The recent review of the composition of the market indices by the Nigerian Stock Exchange(NSE) may push most highly capitalised stocks like Ashaka Cement and Total Nigeria out of the NSE 30 index.
The Nigerian Stock Exchange NSE 30 Index is a major stock market index which tracks the performance of 30 most liquid stocks representing industry sector, listed on the Nigerian Stock Exchange. It is a capitalization-weighted index.
According to the daily official list of Friday December 19, 2014, the market capitalisation of Ashaka Cement closed at N55.09 billion where as its current share price settled at N24.60.
The company’s Price to Earnings(P.E) ratio stood at N30.75 even as its Earnings Per Share(EPS) closed at 91 kobo.
This exit is coming on the heels of the recent approval from Nigeria’s Securities and Exchange Commission (SEC) by Lafarge Africa to acquire 41.39 per cent stake in Ashaka Cement.
However, its parent company, Lafarge Africa has a market capitalisation of N224.76 billion and has a share price of N74.88 traded on the Nigerian bourse as at December 19, 2014.
In the same vein, Total Nigeria would also be leaving the list of 30 highly capitalised stocks on the main board of the NSE.
The Daily Official list also disclosed that Total currently has a market capitalisation of N48.66 billion where as its current share price is N143.31.
Total Nigeria has a P.E ratio of N11.10 and an EPS of N12.91.
Others going out of the NSE 30 Index include GlaxoSmithKline Consumer, Fidelity Bank and FCMB Group.
Nevertheless, 7up, Seplat Petroleum Development, Unity Bank, Sterling Bank and Mobil Nigeria are among the stocks that will be joining the index.
Reacting to the exit, Mr Tony Mordi, a Senior Stock Broker at APT Securities said: “The requirement of any company that meets up with NSE 30 index is dependent on the liquidity, capitalisation and volatility within the review period. They may be failing in terms of liquidity.”
According to a statement issued by the NSE: “As the Index Committee explained, The NSE-30, NSE-50 and NSE Industrial Indices are modified market capitalization index with the numbers of included stocks fixed at 30, 50 and 10, respectively. The numbers of included stocks in the NSE-Consumer Goods, Banking, Insurance and Oil/Gas Indices are 15, 10, 15 and 7, respectively.”
“The Stocks will be picked based on their market capitalization from the most liquid sectors. The liquidity is based on the number of times the stock is traded during the preceding two quarters. To be included, the stock must be traded for at least 70 percent of the number of times the market opened for business.”
The Committee further stated that the exchange was not oblivious of the fact that the number of the
stocks that will be included in some of the indices may be inappropriate for optimal portfolio
diversification; however, the numbers would be reviewed as sector conditions change.
The Nigerian bourse began publishing the NSE 30 Index in February 2009 with index values available
from January 1, 2007. On July 1, 2008, the NSE developed four sectoral indices and one index in 2013,
with a base value of 1,000 points, designed to provide investable benchmarks to capture the
performance of specific sectors. The sectoral indices comprise the top fifteen most capitalized and liquid companies in the Insurance and Consumer Goods sectors, top ten most capitalized and liquid companies in the Banking and Industrial Goods sector and the top seven most capitalized and liquid companies in the Oil & Gas sector.
The indices, which were developed using the market capitalization methodology, are rebalanced on a biannual basis -on the first business day in January and in July.
The compiler of the indices maintains the right to modify the circulated selection above in connection with any mergers, takeovers, suspension or resumption of trading or any other company structure changes during the period before the effective date of the annual review.
Source : Tribune