Falling Prices, Fear of Value Erosion Discourage New Listings

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Goddy Egene

The persistent bearish trend that has depressed the share prices of most stocks is discouraging new companies from listing on the Nigerian Stock Exchange (NSE), THISDAY checks have revealed.
While the Nigerian Stock Exchange (NSE) has made several efforts to increase the number of new listings, many of the companies are reluctant to list their shares.

Market sources said two major reasons companies are reluctant to list despite the many benefits derivable are the poor persistent slide in prices and the possible erosion of value as experienced by two companies that were listed two years ago.

“The management of the NSE has brought innovations to the market capable of attracting new listings. But many of them are afraid of value erosion after listing given the current bearish trend. The situation is worsened by the rate at which the shares of Seplat Petroleum Development Company Plc and Caverton Offshore Services Group Plc that were listed two years ago fell,” a senior market operator said.

The stockbroker, who confirmed that his firm has companies that are willing to list, noted that the major obstacle is fear of losing the value of their investments after listing.

Seplat and Caverton were listed on the NSE on April 14 and May 20, 2014 respectively. Seplat was listed at N576 per share while Caverton listed at N9.50.
Two years after, value of the shares has fallen significantly. Specifically, Seplat has declined by 39 per cent, having depreciated from the listing price of N576 to N350 as at Monday.

Caverton has suffered a value erosion of 83 per cent as the shares fell from the listing price of N9.50 to close at N1.65 on Monday. Apart from the general bearish trend in the market, the two companies recorded lower profits both for the 2015 full year and first quarter of 2016 due to challenges the oil and gas sector is passing through.

As a survival strategy, Caverton is planning diversifying its operations outside the oil and gas industry and focus on cost reduction.
Chief Executive Officer of Caverton, Mr. Bode Makanjuola said: “The slide in oil prices with the resultant reduction of activities by international and local oil and gas companies continue to impact the service sector of the industry. Part of our strategy to weather the current challenging business environment is to continue to focus on cost efficiency without compromising on our safety standards.

The implementation of our strategy to increase service offerings is ongoing as we have commenced construction of the MRO and overhaul facility in Ikeja, Lagos. We will also continue to explore other innovative solutions in support of deep and shallow water operations in both marine and aviation business.”