Sunday, July 24, 2011

History of Initial Public Offers (IPO) in the Ghanaian Capital Market.



Initial Public Offering which is popularly known as IPO comes about when companies issue new shares to the public to purchase as a source of raising capital. Ghana has a wonderful history of IPOs and since the inception of the Ghana Stock Exchange (GSE), there have been so many IPOs with an impressive performance in the market. Meanwhile others were just so bad and despite their impressive subscriptions, they traded badly on exchange.
On 12th November, 1990, Accra Brewery Limited (ABL) made a provisional listing on the Ghana Stock Exchange, making it one of the earliest companies to be listed on the Ghana Stock Exchange. This company and others existed before the inceptions of the GSE Public Limited Liability Companies hence were initially given provisional listing status before the formal listing. ABL made its formal listing on 20th December, 1991 (Source; GSE Research Dept.).
One IPO listing was by SPPC and this was from December to February 1992. Eight (8) million shares were offered but only 4.2 million shares were sold to raise an amount of 630 million old cedis (GHC 63,000). Mechanical LLoyd Company Ltd (MLC) also offered 11 million shares as IPO at 50 old cedis (0.05 pesewas) per share from December 1993 to February 1994 and only 9.36 million shares were sold which raised an amount of 468.16 million old cedis (GHC46,816). Looking at these historical trends, it is obvious that early IPOs were cheap but subscriptions were not impressive. In January 1995, HFC Bank stocks were oversubscribed when they made a placement.  Shares offered were 11.35 million at 100 old cedis (0.10 pesewas) and 13.10 million shares were sold to raise about 1,315.45 million old cedis (GHC 131,545). Most of the time, shares of this nature were patronized by foreigners because the investment community of Ghana was small by then. Aside the HFC placement, SSB (now known as SG-SSB) IPO in 1995 was also oversubscribed. Many companies like ALW, UTC, PZ, EIC, FML made primary issues which were not necessarily IPOs. In 2006, Ghana Commercial Bank (GCB) issued and IPO of 49.50 million shares but 68.44 million shares were subscribed. This oversubscription set the pace for most IPOs and the investment community of Ghana especially the youth, took advantage of them. Initial Public Offers of Camelot (CMLT), Produce Buying Company (PBC), Sam Wood Ltd (SWL), Cocoa Producing Company (CPC) followed and in 2004 alone, four (4) Companies (CLYD, BOPP, CAL & SPL) listed IPOs on the GSE. But how well do the trade on the Exchange?
About two year ago, Ecobank Transnational Incorporated (ETI) offered an IPO that was largely subscribed meanwhile these shares are facing liquidity problems as at now in the market. Share price of ETI has fallen below its IPO price and shareholders are not happy at all.  UT Bank entered the market with an IPO which was also oversubscribed but the question still remains, do IPOs perform well in the market. Shares of UT bank had so many problems when it started trading in the market but is currently bouncing back.
The most recent IPO issued in the market is the shares of Tullow Oil, just weeks ago and these were undersubscribed. Does it mean that the investment community is no longer having confidence in IPOs or it was due to the costly price of this particular offer? As an investor, you must find out because this can inform your investment decision.

Sunday, July 17, 2011

Is Ghana Stock Exchange a company? Who owns it? What is it then?

Hello reader,
I decided to write this because of some questions posed to me by some followers of this blog and it is all about the Ghana Stock Exchange. "Is the Ghana Stock Exchange a company?" she asked, If it is a company then who owns it and what do they do? If not a company then what is it?
Just like a market for trading fish, tomatoes, yam and other products, the Ghana Stock Exchange is a platform for trading securities (shares, bonds, futures, etc). Sellers bring their products and buyers come to buy. But because there are a lot of sellers and buyers, they are represented on the Exchange by Licensed Dealing Members (LDMs), (what people called Brokerage Firms or brokers). This means as a buyer or a seller, you cannot go to the exchange to buy or sell yourself (although some do).
The Ghana Stock Exchange plays a major role in securities industry regulation and is thus classified as a Self- Regulatory Organization. With respect to its numerous responsibilities, it simply monitors trading. It has Directors just like a company but the Securities and Exchange Commission oversees its regulation by making sure they do what they are supposed to do in the market and what is appropriate under the Security Industry Law (SIL)- the principal regulator.
When Public Limited Liability Companies want to raise capital for their business, the list shares on the exchange (that is, allowing people to own part of their company), so when investors study the company and find that the company is good and strong among other factors, they contact their brokers for them to make the trade - money, for part of the company. That is what the Ghana Stock Exchange oversees; that the right amount is paid and the ownership rights of part of the company is transferred to the name of the buyer or investor (in form of shares).
Finally, the Ghana Stock Exchange is privately financed and managed with the budget mainly financed by its members (LDMs and Associates) and issuer companies.


Tuesday, July 12, 2011

Value Investing and its rewards on the Ghana Stock Exchange.

There are different kinds of stocks or shares of companies on the Ghana Stock Exchange and every investor has a purpose for investing with reference to individual risk preference and time horizon. An investor’s purpose for investing could be for growth or for income or value. Value investing is investing in stocks believed to be worth far more than their current prices rather than those that pay high dividends or seem likely to appreciate irrespective of underlying value. 
On the stock market, there are some stocks that are mispriced. Mispricing is calculated as the difference between the estimated intrinsic value and the market price of a stock. Intrinsic value of an asset, in this case stock, is the value of the asset given a hypothetically complete understanding of the asset’s investment characteristics.  Therefore when a stock is undervalued on the exchange, there is an investment opportunity and smart investors take advantage of that.
The Question then is, how do you know whether a stock is undervalued or not? This is where you need an expert to advice you. Knowing this involves a lot of factors and calculations. One must first valuate the stock using some figures on the financial statement of the company. Some industry experts say that, UT bank is currently undervalued on the stock market. They make their argument with respect to the potentials of the company and how low it is currently priced on the Stock market (0.33p, courtesy: GSE). One thing you should know is that, so many investors do these calculations and that informs their investments strategy. An advice to you is that, for an active strategy to be consistent and successful, the investor’s expectations must differ from consensus expectations and be, on average, correct as well.

Saturday, July 9, 2011

Growth Stocks on the Ghana Stock Exchange

Growth stocks are stocks in a company that are growing fast and reinvesting their profits rather than paying high dividends. The share prices of such stocks grow and double or sometimes triple in days or months on the Exchange. Investors with the purpose of keeping their monies in the market for a longer time invests in this kind of securities to gain on their capital.
On the Ghana Stock Exchange for instance, shares of FML,EBG,FML,GCB,GGBL,SCB,TOTAL and UNIL are growth stocks since for the past five(5) to six(6)years their share prices have been increasing and profits are being reinvested. Standard Chartered Bank shares are currently priced in the Market at GHC 64.00 per share, meanwhile less than 3 years ago, this stock was priced than lower GHC 25.00 per share. This obvious is almost a triple jump in capital gain of the stock(SCB). Other growth stocks also perform really well on the GSE in terms of share prices.
One question is that, what is the benefit of investing in Growth stocks on the GSE? CAPITAL GAIN, is the answer. These stocks grow in share price because directors of such companies do not focus on only paying high dividends but rather reinvest the profits and in that case the company grows and investors build confidence in the stock hence invest. The demand of the stock on the market positively affect the prices of the shares on the market.
Growth investing is good and very rewarding but remember it requires time and patience. Keep investing and invest wisely.


Friday, July 8, 2011

First Time Investors on Ghana Stock Exchange

In 2009, I bought my first stock as a first time investor which was an IPO of ETI. I bought 500 shares at 0.29 cents (about GHC 0.34) per share. I bought this stock without any market analysis but just out of desperation to own shares on the GSE. I must say that I was also happy for the fact that the dividends were paid in dollars and at that time, the dollar-cedi rate was in favor of the dollar.
This stock performed badly when it started trading and now it has fallen lower than half its initial share price.
One lesson from this investment is that, an investor should not to rush into investing but to study the market very well especially IPOs.
As an investor, one must consider so many factors before buying a stock or venturing in the capital market. The Ghanaian Capital market is becoming robust every single day and hence requires more attention and advice to invest and gain from it. Brokerage firms are sprouting from time to time and that means people in Ghana are now seeing the need to take the investment job serious hence the need for investment advisers. Competition is getting keen but the question is how prepared is the market for first time investors- those that know very little about investing. Is it true that the majority of investors on the exchange invest with their sentiments with very little or no investment advice?

How many investors understand the GSE Security Depository (GSD) System and know the investment laws enacted by the Security and Exchange Commission (SEC)? Answers to these questions should caution the Ghana Investment Promotion Centre (GIPC) to be more active. I entreat all first time investors to study the market or seek advice from experts (brokerage firms) before investing. You can make a lot of money in the stock market, just ask how?


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