The hullabaloo created by the listing of MTN Nigeria shares on the Nigerian Stock Exchange is finally getting clearer but there are signs the market is not rational, a move that portends possible danger.
Last week, MTN Nigeria Communications Plc listed its shares worth estimated a market capitalisation of N1.8 trillion at N90 per share on the Nigerian Stock Exchange, NSE. The listing which referred to as ‘introduction’ allows existing MTN shareholders to sell up to 20% of the shares in their custody with no commitment to do so.
The frenzy and anxiety from the investing community could have misunderstood the listing. Within the same day, it was listed, the share price went as high as 10% despite zero trade in the stock. In the last week, the stock has risen by over 60% at N133 per share.
There are already waves of anger, dismay and accusations from various quarters as to why there are few trades in the stock and its share price keep rising. While MTN Nigeria has defended its position that its shareholders are at liberty to sell or not to sell with a backup statement from the Nigerian Stock Exchange, NSE, that MTN should make the shares available, there are more serious concerns raised by analysts.
An analyst at Stanbic IBTC Capital is of the opinion that the unprecedented rise in MTN Nigeria shares is going beyond logic and rational embers.
For instance, publicly-listed emerging market pairs of MTN Nigeria when compared using the enterprise valuation EBITDA(EV EBITDA- earnings before interest, tax, depreciation and ammortisation) are only trading within a ratio of 5 with an exception of Kenya’s Safaricom which trades at eight times its EV EBITDA because the company has other business units such as it MPesa mobile money business that generates high revenue for the company apart from its conventional telecoms business.
The analysts warned that because MTN Nigeria does not have these high revenue yielding products apart from its voice and data business, it is very illogical for its share price to be nearing such EV EBITDA ratio.
There are signs that sophisticated institutional investors have pull-out of the appetite to buy MTN shares as order value have since dropped from a high of over 200 million per day to less than 50 million. This is despite the fact that few trades executed so far are cross trades that merely take place between a seller and buyer.
The real fear is that the share price appreciation defies market-proven logic and bubble might have been created. Last week we did a report on why investors should seek guidance before seeking to buy the shares as a result of many peculiarities of the listing.
An investment analyst who pleaded anonymity told PageOne that most existing shareholders of MTN Nigeria are not willing to sell because many of them bought the stock at private placements where they paid far more than the current market price per share. He warned that they will continue to hold on to the shares before they offload it on the market, an event that could see the share price falling down very fast more than expected.
A person with the knowledge of the matter claimed that some shareholders paid as high as $18 per share (the equivalent of about N6,000) during a recent private placement. It, therefore, begs the question of why the share price continues to rise and shareholders are not selling.