What are Stocks
Stocks are shares of companies listed on a stock exchange. When a company decides to raise capital for expansion it alternatively sells its shares by listing on an Exchange through a process called Initial Public Offering (IPO). Information pertaining a company’s IPO is contained in a document called a Prospectus.
In Zimbabwe the exchange is named the Zimbabwe Stock Exchange (ZSE) and a total of 60 stocks (companies) are listed on it whose collective market value is $9.8 billion. Click here
When a company is due to go public, shareholders determine the number of shares that may, in the life of the company, be collectively issued to members or the public and these are known as authorized share capital.
|I S S U E S TAT I S TI C S|
|lssue Price Z$1.00
Nominal value per share Z$0.10
|Number of Placing Shares 145,000,000
Number of Offer Shares 145,000,000
Number of Ordinary Shares inissue following the Issue 725,000,000
Market Capitalisa tion at Issue Price Z$725 million
Percentage of enla rged issued ordinary share capital available under the Issue 40%
Value of the Placing at the Issue Price Z$145 million
I Value of the Offer at the Issue Price Z$145 million
source: Econet Prospectus
On going public in 1998 Econet had an allowable authorised shares totalling 900 million shares of these 435 million (60%) was issued and to TSM a vehicle controlled by Strive Masiyiwa and 250 million (40%) was floated on the ZSE. Owners always strive to retain a controlling stake in the company they founded.Within the authorised total shares, directors then determine, out of capital need, the number of shares to be readily offered to the public, added to the existing shares held by the owners. Those offered to the public are known as floated shares while the total thereafter is known as issued shares.
It is imperative to study the shareholding structure of a company you wish to make an investment in, its float and its management. A shareholding structure analysis guides you to potential boardroom bottlenecks, capital raise and restructuring challenges.
A look at CFI’s shareholding structure shows a highly polarised shareholding structure pitting Stalap a vehicle representing NSSA and ZIMRE direct and indirect interest controlling close to 45% of the company’s issued shares on the other hand is Messina a vehicle representing the interests of Nic Van Hoogstraten a British investor, controlling just above 50% of CFI’s issued share capital.
A shareholding structure will also point you to freefloat which is the number of shares readily accessible on the stock market. Some shares mainly those held by founders and key institutions such as pension funds who invest for the long run, are rigid and therefore lowers the freefloat. A company with a low free float implies low supply of shares and maybe overpriced shares.
*The stock exchange is a market for listed company shares. Companies resort to the stock market to raise capital so as to expand their operations through a process called IPO.
*Subsequent to listing, a company’s shares will be listed on the respective stock exchange where its shares are traded on an ongoing basis through an auction system.
*Investors wishing to get an interest on their savings resort to the stock market to buy shares in companies of their choice hoping for an appreciation in their capital values as the company grows or report higher profitability.
*Study the shareholding structure, freefloat status of the issued share capital and management quality before investing.
In the next bulletin on stock market investing we will look at IPO share value determination. How do companies determine the price per share of the issued shares and how should you determine whether the value proposed by the company is fair value and what strategies should you employ.