Last week Friday, I featured on the popular BBC Radio Four Programme More or Less, where my blogpost about how at $104b facebook was worth 2.26 times the entire stocks on the Nigerian Stock Exchange. At the end of the interview I was asked to choose between owning Facebook or owning the Shares of the companies listed on the Nigerian Stock Exchange was discussed. How did I respond? Well, keep reading to find out.
At the time I put up the blog facebook listed for $104b and the entire stock on the Nigerian Stock Exchange was about $46b. Since then facebook’s stock has dipped significantly ,now valued about $73b, 30% less the value at which it listed and the NSE All Share Index worth 4.5% less at $44b. Whilst it might seem tempting to chose the NSE over Facebook it is important to note that market valuation of companies (how stock prices are valued) includes debt owed by those companies and future earning expectations of the companies as well. Thus while it might seem attractive to own all the companies on the nigerian stock exchange the equity value of those companies may be actually worth much less if the ratio of debt to equity of the companies is above 50%. Facebook’s external debt as reflected in its balance sheet is about $467m (both long and short term) much less than its equity value of $12.3b. Nevertheless, the opportunities owning Nigerian companies such as banks, insurance companies, oil companies, commodities, real estate etc makes the offer very irresistible and difficult to ignore. And so I unequivocally chose the stocks on the Nigerian Stock Exchange. So, which would you choose??
Note: The Podcast for the programme was included in the topic “Counting Images of the Queen” and my interview featured in the last 4 minutes of the 10minute programme