 kobo.
A committee was set up in 2013 to consider the possibility of removing the restriction of not allowing stock to fall below its nominal value. The report was submitted and was agreed that the cap would be removed in 2015.
Looking at the daily official list of equities as of October 24 showed that out of 198 listed companies in the main board and Alternative Securities market combined, 48 of it are trading at 50 kobo, which represent 24.2 per cent of the total listed companies on NSE.
Investigation by LEADERSHIP showed that under insurance sub-sector, 21 companies have deteriorated to par value of 50 kobo. In the banking sector, Unity bank is the only lender trading at N0.50 per share, while three companies trading at par value are under the mortgage sub-sector.
The following are trading at 50 kobo, Union Diagnostic, Omatex Computer, Chams, Starcomms, MTI, First Aluminum, IPWA, Nigerian Wire and Cable,Nigerian Sowing Machine, Stovis, Multiverse and among others. However, NSE had service a notice of delisting to some of these companies.
In 2013, the Chief Executive Officer of NSE, Mr. Oscar Onyema had announced measures aimed at reviewing the market structure that bars shares of quoted companies from falling below their par value.
Market operators have said that those companies trading at par value are not adding value the market capitalization.
According to the managing director of Datainvest Consulting Limited, Mr. Ambrose Omodion, companies trading at par value are not adding value to the NSE capitalization.
He pointed out that “the market capitalization as at today stood around N13 trillion, if all stocks especially insurance stocks selling at par value can be selling above N1, it will impact on market capitalization and also impact on company capitalization. Even though they have two billion ordinarily share, the value will be N1billion due to their price.”
He added that all the stocks trading on the NSE have 50 kobo par value, any company above the par value sells at the premium value, saying “which mean the market had appreciated the company share price as regards to their performance.”
He said that any company selling at its par value shows that they have no fundamental to uphold the price.
Managing director, GTI Securities Limited, Mr. Babatunde Oyekunle explained that the par value issue at the capital market is a sensitive that involves safeguarding investors’ confidence.
“Some of these companies are making profit now while some are not making profit. It entails an investor to look at the intrinsic value. Trading at par value does not means those companies cannot appreciate in price in the future either by merger or acquisition by another company,” Oyekunle said.
Some of these companies can merger to a bigger company that propel their share price while some can be acquired by a foreign firm that will be able to deliver value to shareholders of those companies.
The managing director of Highcap Securities Limited, Mr. David Adonri, said those companies trading at par are not adding significant value to Market Cap, adding that most of them are not making profit and have failed to reward their investors.
However he said that as business become more favourable, some of them will appreciate in price.
Speaking on removing the cap, Oyekunle said “Some market analysts have suggested that they should remove the cap peradventure those companies below N0.50 per share would attract some investors to considered buying.
Meanwhile, a look at the market for last week showed that the market capitalisation appreciated by N293 billion to close at N12.906 trillion when compared with the N12.613 trillion posted the previous week. Equally, the All-Share Index increased by 889.37 points or 2.33 per cent to close at 39,087.10 as against the 38,197.73 achieved the previous week.
Analysis of the price movement chart for last week indicated that Costain topped the gainers’ table by 16.25 per cent to close at 93 kobo per share. Neimeth came second on the activity chart with 13.27 per cent to close at N1.11, while Learn appreciated by 10.69 per cent to close at N1.45 per share.