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[Penny Stocks] Why I’m buying McNichols shares

Nairametrics by Nairametrics
July 2, 2015
in Markets
SEC approves stocks can now trade at one kobo per share. Here is what it means
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Investing in the Nigerian economy is like taking a ride in a danfo bus. Only the driver and passengers in front have seatbelts. Seats are often torn and rusting. Fares are at the discretion of the driver and conductor. Trips are shortened or lengthened without consulting the passengers. The driver buys petrol when the engine goes off in the middle of a trip. Anything can happen. Occasionally one enters a neat bus with a well-dressed conductor and driver.

The same also applies in the land of penny stocks. In the twinkle of an eye, healthy companies can go under due to a sudden change in government policy. Companies at the point of extinction can have a new lease of life. Once in a while, a stock develops undisturbed. One such stock being MCNICHOLS plc. My first attraction to Mcnichols was its price. Penny stocks being a large percentage of my portfolio. The second point being its name, which I was unfamiliar with. I had ocassionally seen its shares exchange hands on the floor. Thus, I carried out further research on the stock.

Mcnichols plc is listed on the alternative securities market (ASEM). This is a board for small and growing companies. The company is engaged in the production of consumer goods namely sugar, custard and cocoa products. It has a track record of steadily increasing revenues and earnings in a five year stretch. In addition to that is an experienced management who are diligently reinvesting profits. Earnings per share jumped from 8 kobo in 2013 to 15 kobo in 2014. Q1 2015 results continued the same pattern. Rising from 2.32 kobo to 3.75 kobo. It last traded at a price of 1 naira fifty kobo.

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The usual challenges of investing in penny stocks are present. Poor liquidity is a problem, worsened by its listing on ASEM. Coupled with the challenges of running a manufacturing company in a country that has poor power and other infrastructure. I would gladly buy this stock despite being a Lilliputian in a land filled with giants like Nestle, Cadbury and Dangote Sugar. Every mustard tree started as a small seed.

 

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