Investors are advised to avoid these stocks as they have remained stagnant with no price movements as of the last day of 2017 and there are no prognoses of improved conditions this year.
Some of these firms are zombie stocks or living dead as they continue to operate even though they are insolvent or near bankruptcy.
Many analysts expect these zombie companies to be unable to meet their obligations.
Out of the 172 listed companies on the Nigerian bourse, 37 quoted firms which represent about 21.57 of the stocks currently listed recorded no price movement as at December 27 2017.
Analysis revealed that out of the 37 stocks; stocks from the financial services sector dominated the list with fourteen (14) stocks, services follow closely with six (6) stocks, and ICT four (4).
These are some of the Zombie stocks listed on the floor of the bourse
International Energy Insurance Plc
International Energy Insurance (IEI) Plc is technically insolvent as its total liabilities of N10.45 billion as at September 2016, exceeded total assets of N7.69 billion.
This resulted in a negative shareholders fund of N2.75 billion in the period under review.
Negative shareholder equity on a company’s balance sheet is a red flag that should prompt potential investors to take a closer look before committing their money.
Also, negative stockholders equity arises when a firm has been recording recurring losses and such losses are gradually eroding owner’s value.
IEI has negative retained earnings of N14.05 billion, validating the above paragraph that the company has recorded more losses than profit since its existence as a corporate entity.
IEI has a solvency margin ratio of -1.71 percent, which underpins the above argument that the insurer is financially unstable.
To further exacerbate the already anemic position of the insurer, underwriting performance has been deteriorating as premium income continues to shrink.
Combined Ratios (CR) stood at 1.33 percent in the period under review, higher than the 100 percent threshold.
The CR is the addition of underwriting expenses and loss expenses multiplied by 100. A ratio less than 100 percent means a firm is efficient.
Japaul Oil and Maritime Services
Japaul Oil and Maritime Services (JOM) Plc’s total liabilities of N51.41 billion as at September 2017, exceeded total assets of N27.10 billion, which means the firm is technically insolvent.
This resulted in a negative shareholders fund of N24.31 billion in the period under review.
For the first nine months through September 2017, the Maritime service firm recorded a loss after tax of N4.49 billion as against N3.40 billion the previous year.
Sales dipped by 27.85 percent to N1.01 billion in the period under review as against N1.40 billion the previous.
The firm attributes weak sales to weak economic fundamentals that hit the oil and gas sector with its impact on the maritime industry.
Japaul Oil is highly geared or indebted as its capitalization ratio increased to 184.53 percent in September 2017 as against 152.37 percent as at September 2016.
Conclusions
A scheme of capital reconstruction and reorganization could help invigorate some of the troubled firms as they are in dare need of fresh capital.
Such a strategy could make pave the way for improved performance and profitability hence unlocking the opportunities of shareholders.
As for the insurance firms that have had stock stuck at N0.5 for over 4 years, a scheme of mergers and acquisition would strengthen working capital and balance sheet position.
The strategic plan could magnify shareholders’ earnings since these insurers would have enough capital to take on more risk, thereby underpinning premium income or revenue while contemporaneously making stocks attractive.
BALA AUGIE
