Longman Plc and the Unusual Volume Trend

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Longman Plc and the Unusual Volume Trend

June 23, 2011

Given recent developments in the market, we sought to consider the announcement of Pearson’s disinvestment of its 51% shares in Longman Plc (Longman Nigeria Plc: Notification on Pearson Plc's ... - ProShare) on its face value? The initial concerns bothered on when did the board approve the decision of the foreign investors to divest from the company? Certainly, that approval was not given this week (announcement was on June 14, 2011) - So, why has it just hit the market? This encouraged the decision to look at the activity in the shares of this company in the last one month or two to see if there was a trend.

We observed that the volume traded on Longman Plc suddenly moved significantly above its 15days moving averages by 644%, 137% and 98% while the price trend also sustained maximum fall of -5.00%, -4.94% and -4.87% in the last three trading days (June 16^th – June 20^th, 2011) respectively as against its usual low volume and flat price position witnessed in the year.

This appears strikingly unfamiliar as the stock sustained 3 three days maximum loss consecutively, moving from prolonged flat price position notably from April 1, 2011 to June 15^,2011.

Further analysis revealed a significant change in investors’ sentiments which appeared bearish subsequently with intense selling tendency towards the stock, buttressed by recent negative price trend highlighted above.

Technically, the RSI which monitors the volume momentum of the stock revealed depressed position of the stock in the oversold region, though the stock has been in this region since April, 2011 but got worse recently due to overwhelmed selling activities. More strikingly, the money inflow index (MFI) which monitors inflow and outflow of money into the stock also revealed high money outflow in the oversold region - this confirmed the overwhelmed sell activities noted above.

Technically, this suggests an absence of bargain drive towards the stock at the moment. Nevertheless, this also could be translated to an entry point for interested investors as the stock appears to have bottomed out.

A cursory review of the trend traced the striking negative trend to the recent announcement that the major stakeholder; UK based Pearson Education Limited planned to divest from the company and the process scheduled to last 18 months, starting from the month June 2011 as officially announced on June 14^th 2011.

We therefore believe this might have triggered the huge sell-off tendency witnessed in the current month towards the stock. Does this indicate a market reaction or assessment of the company’s prospects post-disinvestment?

In answering this, more information is required. We however tried to place the information publicly available in proper perspective as revealed in the subsequent highlights.

Flashback:Performance outlook before and after Pearson increased its stake.

Our tracking analysis made a flashback to reveal the performance of Longman Plc shortly before and after the same company (Pearson Education Limited) increased its investment stake to 51% in 2008, August 5 to be precise. This is to place the investors’ sentiments towards the stock in proper perspective.

The findings revealed an impressive performance of the stock in the period selected for the purpose of this report (2 months before and 2 months after August 5, 2011). The performance shortly before and after the major stakeholder increased its holdings was commendable despite the crash in the market during the period.

This analysis revealed a strong correlation between the strong positive sentiments and confidence the company leveraged from investors as against general bearish sentiments in the market as revealed below:

Further analysis on the fundamentals of the company would be beneficial to any or further interest in the stock post-disinvestment.

Reference: https://www.proshareng.com/investors/company.php?ref=LONGMAN

About the Authors:

Taiwo OLOGBON-ORI is an analyst in Proshare and Reshu BAGGA is a Director for the Analyst & Technical Services. The authors wish to acknowledge the contribution of Olufemi AWOYEMI, FCA to the development of this article.

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