The nation’s capital market is gradually witnessing the disappearance of what in market parlance is known as penny stocks or growing stocks due to the sudden rise in prices of these stocks. The development seems a good one for the nation’s emerging market that is fast making spirited efforts to become a bigger and highly sophisticated one. But it is capable of edging out the penny investors out of the market, writes Akinola Ajibade.

Ndi Okereke-Onyiuke, NSE, Director-General

The growth in the nation’s capital is having a spiritual effect on the activities of several quoted companies and by extension stocks. Some stocks have gained ascendary in terms of price appreciation and return on investment while others have not.

Interestingly, the recapitalisation of the banking and insurance sectors has ignited interest in the capital market, with many investors buying into various offers from banks and insurance firms. The development has had a far reaching consequence on the market. Many stocks are not only well patronised but are priced beyond the reach of many investors. And investors, in order to take positions, mop up lowly priced shares or penny stocks. Though, the issues of penny stocks is relative depending on the status of the market where they are being traded. But suffice to say that the market is gradually seeing end of penny stocks as they are experiencing sharp increase in prices.

Evidence abounds in various sub sectors. Cutix Nigeria Plc, a cable company graduated to first tier market recently. It closed at N21.17 on Thursday 14th February 2007 representing about 1800 per cent increase over the N1 it was priced a few years ago. Adswitch and Capital Oil, both penny stocks a few years ago now traded for N6.34 and N15.01 respectively. Juli Pharmacy is waking up as it closed at N1.33 recently from 50 kobo last year.

Companies at the first tier market are trading similar path. Insurance stocks that traded as low as N1 or N2 early last year are showing signs of rapid growth. Analysts predict a two-digit price for such stocks before December 2008 due to their good performance. Intercontinental Wapic Insurance is comfortably above N10, just as many others are following Tripple Gee in the computer segment is priced around N13, far higher than the N2 price years ago.

Nigerian Wire and cable Plc is N11.10, making about 900 per cent increase in price. In the maritime segment, Japual’s share price has moved from N1.40 kobo early last year to N13.45 kobo. It has recorded over 1000 percentage increase in price. Deap Capital, priced as low as N1 last year is one N8.74.

Avon Crownpacs, Beta glass and Poly products are experiencing spiral were at a time increases price. In the Healthcare segment, May and Baker, Neimeth, Pharma-Deko could be passed for penny stocks a few years ago, but have now become some of the highly priced stocks in that segment.

Even in the banking sector, some of the stocks boasting of higher prices today were at a time penny stocks. The same is true of blue chip companies that have their share prices marked up by between N60-N150 were at one point or the other in the category of penny stocks.

However there are companies that still remain in the class of penny stocks. Their prices range from between N0.14 kobo to N1.50 kobo. The companies include; Wiggings Teape, Onwuka hi-Tech, Tate Industries, Ferdinand Oil, Beverages West Africa, Oluwa glass, Nigerian Lamps BCN plc, Abplast, Studio Press Nigeria Plc, Stokvis Nigeria Plc, Enpee Industries Plc among other textile companies. They have over the years recorded dismal performance. Some have not declared dividends since 1992 and there seems to be no hope in sight for them to perform as they are technically dead. Some have not been producing at optimal capacity, making it impossible to classify them as stocks that would grow with time. Be that as it may, penny stocks are existing in the nation’s capital market despite the obvious and stunning growth of the market.

Market observers argue that the development may force owners of penny stocks out of business. They base their arguments on the rising cost of shares in the market. Many are optimistic that the gradual exit of penny stocks is a good omen for the nation’s emerging market, claiming that it would bring big players into the market.

National Co-coordinator, shareholders’ alliance, Mr Dele Joseph said that the prices of most shares have increased in recent times due to the consolidation of the banking sector. He said that the development has confirmed that the market is liquid and capable of competing with many of the developed markets in other spheres.

He predicts a massive surge in the prices of many stocks, claiming that many companies have come out with good fundamentals that would move their shares up. The impressive audited results of quoted companies according to him, speak volume of this development. Specifically, he cited banks’ shares as having the tendency to appreciate up to N100 before the December 2008, adding that the so-called penny stocks would graduate into price spinning shares soon.

Joseph’s assertion is reinforced by the unfolding developments in the capital market in the last ten months. Quite a large number of insurance stocks are no longer penny stocks, having moved from between N2-N8 and still have the capacity, based on market predictions to about N20 in the next couple of months recorded more than 300 increases, closing at between N10-N15.

Also, a financial analyst, Taiwo Oladipo corroborated this assertion, saying that most of the stocks often classified as penny now attract higher prices Oladipo, a staff of Century Securities Limited believes that the market is rapidly responding to growth.

He however, views penny stocks in relative terms, stressing that a penny stock is different from one market to another.

According to him, there are no limits to the prices of penny stocks, adding that the indices that determine such stocks vary from one area to another.

He says that if the least price stock in the country is N10 or N15, it has become a penny stock. Oladipo maintains that penny stocks exist in vague terms as no one can really say which stock is penny or not since they have the tendency to react to market forces positively when the economy is good.

The inference from the above is that nature or status of the market determines penny stocks. The developments in Johannesburg, New York or London stock exchange for instance lend credence to this view. They are well developed markets where transactions are in foreign exchange. This therefore means that for a company to get listed in such exchanges, it must have met certain listing requirements such as brands that appeal to international investors, huge capital base and records of performance. When the stocks of such companies are allowed to be traded, they are in foreign currency which means that they would have higher value in terms of prices.

Given this scenario, lowly priced stocks in Europe among big markets might have value that equal that of major stocks in the nation’s capital market.

Whichever way one looks at it, stocks in the market are gaining more value. They are as a result shifting positions and forcing penny stocks gradually out of the market.