Forte Oil Plc Is one of the many miracles of the Nigerian stock exchange. From as low as N9 in 2012 the stock has risen to N342, its latest year high. The stock is one that has made millions for a lot of investors in Nigeria and abroad. Regardless of what you think, you just have to hand it over to that stock….it has the blood of a bull in its DNA.
Surely, the meteoric rise of its share price has got little to do with its fundamentals. The dividend yield is small and its profits are not all that remarkable. The stock has a price earnings ratio of over 75x and dividend yield based on current price of under 2%. These are all hallmarks of a bubble and there are many reasons to believe this is one long bubble. Forte Oil could hit N500 per share by the end of this year. Why? Two reasons;
The chart above reveals a familiar pattern for this stock. It’s not a very liquid stock but it does just enough to move over 50,000 units daily and enough to change the price of the stock. Forte Oil moves an average of 200,000 units a day making and as such market makers can easily push the share price upwards as much as they can. So whenever they notice the shares are on offer, there is someone out there ready to scoop it at the highest offer price. The stock just has to be in a net bid position more often that it is in a net offer position. A net bid position means there are more buyers than sellers. All you need to do is have the funds to always “create” buyers. It’s a familiar game people play at the exchange and it gets even sweeter with this liquidity. With about N200 million in cash these guys can control the direction of the share price. For “smart investors” who know this play, you either join them or bite your fingers. There is no beating.
Another major factor as some opine is the famed billionaire list published by Forbes Magazine. Nigerian billionaires track this list diligently and would typically want to make sure they appear on that list. The Chairman of Forte Oil, Femi Otedola eventually made the list last year and according to Forbes his entry was essentially down to the performance of his stock. He ended up being the highest mover of all the billionaires in Africa. The liquidity play also helps his course considerably. There is every incentive to make sure that share price remains bullish not just for Mr Otedola but for thousands others who are hell-bent on scooping profits from this honey comb. For investors, this is basically a capital appreciation play.
These two factors more than anything else are going to determine the trajectory of the share price. All indications point to the fact that the “market makers” are poised to drive the share price to N500 by the end of this year. It sure sounds ludicrous as that will value the share price at almost 111x its most recent earnings per share. As past results indicate, Forte is not about fundamentals and the sooner you realise that the better it is for your expectations. You don’t want to bet against god.