How fast does information reflect in the prices of shares on the Ghana Stock Exchange?

The question about efficiency of the capital market always comes up in my mind. And now I am asking how fast information released by stakeholders of the market affects or reflect on prices on the exchange.

Shareholders make investment decisions based on the information they get from stakeholders of the market. Such information include new tax measures announced by the government, announcement of new products by the company, release of annual reports and announcement of higher or lower dividends. In the advanced markets, for instance on Wall Street, information released by companies or the government rapidly reflects on the prices of shares within minutes. Information release at non-trading hours affects the market in the next trading session.

In the Ghanaian market on the other hand, one can hardly tell the relationship between information and their effect on the prices in the market. Moreover, the speed of reflection on the market varies from time to time.
In the immediate past, CAL Bank share price saw a decrease when there was a problem in the company with respect to share transfer between two parties. How direct and certain can one be to link the cause of decrease in share price to that particular information? Other stocks in the market have shown similar trend. By my observations in the earnings season, share prices respond to the performance of companies as reported by their financial. Even at this time, the speed of reflection is an issue to be concerned about.

 I can’t wait for the capital market to reach the point where information takes minutes to reflect on the market. This would make the market active and inform investors in making good decisions moreover, aiding accurate speculations.

Is CAL Bank undervalued on the Ghana Stock Exchange?

The debate continues everywhere among investors as they keep wondering whether CAL Bank shares on the Ghana Stock Exchange are undervalued. My earlier post on the 2011 year review of CAL bank on GSE has shown clear analysis of CAL as at last year. It showed the potential of CAL's share price rising this year as the bank plans to recapitalize to meet the required capital as proposed by the Bank of Ghana. Meanwhile, some investors and market analysts argue that, the share price is undervalued to the extent of stating that there could be a rally on the exchange for these stocks very soon.
Let us look at some figures of the Bank; (courtesy: Bloomberg)

Valuation and Earnings as at 20.02.12.

The Banking stock shows a relative P/E to the GSE Composite Index of 0.2628 and a P/E ratio (ttm) of 3.6220 as reported by market analysts.

With a current market capitalization of about GHC 64.48 million, the Bank would recapitalize this year to meet the requirement.


Dividends figures & Other Market figures

Chart: Share Price Movement from December 2011 to Date on GSE.

Relationship Managers & Receptionists are not Stock Brokers. Talk to the right person.

 I have been observing this for some time now and I think it is getting on my nerves and moreover, investors are losing money because of this issue. I have been a victim and it was due to my ignorance. Don't make the same mistake. Some thing must be done. The Securities and Exchange Commission must act now to protect investors.

To many people in the Ghanaian financial market, everyone that works in a brokerage firm or with a Licensed Dealing Member (LDM) is having a good knowledge about the market or is a stock broker (Authorized Dealing Member). This misinformed public perception is reinforced by some ordinary workers at some brokerage houses who give their misleading recommendations about stocks on the market to ignorant investors. They speak so fluently and courageous as if they are authorized to give investment advice whiles their job is just to help investors or clients fill forms, explain the various investment opportunities to the client or direct them to the licensed /authorized advisor.  

On several occasions, a Relationship manager of a reputable Brokerage house tried to advise me on my investments with the aim of convincing me to invest in the firm's investment product which was a mutual fund whiles I insisted on talking to a broker. She thought I was just an ordinary investor who knows little or nothing about what I’m doing. She told me the stock market is not a place I should invest in. I asked why? And all she was able to say is that she doesn't invest there so she won't advise anyone to.  This was so surprising to me because I make so much money from the stock market. Moreover, she and her colleagues don’t have any authority to confuse investors in the name of investment advisory. It’s pathetic that investors are misled by this kind of ignorant people who act as experts. This must stop now.

I experienced the same thing in another brokerage firm when a receptionist tried to mislead me just because there was no broker around at that time. I ended up lecturing her about the current affairs on the market and the last thing she asked was my business card.

The Securities and Exchange Commission did not license these firms as broker-dealers or investment advisors because of the bogus advices their receptionists and relationship managers give. Every stakeholder must note this and I would advise all investors to seek for good advice from authorized, qualified and recognized investment advisory firms or people. The fact that someone works in such firms doesn’t make the person qualified to give investment advices. Be cautious and insist on talking to the best before you make any investment decision. Meanwhile don’t forget to do your homework before you invest. Study very well what you are investing in and talk to the experts not ‘ignorant’ receptionist.

2011 Year Review of CAL Bank on the Ghana Stock Exchange.

Overview of Company

 CAL Bank Limited formerly Continental Acceptances Limited and then CAL Merchant Bank was incorporated on March 20, 1989 but the bank was licensed in June 1990 and commenced business in July 1990. With issued shares of 238,802,978, CAL Bank is listed on the Ghana Stock Exchange (GSE) and the share price is 0.23p as at December 6, 2011. We would be looking at how this bank performed on the GSE for the 2011 financial year.
As at 31st December, 2010, the Social Security and National Insurance Trust (SSNIT) held 82,363,074 shares in the bank making 34.13% whiles Mr. Afare Donkor, the largest individual shareholder and second largest shareholder held a stake of 7.51% representing 18,120,000 shares.



Analysis

CAL Bank began the year, 2011 with a share price of 0.33p (04/JAN/2011) and because of investor activities & active trades, share price of the bank rose to 0.39p (04/FEB/2011). Meanwhile, the stock price dropped steadily after that time to close at 0.26p on 22/March/ 2011. Further fluctuation of price was recorded from July to October 2011. Ten months down the year, CAL recorded a Year high of 0.39 pesewas and Year-Low of  0.25 pesewas (p). The volume of trade heightened at the end of October and hence was reflected by an increased in share price by some pesewas.
CAL stock and other financial stocks performed badly in November making the Financial Stock Index remain lower than the Base index of 1000.

The Year 2011 obviously was not the best year for most stocks on the GSE and CAL Bank is no exception.

I would be writing on Ecobank Ghana Limited (EBG) in my next post. I would be reviewing EBG stock on the Ghana Stock Exchange for the Year 2011.

[Courtesy: Ghana Stock Exchange, Bloomberg]