Copyright mwnation
Stock market investors attribute the recent abnormal surge of share prices on Malawi Stock Exchange (MSE) to limited stocks which could be addressed by attracting new listings and issuance of rights shares. In a statement, the Minority Shareholders of Listed Companies (Misalico) said that the increase in demand while positive has pushed share prices to levels that led to worrying price-to-earnings (P/E) ratios and there is need for practical solutions that will ensure sustainability. The group’s position follows analysts’ fears that price surges between January and September this year, that raised the P/E ratios and the market’s average P/E ratio to K42.57 for K1 of earnings on the bourse, could mean some stocks are “overbought’, threatening an imminent pullback of prices. Thus, Misalico said practical and long-term solutions include listed companies issuing rights shares (additional shares that are sold to existing shareholders), encouraging new listings that could include companies in telecommunications, mining and banking sectors and performing State-Owned Enterprises (SOEs). Reads the statement: “Existing companies such as Press Corporation, Sunbird Tourism, Old Mutual and National Investment Trust should consider rights issue to increase shares in issue thereby widening market participation and enhancing liquidity. “Large conglomerates should list some of their subsidiaries. For example, Nico Group could list Nico Life while Press Corporation could list PressCane. In line with the Communications Act (Section 35) telecom operators should be encouraged to list on MSE, giving Malawians a stake in these critical institutions.” In a separate interview, Stockbrokers Malawi Limited equity investment analyst Kondwani Makwakwa said the MSE is relatively small, with several counters rarely trading due to limited free float and has since stressed the need for new listings. Said Makwawa: “As long as the number of listed companies remains narrow, such price movements will persist and, in many respects, can be considered normal given the structural characteristics of the market. “The real solution lies in increasing the number of listed companies as is the case in more vibrant exchanges. While the MSE has seen spectacular share price gains this year, these surges may not reflect genuine business growth or wealth creation, but rather the structural limitations of the market.” In an interview on Wednesday, Umodzi Holdings chief executive officer Steve Lwanda indicated their interest to list as one of its key growth strategy but said government, as the shareholder, is the one that should foster it if it finds it viable. Lwanda said: “As a company, we want to expand and one of the options the past Board spoke about in terms of financing is listing. However, we mindful that it will be the shareholder (government) who will ultimately make that call. But yes, we have such long-term plans.” Recently, the MSE revised some of its listings requirements in a bid to reach out to more potential companies. Among others, MSE reduced the time-frame for publishing abridged financial results from six to four months and reduced capital requirements for a company from K500 million to K400 million. Confirming the development, MSE chief executive officer John Kamanga said the main objective is to respond to public concerns on the level of listings requirements. He said: “We believe, with the above changes, we will reach out to many potential companies who are in need of raising capital through the MSE.” In 2020, MSE reviewed listing and trading requirements on the local shares market, a move meant to protect investors, maintain fair, orderly and efficient market, and facilitate capital formation.
