KARACHI, Dec 21: One of the reasons that the stock price in National Bank of Pakistan (NBP) took a massive jump of Rs8.25 to cross over the mark of Rs200 per share on Tuesday, had less to do with the growth and expected higher earnings of the bank and more to do with the issuance of bonus shares by Bank Al Jazira in Saudi Arabia.
No one disputes the fact that NBP, a giant on the banking sector holds an immensely positive prognosis. And it is surely for that reason that the price of the 10-rupee share in the bank has galvanized by an incredible 272 per cent to Rs199 per share from just Rs53.70 this day, a year ago.
But the heavy increase of the stock price on Tuesday, was triggered by reports reaching the stock exchange that Bank Al Jazira had issued bonus shares. It was a fact. A handsome bonus was indeed issued by the Saudi bank. So those investors who bought NBP did not buy on rumours, but on news. The slight difference being that the news was stale.
Analyst Faisal Jiwani at InvestCap pointed out that the bonus at 100 per cent along with cash dividend at SAR3 per share had been announced by Bank Al Jazira a week earlier — on December 12. The bank proposed to raise its paid-up capital from SAR750 million to SAR1,500 million with the bonus issue. NBP holds 875,000 shares in the Saudi bank on its books, which would increase to 1.75 million shares. The rally in NBP had been built on Tuesday on the sentiment that the price of share in al-Jazira might increase, which would translate into a higher price in the NBP stock.
But analyst Jiwani makes an interesting observation: “The stock price of Bank Al Jazira had already reacted to the bonus as it increased by around 10 per cent on the date of announcement of bonus and dividend”. And he adds: “On Tuesday, when our market took the impact (on NBP share), the price in the Bank Al Jazira stock had actually taken a dip”. As far as cash dividend was concerned SAR3 per share translated into Rs42 million (about seven paisa per share), which would have negligible impact on the NBP share price. Therefore the bonus issue was not expected to have any impact on the price of NBP stock.
Banking sector analyst Muhammad Imran at JS Capital Markets held similar views. He mentioned that Bank Al-Jazira had announced payout for the year 2005 on December 12. Besides bonus issue at 100 per cent, the bank had also declared cash dividend at SR3, equivalent to Rs48 per share. According to analyst’s calculations also the per share impact of cash dividend would be seven paisa. Although the number of shares with NBP would rise to 1.7 million, the NBP holding (assuming, the price will be adjusted for bonus) would remain 5.83 per cent. The number of shares held by NBP would double, but market value would be diluted and so the impact of bonus shares would be offset by a corresponding dilution in NBP’s earning per share (eps).
It was perhaps on Wednesday that the realization dawned on investors and the NBP stock slipped down by Rs2.50 to Rs199. But what does all this lead to? Did some players spread the rumour and mislead small investors? Does it reflect negatively on the efficiency of the market? Or did the news appear late in ‘Arab News’ and the Saudi bourse, so it took a week to reach our bourses? The issue could be looked into and debated. But the bottom-line naturally is that in investing in stocks, anywhere, the rule of ‘caveat emptor’ (buyer beware) prevails. In sifting true from the false, there can be no substitute for investor education.