Stock Market Tips For Nigerians

WARNING: THE MARKET WARNS THAT LEARNING THESE AND OTHERS LIKE THESE IS LIABLE TO MAKE YOU WEALTHY

Here is a small instalment of the "tutorial" i spoke of late last year for my fellow nairalanders. I'm only able to do this because i'm on call and it's not so busy being sunday plus of course wifey & my son arent here!!  .

here goes nothing.

How to evaluate a stock:

Before we go into the ratios to observe, let me just first say a few words on growth and value investing. First lets be clear, they are not mutually exclusive and ideally should be combined in the individual investors portfolio.
Growth investing is when u buy a stock whose earnings are high and forecasted to get higher. As a result of the current high earnings and the markets expectations, the prices of growth stocks are likely to be high. allow me to use football as an example as i'm sure we have many premiership fans here. Growth investing is like buying the finished product like Chelsea football club did when abrahamovich went and bought players who are already stars (mercenaries). When u buy the ready made product u expect it to perform week in week out or in our case, fiscal year to fiscal year. these players are expensive but will probably deliver most times. the same way growth stocks are solid and experienced and will deliver 8 times out of 10. they may therefore be expensive.
Value investing is like what that yeye manager at Arsenal football club does by coming to Africa and other 3rd world countries to search for young, largely untested players who he hopes will go on to become world stars like the players in Man united  . ASSENE (notice i intentionally spelt his first name wrong  ) searches ivory coast, togo etc for players he hopes will develop to world beaters. The same way value investors search for companies that are really yet to attain their potential or are only in the very early stages of doing so. He uses the price/earnings ratio most for this search amongst other ratios. example. If i may be so bold, when easi or pumping say company X is expensive for example, they can only be talking in terms of the companies earnings and performance. The current price of Company X's share on the NSE divided by the earnings per share (will talk on EPS a little later) gives the P/E ratio, the king of ratios for value investors.

An individual investor in my humble but certain opinion would do well to combine both growth and value investing strategies in his portfolio, with value strategies carrying the largest chunk, probably in a 70:30 or 65:35 percentage.

Now to the ratios used in fundamental analysis of a stock

Oh, just to say that growth investors search for their "players" using earnings, that is, raw earnings and EPS (earnings per share). A groeth company is said to have earnings momentum whaen it increases earnings yr on yr or quarter or quarter.

to the Ratios now:

1.Current ratio:
 Calculated by dividing the current assets of a company by its current liabilities. the word "current" isnt used in its everyday parlance here. Current assets refer to the assets of a company that can be immediately converted to cash eg accounts receivable, inventories, raw cash itself of course, etc.
Current liabilities refer to a companies debts that are required to be paid usually within one year, eg accounts payable.
Current ratio measures a companies ability to keep short term commitments. You want the ratio of current assets:current liabilities to be anything from 0.5:1,1:1,2:1, etc, as long as the current assets are more than or equal to the current liabilities side (at least no less than 0.5 preferably)

2. Dividend yield:
a favorite for nigerians is dividends but more importantly, dividend yield is more helpful. It is calculated by dividing the annual dividend a company pays out to share holders by the price of the share. example company A. it pays its shareholders a total dividend (adding all the dividend they paid per quarter together) of N1 and its share price is N20. its dividend yield is 1/20=.05, .05*100=5%.
You will notice that there are only 2 parameters used in calculating dividend yield, dividend and share price. Annual dividend for most companies remains relatively stable with little variation yr to yr. the price of the share on the other hand, changes daily, so if for example the share price of company A goes up to N40, the dividend yield becomes 2.5%. this ratio is best used for large cap companies and can help u choose between them

got to run for now, patients to see. will continue as time allows

Wanaj0,
Your math is a bit off. 200k units x 360 applications is 72M units. Or did u mean 3600 applications?

Anyway, not that I'm trying to get in but is there anyway you can post the prospectus?

@Wanajo;

What will you advice those of us in the diaspora to do, I got a scanned form (pre-signed)and send it off and I hope this numbering for the guys on ground will not put us at a disadvantage what do you advice ? .

I don't intend to buy more than the minimum unit.

Could anyone confirm if Champion Breweries Plc is on TS ? Thanks

Yeap. It is on TS and has been for more than a year now. If you get any info abeg let me in on it. I was searching for the stock last year but about a month and half ago my brokers jobber gets in touch that he has about 2million units for sale. Last year I would have snapped it up without asking questions but having seen them be on TS for more than a year now, I am a bit skeptical. Plus everybody at UBA registrars dey form deaf and dumb for this one. If you get info abeg mail me at daloot_y2k at yahoo.com, I go really appreciate am.

I don't know seuns gmail account - I have volunteered for moderator be4 - he no reply,

Its better to have about 2-3 moderators especcially for this thread, we don't want it to degenerate.