By Chinwendu Obienyi
When some entrepreneurial minded Nigerians opened the doors of the Lagos Stock Exchange (LSE), now the Nigerian Exchange Limited (NGX), on August 25, 1961 with only 19 securities on its main board, many could have taken it as another exclusive club for few privileged moneybags looking for avenues to flaunt their wealth.
As at then, there were four subscribers to the exchange’s Memorandum of Association and they include: R.S.V. Scott, representing C.T. Bowring and Co. Nigeria Ltd; Chief Theophilius Doherty; John Holt Limited; Investment Company of Nig. Limited (ICON); Sir Odumegwu Ojukwu; Chief Akintola Williams and Alhaji Shehu Bukar.
Also, the volume of stocks traded for August, 1961, was about 80,500 pounds and it rose to about 250,000 pounds in September of the same year with the bulk of the investments in government securities. The LSE thereafter in 1977 became the Nigerian Stock Exchange (NSE), with branches established in some of the major commercial cities of the country with Lagos as the head office of the Nigerian Exchange and an office in Abuja.
But 60 years down the line, that little foundation has become a veritable window through which the global business community sees the Nigerian economy. Furthermore, people were known to have made their first fortunes investing in shares, particularly penny stocks and the companies behind these stocks grew in size and stature and declared bumper harvests for everyone involved.
However, it has not been bereft of con-artists posing as stock market traders with false links to insider information that could make an investor rich overnight, ponzi schemes promising far greater returns in shorter periods, global then local stock market crashes, government policies inimical to some of these companies financial sustenance, currency trading, access to FX and crypto peddlers who came promising triple digit returns without risks, and in even shorter periods still.
Hence, low confidence began to creep into the mind of potential investors who were afraid of putting their investment in the stock market, particularly in equities especially after the market crash in 2008. But, a closer scrutiny of the Nigerian stock market returns over the last 5 years (2017–2021), reveals a different story.
With respective returns, year on year, of +19.5 per cent, -17.8 per cent, -14.6 per cent, +50 per cent and +6.1 per cent, the nation’s bourse has in the last five years surprisingly returned an average of 8.8 per cent each year. However, chief among the current success stories of the NGX till date has been penny stocks.
Daily Sun investigations reveal that, among the top 10 best-performing stocks for 2021, at least six of these were considered penny stocks with all of them returning well over 100 per cent in just 12 months, Morison Industries Plc, being the highest gainer with a whopping 306 per cent returns.
Penny stocks, in the capital market parlance, are equities with relatively lower prices, in which investors can make money quickly in terms of capital appreciation or better returns in terms of dividend or bonus issues. Considered high–risk due to relative small market capitalizations, they sometimes lack sufficient financial history and information, and predominantly have low liquidity, coupled with relatively low financial earnings per share (EPS), plus their susceptibility to even the smallest stock market volatility and, or, manipulations, makes them even riskier investments.
On the flip side however, one great advantage of penny stocks, is investor’s ability to build a diversified portfolio without a large capital outlay and their insanely rapid ability to gain in price valuation, sometimes within weeks, or even days. This thus makes them excellent growth stocks, if you can single one or two potential winners out of the herd with some promising undervaluation then you are well on your way.
Some of the attractive penny stocks in the market currently are RT Briscoe, SCOA, NCR, Multiverse, Chams, Courtville among others. Explaining why investors should see penny stocks as the current trend, the Managing Director, APT Securities, Kurfi Garba, said penny stocks have potential to even perform better in the near future.
“Looking at R.T Briscoe, they declared a loss in their result but their share price gained over 100 per cent in less than 2 weeks, moving from 20 kobo to now 39 kobo and it is time for penny stocks for investors because as long as the results keep coming in, penny stocks will keep appreciating because of the volume and price.
An investor has to see value in a penny stock before acquiring it and if you remember that JapaulGold declared a loss in their previous year results but it is moving and so their value is attractive. N1 million presently cannot buy you as an investor 5000 units of Airtel Africa and this is why the mindset of quantity comes into play anytime an investor chooses a penny stock”, he said.
The Managing Director, Highcap Securities, David Adonri, however, called on investors to be cautious of excessive dilutions and urged them to identify companies that have potential of benefitting from new economic policies such as the agro allied firms before buying the stocks.
“Currently, penny stocks are good but I advise investors to look at the direction of the Nigerian economy. They should identify firms that can benefit from new policies that can drive the economy. These companies are both large and small companies”, Adonri said.