THE CIRCUIT BREAKER'S BREAKING POINT

Even though theoretically, the circuit breaker introduced by the Nigerian stock exchange since January 15 aims at discouraging market volatility, the current market is still so shallow that volatile price changes in about 36 equities out of the 179 on the main market can trigger off halt in trading.
These are equities with market capitalisation above 25000m. This is because the All share index (ASI) which is the reference point for the circuit breaker is based on market capitalisation translated into weighted average for all the quoted equities.
Of this number, only 16 had market capitalisation of 12 digits and above by February 22, this year. In a way these were the big boys whose change in price especially of the volatile type could see the exchange heading towards first halt which comes, for now, when ASI rises by 5%.
Of this 16 seven were either quoted as banks under financial institutions or were quoted holding companies with banks as flagship subsidiary.
However the elite 16 by February 22 was led by Dangote Cement PLC which actually was in a class of itself as far as market capitalisation was concerned.
It was the only one with 13 digit market capitalisation of about 2382774m. Only one other quoted company was even up to half of this figure and it reflected well in the weighted average allocated to Dangote Cement of 0.283675287 in the ASI
Its nearest weighted average was Guinness Nigeria with 0.094024216. By implication any price shift in Dangote Cement should impact on ASI more than 10 times impact from any other quoted company by February 22 close of business except Nigerian Breweries.
The Dangote Cement potential in the ASI stems both from top issued capital and fairly high market value for its shares.
In terms of market capitalisation by February 22, Nigerian Breweries came second with 784980m and Nestle Nigeria Plc as a distant third with 534859m followed by Guarantee Trust Bank with 491500m and Forte Oil 446448m.
Nestlé  own was more a factor of very high price per share (N700) almost like Forte Oil that was priced at N342 per share. Not so for Guarantee Trust bank which was priced at N16.7 per share by February 22.
Nigerian Breweries on the other combined a fairly high N99 per share with substantial issued capital.
The bank or bank depended groups in the top 16 by market capitalisation stand greater chance of impacting more on the circuit breaker any time their figures indicate unexpected good or bad fortunes.
With GTB leading this pack by market capitalisation February 22, everyone of them was comparatively low priced with Zenith at N11.45; Ecobank Transnational at N15.60; FBN Holdings at N3.74; Stanbic IBTC at N14.15; Access Bank at N4.10 and UBA at N2.95 per share.
Others with potential to impact on ASI include LA Farge Wapco with N80.50 per share price; Seplat Petroleum helped greatly by its N318 per share; 7up Bottling also helped by its N168.5 per share and Unilever  quoted by February 22 at 28 per share.
Market capitalisation is a multiple of current market price per share and issued share capital of a quoted company. In view of the fact that theoretically it is what is issued that can traded at the market, it is a good measure of market situation when converted into an All share index based on issued capital.
However, in some companies the bulk of the issued capital may not be available for trading because it is in the hands of investors more interested in holding on to them.
This causes scarcity in the market for such companies and this may lead to overpricing especially when such companies are doing fairly well.
( Tomorrow Henates will try to answer the question: Which Nigerian equities are over priced? Make it a date.)

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