Valuation: BUA Foods Rocks on Tiny Free Float
BUA Group’s key subsidiaries –Foods and Cement- listed on the Nigerian Exchange (NGX) now have a combined market valuation of N6.6 trillion. Surprisingly, the food company has raced ahead of the cement producer, perhaps due to tight control of shareholdings.
Detail from the Nigerian Exchange showed that less than 5% non-controlling interest has been trading against the Abdulsamad family with a combined interest of about 95%, and yet its regulatory claim of meeting free float requirement has caused no issue at the regulatory level.
In developed markets, this is usually not allowed, Jibril Aku, former Ecobank Chief and current Chairman of Marathon Group of Companies told MarketForces Africa. Aku said it seems only 5% of all shareholdings in the market are for trading. “Typically, a company like this is family-owned”, Aku said, adding that some exchanges demand a minimum of 20% float for strong minority representation.
Damilare Asimiyu, Head of investment research at Afrinvest said that based on the NGX listing standard, a company with just 5% free float is not qualified to be termed a publicly listed company.
“For companies in this category, you will see ‘Below Listing Standard’ in front of their names. This is because NGX requires that for a company to be qualified as publicly listed, not less than 10-15% (growth company) or 20% (standard/mainboard company) of the company’s share must be available for trading”, Asimiyu told MarketForces Africa.
By standard, free float requirements of the Nigerian Exchange Limited, NGX, stipulated that quoted companies should have 20 per cent of their issued share capital available for trading at any point in time. Analysts see no cause for alarm given that BUA Foods has been in the local bourse for less than 20 months.
What this simply means is that businesses could list to get better market valuation as BUA Foods gained about 363% since it came to the local exchange for listing at N40 per share early in 2022.
Last week, BUA Foods shareholders approved N81 billion as a dividend at its second annual general meeting. The Board of Directors recommended N4.50 dividend per one ordinary share of 50 kobo – more than 90% of this is expected to go into its chairman – setting a question mark on NGX rules, and compliance.
On that basis, the company stock volatility has been relatively on the upside, thanks to lower volume availability for trading – of course, BUA Chairman isn’t selling anytime soon while other interested investors are perhaps seeking entry points.
With key man risk, the company remains a dad and mom shopping mall for investors due to a large single shareholding structure which appears to be quite intimidating for potential stock market investors.
Over the last seven trading sessions, the Food Company’s stock market price has been flattish at N185 despite seesaw movement in the exchange after FTSE Russell downgraded the Nigerian index to an unstructured market.
As of June 2023, BUA Foods Chairman holds 89.95% of the outstanding shares in the stock, leaving less than 11% for the market. Out of this, the company reported that its director 2.80% shareholding at the end of the period.
Out of the 2.80%, its Chairman Abdulsamad Rabiu controls 2.79% as an indirect shareholder representing BUA Industries Limited. Other influential shareholders happened to be another member of the Chairman’s family, Abdulsamad Isyaku, controlling 2.63% while the total float stood at 4.72%.
“BUA Foods Plc with a free float value of N115,256,604,827.00 as of 30th, June 2023 is compliant with the Nigerian Exchange Group’s “The NGX” free float requirements for companies on the Main Board”, the company said in its financial statement.
BUA Foods’ market performance has been rock solid, but the cement unit has been relatively underperforming despite a persistent rally in the stock market in 2023. The market placed a higher value on BUA Foods, market value settled at N3.330 trillion at the end of the trading session on Friday.
Though BUA Foods has ramped up market strength strong enough to dislodge other stocks in the consumer segment, BUA Cement at N3.256 trillion market cap has been on a snail’s pace even while the local bourse rallied. MarketForces Africa reported that BUA Foods Plc listed 18 billion shares on the Nigerian Exchange at N40 per share by way of introduction in January 2022.
The food company continues to invest in modern technology for efficient food production, innovating and expanding with strategic partners across the value chain, according to the management. #BUA Foods Rocks on 4.72% Free Float
