By Nse Anthony-Uko
(Sundiata Post) — The commencement of the new pricing methodology implemented by the Nigerian Stock Exchange (NSE), had saved 13 insurance stocks from dormancy
The stocks were active, with the newhaveactive with market operators saying the new rule methodology would increase market liquidity and improved price discovery especially for lowly priced stocks.
With the approval of the Securities and Exchange Commission (SEC), the Nigerian Stock Exchange (NSE) kicked off the implementation of the new rules on par value and share pricing methodology on January 29, 2018.
The rule stated that notwithstanding its par value, the price of every share listed on the Exchange shall be determined by the market, save that no share shall trade below a price floor of one Kobo per unit. By implication, share prices shall be allowed to trade as low as a floor price of one kobo, effectively removing the rule which places minimum allowable price to trade for any stock at its nominal value of 50 kobo, irrespective of the market forces.
Par value is the nominal value of a share as stated in the Memorandum of Association of the company while price floor means the amount below which the price of one unit of a share shall not be permitted to trade and in effect, the minimum amount payable for a unit of the shares of any listed company, in the event of a fall in the share price to this level.
Since the commencement of the new pricing, stocks mostly in the Insurance sector have experienced price movement. About 13 listed stocks that had remained dormant have experience activities since the take-off of the rule. The companies are Linkage Assurance, Consolidated Hallmark Insurance, Unic Diversified Holdings, Multiverse Mining and Exploration, Wapic Insurance, Japaul Oil and Maritime, Aiico Insurance, Lasaco Insurance, law Union, African Alliance Insurance, Royal Exchange, Linkage Assurance and FTN Cocoa.
The managing director of Highcap Securities Limited, Mr. David Adonri stated that several stocks that were at par when the rule started are now trading below 50 kobo, saying liquidity has once more been restored to those stocks.
A senior stockbroker with Calyxt Securities Limited, Mr. Tunde Oyediran said some companies that were inactive before January 29 are being actively traded on now. Oyediran noted that Japaul has done over 10 million units today, February 13, 2018 at 38 kobo, saying the same with many insurance companies. According to him, what is the essence of pegging a stock at 50 kobo with no liquidity, if that stock can be lowered and loosed liquidity.
Analysts at United Capital said that the policy may result in sharp depreciation of up to 37 listed securities which has not traded above 50 kobo for a long time, especially insurance companies, such as Cornerstone Insurance, Equity Assurance, Great Nigeria Insurance, Consolidated Hallmark, among others.
They also noted that this is expected to increase market liquidity and improved price discovery especially for lowly priced stocks. According to United Capital, with reduced minimum price of one kobo, stocks in the C categories that are intrinsically less than 50 kobo may be more prone to strategic trades or possible acquisition.
Some of the insurance are the biggest suspects especially as the sector remains ripe for further consolidation, amid the proposed implementation of more stringent risk-based supervision guidelines by the regulators.
Analysts at GTI Capital Limited added that this new rule will lead to a considerable level of share price depreciation on some listed stocks, especially, insurance counters, below 50 kobo as investors seeks to unlock their tied-up fund and investment in that sector. “Additionally, this will also throw-up opportunities such as mergers and acquisitions, price discoveries and corporate governance effectiveness,” he said.
The head of Market Surveillance and Investigation of NSE, Mr. Abimbola Babalola, said that the new method was aimed at improving liquidity, narrowing spreads and ensuring that all price-improving transactions had material impact.
Babalola said the new rules would effectively remove the current rule which placed minimum allowable price for any stock to trade at its nominal value, irrespective of the market forces. He said that as a result, stocks would be under new groupings and pricing rules and that price of every share listed on the NSE would be determined by market forces.
According to him, Group A, shall consist of large-cap equities that are priced at N100 per share or above for at least four of the last six trading months, or new security listings that are priced at N100 or above.
“Group B, shall consist of medium-priced equities that are priced at N5 per share or above, but less than N100 per share for at least four of the last six months, or new security listings priced at N5 per share or above at the time of listing.
“Group C, where majority of listed companies fall, shall consist of equities that are priced at one kobo per share or above, but below N5 per share, or new security listings priced at one kobo at the time of listing on the NSE.”
New NSE Pricing Save 13 Dormant Insurance Stocks
By Nse Anthony-Uko