Kay and Que, Aziz Pipes return from punishing spot trading

The securities regulator has allowed small-cap companies Kay and Que, and Aziz Pipes to return to the public trading market after it observed some satisfactory changes with respect to their corporate disclosures and other factors.

The Bangladesh Securities and Exchange Commission (BSEC) in a letter on Monday asked stock exchanges to put the poorly performing firms in regular trading from Tuesday.

Earlier in August 2018, the two companies were sent into the spot market because of excessive speculation in their stocks. At that time, the companies had broken their long streak of making losses and managed to pay some dividends.

In the spot transactions at stock exchanges, buyers need a cash balance in their investment accounts instead of using sales proceeds the day before maturity.

Kay and Que (Bangladesh) Limited, once a dry cell battery carbon rod manufacturer, had been incurring losses for years. In 2017, it managed to post some profits after it had stopped decades-old operational activities and looked to restructure its physical assets on the factory premises.

Its liabilities of Tk11.45 per share have turned into net assets of Tk76.55 against each share.

The price of the company shares at the Dhaka Stock Exchange (DSE) had ballooned to over Tk250 in early 2019, from less than Tk20 in early 2016.

Still the shares are trading at around Tk200 while the company is yet to post its annual earnings per share (EPS) above TK1.

The stock price is more than 200 times of the company's annual EPS, while the average price-to-earnings (PE) ratio at the DSE is hovering near 10.

The story of Aziz Pipes is similar. Its stock price rose from below Tk20 in 2015 to above Tk250 in 2019. 

Coming out of losses and managing to pay some dividends after years had fuelled the stock price to an extreme level, and the regulator had been making efforts to put a bar through disruptive measures.

Aziz Pipes shares are now trading at Tk97 and its PE ratio – based on annual earnings – is 121, which skyrockets to above 281 – based on the last published unaudited profit figure.

As a rule of thumb, PE ratio indicates necessary years to get invested money back only with the help of annual profits.

State-owned Investment Corporation of Bangladesh, as an activist investor, is trying to rail the company through restructuring debts.

However, the net asset value per share for Aziz Pipes, one of the oldest pipe manufacturers of the country, is still minus Tk16.74.