How does a stock join the ranks of its priciest peers in a bourse? Undoubtedly pegging on the company’s earnings, assets, potentiality and brand value.
However, a blaring exception takes place at Dhaka Stock Exchange (DSE).
That’s because many stocks with low paid-up capital can be found in the toppers’ club, not because of the aforementioned qualities but rather for conniving investors engaging in gambling.
The most common form of gambling occurs whenever scamsters are able to get their hands on nearly all of a company’s stocks.
A company having low paid-up capital means the number of shares it has in the market is relatively small. Gamblers target these stocks as it is easier to carry out the manipulation.
They strategically time purchases and sales so that the stocks change hands just among themselves. This causes the price to rise even if the company’s dividend payout keeps very low while the brand value stays limited.
Once the high prices start attracting investors with poor judgement and analytical skills, the fraudsters dump all that they own and exit the market with the loot.
Renwick Jajneswar is the best example of this in the DSE’s trading board. The state-run entity is primarily engaged in the manufacture and trade of sugar products in Bangladesh and abroad.
Its presence among the likes of top performing companies such as Reckitt Benckiser, GlaxoSmithKline, Marico and Berger Paints has become quite a common sight.
Last Thursday Renwick’s stock price stood at Tk 1,590 while that of the four were Tk 3,801, Tk 2,331, Tk 1,975 and Tk 1,464 respectively.
“The stock price of Renwick is bouncing all the time depending on the gamble,” said a stock broker preferring anonymity.
Just two years ago Renwick’s stock was priced at Tk 800. Within six months it had more than doubled to Tk 1,650.
It then dropped to Tk 850 within one year and then again skyrocketed to Tk 1,650 in the span of the past six months, the DSE data shows.
Gambling with the stock is easy as it has a very limited number of shares, said the stock broker.
Paid-up capital of the state-run company is Tk 2 crore and the number of shares 20 lakh, according to the DSE data.
Of the 20 lakh shares, 9.80 lakh, or 51 per cent, are owned by the government. This means only 10.20 lakh shares are available in the market.
The company’s earnings, assets, and brand value are much lower compared to the four it sits with, so it should be a no-brainer that its positioning was not normal, the stock broker pointed out.
Renwick has been annually providing just 12 per cent cash dividend since fiscal 2014-15. Moreover it failed to give any in 2018-19.
In contrast the renowned four provided dividends of 1,250 per cent, 530 per cent, 950 per cent and 295 per cent respectively last year. And the figures are on a rising trend.
Another eye opener is the net asset value per share.
For Renwick, it was Tk 30.66 on July 31 of 2019. For the four it was Tk 142, Tk 132, Tk 44 and Tk 204 respectively last year.
Renwick is not the lone stock being toyed with. Gamblers have targeted every company with low paid-up capital, said a merchant bank’s top official.
Among the victims is Eastern Lubricant, the stock price of which stood at Tk 1,130 on Thursday although its paid-up capital was merely Tk 99 lakh.
Other pseudo high achievers include Monno Jute Stafflers (stock price Tk 930, paid-up capital Tk 2.48 crore), Ambee Pharmaceuticals (Tk 478, Tk 2.4 crore), WATA Chemical (Tk 365, Tk 14 crore) and Aramit (Tk 272, Tk 6 crore).
The stock market regulator should look into the accounts of these companies because such high prices are not justifiable, said the official.
The companies could be sent to the small cap board which will reduce chances of being targeted for gambling, said the merchant banker.
Another problem is that general investors do not have adequate financial literacy, so they pour money into stocks at the centre of gambling without realising the high risks, he added.
Sending a company to the small cap board is a complex process as general investors are not allowed to trade in the board, said a top official of the Bangladesh Securities and Exchange Commission (BSEC).
“We have fined gamblers for their wrongdoings many times and we will keep the companies under our scanner to detect whether anybody is trying to play with the stocks,” he said.
“On the other hand, general stock investors will have to be cautious to protect their investments and they should first give some thought to the potential of the companies before investing.”
The market has a number of good stocks whose prices are undervalued and they can invest into these companies which will safeguard their investment and reduce risks, the BSEC official added.
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