Age-long traditional certainties have been upturned and new reality constructed in the Nigerian food and beverages sector, commonly known as dairy products sector of the economy, as the elite Nestle Nigeria has had its long held prime place as the most capitalized fast consumer goods company (FMCG) displaced by BUA Foods, a relatively new comer in the sector.
Analysts say the firm’s share price rise was not necessarily driven by company fundamentals or specific business model. Ambrose Omokordion, chief research officer at Investa told BusinessHallmark that ” the development is a puzzle, since it was not driven by fundamentals.”
The fast moving BUA surged by 59.1 per cent in valuation from a market value of N720 billion (at N40 per share) to N1.2 trillion at N66 per share in the space of one week.
The development was propelled by excessive, overwhelming demand for its shares. This has led to a strong suspicion among traders given a slew of upset it has produced.
BUA Foods Plc entered the elite SWOOTs having crossed the N1 trillion threshold required to be classified as a member of the group.
Omokordion said “this is a big upset for the normally complacent Nestle since for decades it had no rivals, until the previous week. Nestle remained the most capitalized and only consumer goods stock in the classification and valued at N1.23 trillion.
However, at the end of trading session penultimate Friday, BUA Foods surged dramatically to rank as the most capitalized consumer goods stock on the Nigeria Exchange.
In a dramatic upset, Nestle Nig Plc posted depreciation in share price from N1,556.50 to N1,435 per share, amounting to a loss of N96.31 billion and taking the company’s market value to N1.14 trillion.
With this development, BUA Foods Plc has of today supplanted Nestle Nig Plc by N50 billion in market value, upstaging Nestle Nigeria Plc to be the most capitalized consumer goods company on the NGX.
What the Analysts Say
According to Amusa Dayo, chief researcher at Statistica, the reason for the sudden surge witnessed in BUA Foods could be partly attributed to the fact that “the company is witnessing a surprisingly tremendous rally as a result of its consolidation in the consumer goods market.
According to him, a view shared by Omokordion, the consumer goods company is smart and seems to be benefiting as well as exploiting advantage of their customer segmentation and reduction in costs which in the main, has made the stock of the company attractive to investors, hence, the rally around the shares of the newly listed company.”
Dr. Olufemi Omoyele, director of Entrepreneurship at Redeemers University said the shares of Nestle are currently at a premium and drawdowns, might come very soon.
He said, “As far as I’m concerned i know that we should expect drawdowns of some sorts at the end of Q1, we are going to see a lot of development as we inch close to the election period, investments may dry up as investors may be positioning to sell.
The BUA achievement has rubbed off on the Nigerian Exchange, as the Nigerian stock market, which has gained considerably by 4.07 per cent since the beginning of the year, has clung to the ladders of gains by BUA Foods to achieve that feat.
Recall that in December, BUA, which churns out flour, pasta, sugar, rice and edible oil pulled off a successful consolidation of its five business units into a single entity ahead of its listing.
The shares of the Nestle Nig. Plc had risen by 1.41% from year-to-date, starting the year at N1,415 and currently traded at N1,435. However, the shares of the company have returned about 6.30% gains for investors who bought them at their 52-week low trading price of N1,350 per share.
Omokordion said “the steep rise in BUA Foods share price reflects to some extent, the circumstances around the sharp increases of the shares of its sister company BUA Cement when it too listed on the Lagos bourse about this time two years ago.
Surprisingly in a space of one year the share price of BUA Cement, which listed at N35 per unit shot up to N85, helping to lift the fortune of Abdulsamad Rabiu, the chairman by 77 per cent to $5.5 billion under 12 months and catapulting him to the sixth position on Forbes’s African billionaire ranking.
Mr. Rabiu and his son Abdulsamadu Isyaku Rabiu (Jnr) are reported to hold 99.8 per cent of BUA Foods shares between them, the former owns 88.9 per cent and the latter 10 per cent, according to the company’s listing memorandum.
Analysts use PE ratio to know if a company’s stock is overvalued, meaning trading above its real value, or undervalued, meaning trading below its intrinsic value. A high PE ratio indicates the stock is overvalued while a low PE ratio implies it is undervalued.
The PE ratio of BUA Foods, which was above 40 at the point of listing, has risen well above that level, considering that its share price has scaled up by nearly three-fifths since then, and is now well above the average PE ratio of a sector that also comprises companies like Dangote Sugar, Flour Mills, Cadbury, PZ Cussons and Unilever.
Many analysts are in a quandary explaining the BUA fortune, though some traders are saying the sentiment on the stock since it listed is not quite reflective of the market.
Yinusa Aminu, a stock broker seems to agree with the view of some traders who disagree with view that sentiment is behind the BUA feat when he said, “How can it be when the market barely knows anything about the company?”
“Some of the companies’ products are not yet launched. The ones that have been launched are not popular.”
According to an analyst that asked not to be named because of the sensitive nature of the subject, whatever is driving the price is not likely to be market sentiment because the price is not fundamentally justifiable and is probably artificially driven by promoters.