babaife:

@ Pumping
I think you have really missed the point. For an investor, the lower the projected PE of a company compared to others in the SAME sector, the better, provided the company has not cooked it's books. You are looking at the sentimental position of the Executives and Management of the company. Agreed PE cannot be used in isolation of course.

well, i believe our opinions differ because of our individual investment strategy and instinct. we saw the issue from " a buyer" and "a seller" point of view.

The arguement about possible takeover does not apply here. Takeovers in most cases will increase the value of a company. This could be a problem for the Executives and Management of the company who do not want to give up ownership but definitely not for the shareholders because they will end up being offered the fair value of their stocks. It could be an issue whereby the new owners decide to delist the company but that is a different story. The net result of a takeover for investors is the realization of the future benefit of a company before it is due.

I must say without ant fear of contradiction that NOT ALL ACQUISITION INCREASE THE SHAREHOLDERS WEALTH. In reality, the essence of due diligence is to ensure that a party to the acquisition is not a liability to the other. also both the targeted company and the acquirer must contact or appoint FINANCIAL CONSULTANTS to study the offer and ensure that the SHAREHOLDERS WEALTH will be increased else the deal is put off. we were all living witnesses how GULF BANK could not merge with the intercontinental group.

If Afribank is acquired by Access bank how is this a loss to the investors? The investors will have to be offered a fair value for their shares. This is in fact a very desirable position for any investor to be. Look at Standard bank and IBTC saga. Have investors lost out? Low PE or not, many companies are still being acquired. Even with a high PE a company is easy to acquire if the total value (capitalization) is low. In other words, being a small company, buying it is affordable for those that think they can do better with it (Ability to generate an even lower PE based on current prices).

it is also known practically that company's with lower PE than it competitors are good for any wealthy and healthy competitor to acquire. the assumption is that the management is NOT EFFICIENT ENOUGH to ginger the share price of such companies, hence under a new and efficient management team, the share price may go up and ultimately increases the PE. a company with a low PE is referred to as VALUE STOCK. all other things being equal, such company should have the ability to operate for the unforseeable future. @ pumping is an individual with an instinct to "acquire" companies with low PE. This is acceptable ONLY IF SUCH COMPANIES HAVE THE POTENTIAL TO GROW, ELSE THE INVESTMENT IS LOST

And what do you mean by saying the PE of a company is nose-diving? Nose diving is a negative term for something undesirable and should not be used for PE. PE could be falling because the price of the stock is crashing due to maybe some negative news that could impact the returns of the company in future. However, in this case, the projected income will be adjusted to reflect a more realistic PE.

Nose diving is a term is the most appropriate words when you hold a share whose PE continues to reduce in value. for instance, you bought a share when the PE is 20, any the last 3 quarterly results shows a PE of 15, 10, and 5. i ask what should an investor do? hold the shares till the PE becomes 2? you have to sell. the reduction in PE may be due to accurate information being made available in the market. How i wish i could explain better on CREATIVE ACCOUNTING and its EFFECTS on SHARE PRICE. A topic for another day

It is like saying the expenses or debts of a company is nose-diving. Is this not desired?

when expenses and debts nose dive, it is HIGHLY DESIRABLE because the effect is that earnings increase, share price increase, confidence in the management increases and ULTIMATELY, PE INCREASES

Having a low PE ratio does not imply that a company is WEAK. It simply means that it is likely to be undervalued and it could also be a target for investors which will eventually increase the price due to bargain hunters. If the projected PE of Zenith banks drops to 10, tell me wether the price will not rise or someone will not try to acquire it. Either of these will benefit the current owners of the stock.
A Weak or Low PE is a value stock. it is one of the criteria to adjudge the efficiency of the management team. investors WANT TO BUY SHARES WITH LOW PE THAT HAVE THE ABILITY TO GROW OVER TIME, BUT DO NOT WANT TO SEE THEIR SHARES PE DROP. or what is the point in buying a share whose PE is likely to drop?

babaife,
I really dont understand why you are deliberately complicating issues.pumping 777 gave out the facts in very simple words.There should be no contest on all he said because they are facts.over elaboration could be a problem for neophytes who depend on this forum for education on such issues.
Low PE means a coy is attractive(all things being equal)
acquisition is good for shareholders(all things being equal)
you said low PE will expose a coy to a takeover.This simply means that the low PE has generated interest on its being a bargain.
I dont think(my opinion)there is anything like weak PE.Its either low or high.

I dont know anyone else that will create any argument from the basic FACTS Pumping777 has presented.
This is my own widow's  mite.

wanaj0:

Bank BHP did a share reconstruction. As at 26th April, the price was 5.43. On the 27th of April it was 17.10. It was the same thing that ACCESS did. After the private placement and merger with Habib, the issued share was so huge that without share reconstruction, no way the share price will move up!

RoughCut:

Correct me if i'm wrong this share reconstruction for bank PHB is not technically a reverse split there was a merger between habib bank and Platinum and they exchanged the shares between the two banks' shareholders in the ratio you mentioned and that's how bank PHB came to be. Check again there was no share recosntruction.

ACCESS did a share reconstruction 2 for 1(may be as a result of the banks they acquired) by doubling the price and reducing in half the shares outstanding so that way the shareholders do not see a reduction in the value of their holding this is is no way comparable to the situation with habib and platinum

RoughCut:

I hope you are not relying on share reconstruction to jerk up the share price. Its always been a bad move look at ACCESS the price has not left the N19 mark since lifting TS and its going to dip when share certs are sent out because a lot of peeps would like to sell to realise the profits from the PO