Fixing the Tech Valuation Paralysis of the Nigerian Stock Exchange

Fixing the Tech Valuation Paralysis of the Nigerian Stock Exchange

The Nigerian Stock Exchange (NSE) is struggling. It has a reputation of destroying values of technology companies.  Sure, the problem is not necessarily the Exchange, but the investors investing therein. The art of valuing technology companies is not a common skill in the land. Most investors consider four sectors as they deploy capital: financial services, oil & gas, conglomerates and consumer goods. Every other thing is irrelevant. That has been the nature of the NSE and it has not changed despite all efforts by the authorities.

A company like Interswitch would have liked to list in the NSE but would be concerned with the liquidity in the market. Omatek struggled before it was suspended. E-Tranzact is worth around N21 billion (about $60 million) while Starcomms was delisted long time ago. The fact is that technology companies are struggling in the Nigerian Stock Exchange. I do not see a positive for any technology company to list in the NSE under the present structure.

Yet, I cannot blame investors. They have the rights to look for value. They are smart and they have that fiduciary responsibility to see alpha whenever they can find it. I have listed some ways the Exchange can make it easier for technology companies to list. A key one is direct listing without a need for underwriting. With this process, the companies list and sell directly to investors without any need for underwriters. That will remove the burden of sourcing underwriters which complicate the whole process.

In this video, I discuss how the Nigerian Stock Exchange can make it easier for startups to list in the exchange. I propose, among others, for direct listing where any requirement for underwriting is completely waived. The startups, especially technology-enabled ones, will not have to go through the painful process of underwriting new shares, but post-listed, can sell equity to private investors. I want to see Iroko Partners, Flutterwave and Zenvus in the NSE as quickly as possible.

But besides anything, the NSE should explore a partnership with another bourse to facilitate joint IPO. An Asian Exchange would have been optimal but it may not be a natural choice because I am not sure most Asians understand the Nigerian market very well. I think Johannesburg Stock Exchange (JSE) should be explored. JSE has liquidity and most South Africans will like diversification with exposures in Nigeria. They always like to open shops in Nigeria. We have MTN, MultiChoice and Shoprite; South Africa understands Nigeria.

If Nigeria can seal that partnership, both NSE and JSE will let companies list on both exchanges. Also, they will promote each other, connecting Western and Southern African markets. This will bring more IPOs in Nigeria knowing that the more liquid South African market will invest in our good technology firms. The JSE likes technology: the most valuable African company, Naspers, is a technology conglomerate based in South Africa with market capitalization that is larger than the total market cap of NSE. So, if we can link with JSE, the technology stock paralysis in the NSE may be fixed. I just think we will need to bring new species of investors to give our technology companies new looks.

This is a new trajectory: Singapore Exchange Ltd and Nasdaq Inc are pursuing a similar path.

Singapore Exchange Ltd and Nasdaq Inc have announced a pact on Wednesday (Oct 18) that will allow firms to tap the capital markets possibly simultaneously under the two exchange operators’ namesake exchanges.

The tie-up would help fast-growing Asian companies to list on the SGX and subsequently pursue a Nasdaq listing as they expand globally, SGX Chief Executive Loh Boon Chye said in a statement.

SGX and US-based Nasdaq – which are also in a long-term market technology partnership – are gauging interest among companies that could seek a concurrent or sequential listing on both the SGX and the Nasdaq, the exchange operators said.

NSE and JSE can do same and open up opportunities for our technology companies.


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