NIGERIA'S OVER VALUED EQUITIES
From the start let us get one thing straight: One man's overvaluation is another man's fair deal. It all depends on the need, satisfaction hoped for and availability of alternative.
Yet there is no market made up of different commodities on offer where valuation issues will not occur especially in a market like the Nigerian stock market where normally brokers and investors perception count but shadowed by relative knowledge.
So, it is assumed that the average investor who reads this would have established his own parameters and objectives by now.
One useful tool for establishing relative valuation in the stock market is the price earnings ratio (PER). In a nutshell it gives an idea of how long it will take an investor who buys at the stated price to earn his money back based on most current earnings per share of the equity.
Henates discovered during a recent study that of the 179 equities quoted in the main board of the Nigerian stock market by February 22, only 126 had stated PER. A total of 53 equities were blank.
Now of the 126, the average PER by February 22 was about 30.1123. In other words, by simple rule of averages any PER above this figure was likely to be a candidate for overvaluation.
For our study Henates opted to assume that 25 years is long enough years for an investor to stand a chance of earning back his investment. So, Henates instead decided to find out equities with above 25 PER.
In all about 30 of the equities with stated PER in the main market had PER of 25 and above.
A total of eight of them were insurance companies, three were Brewers/Distillers just for Petroleum products marketing while Industrial goods ; specialty and mortgage carriers recorded two each.
Top Price earnings ratio by February 22 was recorded against Interlinked Technologies PLC at 1172.375 at market price of 4.21 per share. This equity could perhaps offer a good example of how perception rules the market. Recent figures indicate good returns potential from smallness but then, that is more effectively in the horizon. Is it over priced? That is the question each interested investor may have to decide for himself.
In the second place from a long distance was Union Dixon from the Food products subsector. It had PER of 274.074 at a price of N11.84 per share.
At the third place was REIT subsector's Union Homes with 238.0 PER at a price of N45.22 per share by February 22.
Other equities in the top ten bracket in order of appearance were Champion Breweries with 154.054 at N2.85 per share; Prestige Assurance with 113.636 PER at par; Con Oil with 104.388 at N18.34 per share and Unilever with 102.527 PER at N28 per share.
A second petroleum products equity on the top ten was Forte Oil at nineth position with 76.880 at hefty N342 per share. Before it at eighth place was West Africa Provincial Insurance with 87.719 PER at par.
Ten of the 30 with top PERs by February 22 were at par of N0.50 per share mostly insurance companies and had remained firm there in years because the exchange does not encourage pricing below par.
Yet there is no market made up of different commodities on offer where valuation issues will not occur especially in a market like the Nigerian stock market where normally brokers and investors perception count but shadowed by relative knowledge.
So, it is assumed that the average investor who reads this would have established his own parameters and objectives by now.
One useful tool for establishing relative valuation in the stock market is the price earnings ratio (PER). In a nutshell it gives an idea of how long it will take an investor who buys at the stated price to earn his money back based on most current earnings per share of the equity.
Henates discovered during a recent study that of the 179 equities quoted in the main board of the Nigerian stock market by February 22, only 126 had stated PER. A total of 53 equities were blank.
Now of the 126, the average PER by February 22 was about 30.1123. In other words, by simple rule of averages any PER above this figure was likely to be a candidate for overvaluation.
For our study Henates opted to assume that 25 years is long enough years for an investor to stand a chance of earning back his investment. So, Henates instead decided to find out equities with above 25 PER.
In all about 30 of the equities with stated PER in the main market had PER of 25 and above.
A total of eight of them were insurance companies, three were Brewers/Distillers just for Petroleum products marketing while Industrial goods ; specialty and mortgage carriers recorded two each.
Top Price earnings ratio by February 22 was recorded against Interlinked Technologies PLC at 1172.375 at market price of 4.21 per share. This equity could perhaps offer a good example of how perception rules the market. Recent figures indicate good returns potential from smallness but then, that is more effectively in the horizon. Is it over priced? That is the question each interested investor may have to decide for himself.
In the second place from a long distance was Union Dixon from the Food products subsector. It had PER of 274.074 at a price of N11.84 per share.
At the third place was REIT subsector's Union Homes with 238.0 PER at a price of N45.22 per share by February 22.
Other equities in the top ten bracket in order of appearance were Champion Breweries with 154.054 at N2.85 per share; Prestige Assurance with 113.636 PER at par; Con Oil with 104.388 at N18.34 per share and Unilever with 102.527 PER at N28 per share.
A second petroleum products equity on the top ten was Forte Oil at nineth position with 76.880 at hefty N342 per share. Before it at eighth place was West Africa Provincial Insurance with 87.719 PER at par.
Ten of the 30 with top PERs by February 22 were at par of N0.50 per share mostly insurance companies and had remained firm there in years because the exchange does not encourage pricing below par.
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