Premium Board exposes high concentration risk at stock market

by | April 20, 2018 1:05 am



The shallowness of Nigeria’s stock market which gives stock investors little or no options to diversify their portfolio has further manifested in the recent increase in the number of Premium Board listed companies.
The cumulative value of just seven listed companies on the Nigerian Stock Exchange (NSE) elite Board represents approximately 50 percent of entire equities market capitalisation at N14.8trillion, BusinessDay check shows.
Access Bank Plc, Lafarge Africa Plc, Seplat Petroleum Development Company Plc and United Bank for Africa Plc were on Monday April 16, 2018 migrated to the Premium Board. These four companies joined the likes of Dangote Cement Plc, FBN Holdings Plc, and Zenith International Bank Plc who were migrated to the Premium Board in 2015.
As at Thursday April 19, 2018 the seven Premium Board companies were cumulatively valued at N7.055trillion with Dangote Cement Plc leading the pack at N4.302trillion.
Others are: Lafarge Africa Plc (N397.676billion), Zenith Bank Plc (N847.705billion), United Bank for Africa Plc (N381.323billion), Access Bank Plc ( N326.886billion), FBN Holdings Plc (N439.717billion) and Seplat Petroleum Development Company Plc (N413.088billion).
“I know that one of the key things the Nigerian Stock Exchange targets is to deepen the market by attracting more listings. If you take away banks and a few consumer goods, there is no other option for investors. In our conversation with investors, their concern is always that many stocks are not traded,” said Christian Orajekwe, head research and strategy at Cordros Capital by phone.
Orajekwe admits that there is a high concentration risk which capital market regulators and government need to improve upon.
“It calls on the leaders of the country to create enabling environment for business growth and attract more growth companies to list on the NSE. From international perspective, report on Foreign Direct Investment is not impressive,” Orajekwe added.
“Stockbrokers will continue to count on these stocks on the Premium Board to ensure the market is sorted out,” said Emeka Madubuike, Managing Director of Compass Securities Limited who is also immediate past chairman of Association of Stockbroking Houses of Nigeria (ASHON).
Companies on the Premium Board are already enjoying the highest levels of visibility and appeal to investors looking for large companies with highest standards of corporate governance.
“From inception to date, the Premium Board Index continues to outperform the benchmark NSE All Share Index (ASI) with the Premium Board recording a total return of 84.99percent versus the NSE ASI’s 41.79percent as at April 11, 2018,” said Oscar Onyema, Chief Executive Officer, NSE.
“It shows you that the market does not have enough depth. The blue-chips dominate the market. Going by the way the market is currently, it will always be driven by the Premium Board stocks. MTN listing will enhance both depth and liquidity of the market,” Victor Chiazor, head research and investment at Lagos-based FSL Securities told BusinessDay on phone.
“The premium list could also be referred to as the new blue-chip stocks for the Nigerian Stock Exchange. You can safely buy them knowing that they respond only to market fundamentals,” said research analysts at Capital Bancorp Plc in a recent note to investors.
Patrick Ezeagu, chairman, Association of Stockbroking Houses of Nigeria, who is also the Managing Director and Chief Executive Officer of Solid Rock Securities and Investment Plc said that the companies listed on the Premium Board have roles to play to ensure the market is well placed for the development of the economy.

 

Iheanyi Nwachukwu