Open up the stock table in your newspaper like that of your Business Day or Financial Standard to take a wider look at what you might have been seemingly running flipping away from or just can’t understand. Though there are lot of figures to grapple with, those are exactly the money makers in the capital market. Once you have a clue of what to look out for, you will be able to walk your way around it.
Starting with what the Stock market is or is not (the myths). Just like the name sounds ‘Stock Market’, a market is where you buy and sell or make an exchange. A stock however is product or goods that have a price tag and is sellable. Guess you have worked it out already, the stock market is a where you buy and sell or make exchange of products or goods that have a price tag and is sellable.
The Stock market is divided into two (2) tiers, namely: the second tier securities, which includes the emerging markets (new comers into the market) and the first tier securities (the old players in the market). However, for the purposes of this wright-up, our focus will be majorly on the first tier securities. This is further divided into major sectors of the economy such as Banking, Insurance, Petroleum, Agriculture etc. Each sector is listed across rows and columns whereby the row shows the list of companies in the various sectors and the financial information that applies to it. Whereby columns denote the heading of the financial information listed across rows.
Looking at our copy of the stock table and starting from the first left column to the extreme right column; the first is the Ordinary Share which lists the names of the companies in their various sectors.
Next to that is the Public Quotation Price which is used by the Nigerian Stock Exchange (NSE) to denote the entry price of each stock which is usually around 0.50k. This figure is of little albeit of no importance to us.
Just after that is the Current Market Price. As the name implies, this is the current price of the stock as its being traded or sold on the floor of the NSE. From the table, ABC Plc. has a current market price of N26.50. A ‘+’ in front denotes that the stock is readily available on the market while ‘-‘means it is scarce.
The next column is titled Ex-, which is further divided into Div (Dividend) and Sc (Script). This indicates whether a company has been marked down for div or script (this column will be marked by an X if that is the case). Dividend is a gain for the investor; it is the amount the company is willing to pay the investor out of their profit after taxation and other deductions. Script also a gain for the investor unlike dividend is a pay in the form of extra stock added to the one the investor already owned, e.g. for every two stock owned by the investor, one will be added (Both dividend and stock are usually decided upon at the company’s Annual General Meeting, AGM).
Next is the Business Done, which is further divided into; Price (N), Date and Quantity. Price is the current asking/bid price of the stock at the given date. Quantity explains the volume of that particular stock that was traded for that day on the floor of NSE.
High and Low column indicates the highest and the lowest price commanded by the stock within the reference year e.g. ABC has been as high as N26.50 per share and as low as N20.49 per share. This shows that ABC is performing at its very high considering the small range of increase/decrease in price. Oops, an awfully wrong time to buy ABC.
Next is the column titled Ex-Div Date and Ex-Sc Date, this indicates the dates when the last dividend and script were paid.
Still on the table is the column for Dividend (Remember our friend the dividend; the amount that the company pays annually, pulled out of its earnings to encourage its shareholders). In the case of ABC, each year, the company pays shareholders 100k. This column is further divided into Date Paid, which is the date in which the dividend was paid followed by Inter (Interim) and Final. If the dividend is paid once in a year, the amount per share paid will be recorded in final column. However if the dividend was paid twice in a year showing a boom in business for that year, then the amounts will be recorded in Inter and Final columns respectively. Having a quick look at what this dividend might look like; if you had a 15,000 units of ABC shares then your dividend at payment will be N15,000(N1.00x15000). Whoop, that was quick, exactly! You will have N15,000 of dividend in cash paid to you.
Our next stop on the table is the EPS (Earning per Share) column. This is just as easy as the word go, back to our reference company ABC: assuming ABC earns Five billion Naira (N5,000,000,000) after making tax and other deductions for the year, and the total number of shares(in units) held by shareholders is Five millions units (500,000,000). Then this earning divided by the total number of shares will give us N10. So our earning per share is N10. Brilliant!
The last column but not the least on our table is the PE Ratio which is derived by dividing our current stock price by the earning per share. In the case of ABC, our current price is N26.50 and EPS is N10. Sure you got it all figured out, PE Ratio is 2.65.Cool! Now does this value really mean anything to us? This tells us that ABC is currently being traded at 2.65 times its earning. However if say Dangote plc commands a current market price of 26.50 with an EPS of 2.39, then its PE ratio will be 11.09(26.50/2.39). Meaning the market expects Dangote Plc. to grow faster than ABC. The PE ratio therefore shows what kind of growth the market expects of a particular company in its sector. Let’s look at the following companies’ PE Ratio;
ABC wax- 7.50
Standard Print- 12.40
London wax- 17.80
Next clothing- 15.60
This PE ratio values shows that the market expects London wax to grow the fastest, Standard print and next clothing to perform fairly and ABC wax to be the least performer in the Clothing sector.
However unlike the other markets such as the money market, you are placed on any form of interest but how the forces of demand and supply view the stock and sector you are trading.
There you have all you need to be a stock analyst in a way though.
Look out for my next blog on how to translate the ratios you see in the table and other noteworthy tips on analysing the stock market. Cheers and Goodluck!!!
