Customs Street Advisors

This week in Street Talking on NEXT, I discuss the critical role company websites can play  in closing the mispricing gap between stock prices and the underlying value of companies on the Nigerian Stock Exchange.

I am appalled at the failure of most companies on the Nigerian Stock Exchange (NSE) to utilize the web for investor engagement. In fact, about half of the companies on the NSE do not have any web presence at all. Among those that do, only a small number leverage the channel for investor communications despite the fact that a growing number of investors make decisions to buy, hold or sell stocks based on information they find on the Internet. If it is axiomatic that information is the lifeblood of markets, then company websites ought to be the most credible and authoritative sources for relevant, reliable and timely information.

Findings from a May 2008 Customs Street Advisors survey of 250 investors with average portfolio value of N4.6m and five companies in their portfolios, showed that while 34% of interviewees visit company websites for information at least once a month, slightly less than 14% considered the information on those sites useful or relevant to their investing decisions. In contrast, 49% found newsletters and research sent by stock broking firms useful.

To reap the full value of investing in online real estate, companies must expand their narrow view of the company website as a shop window for the display of products, services and sales networks to customers. The company website should, in addition, invite visitors to a ‘factory site inspection’, as it were, providing them with the information they need to understand the company strategy, performance and outlook. Company websites can no longer be judged solely on the basis of graphics, technology and navigation, vital as these are for user experience, but also on the breadth, quality and timeliness of the content they provide to investors.

In a July speech, Professor Ndi Okereke-Onyiuke, director-general of the NSE attributed the collapse of asset prices to increased access to information, particularly through the web. She argued that “why our market went down was not because the fundamentals were not there. It was because Nigerians are now exposed to CNN, the Internet, CNBC, and Bloomberg and as they watched, they panicked and started dumping shares.”

While it is debatable whether the head of the Exchange should make statements that may be misconstrued as alarmist or reactionary, it is indisputable that she, far more than most companies on the NSE, is not in denial on the important role the medium plays in the fate of public companies. In the contest of narratives on the value of a company and the attractiveness of its business, the contents of the company website can have a powerful influence over the appropriate cost of capital. Like hearts-and-minds campaigns during a counter-insurgency offensive, it can be an effective match to competing testimonies, distributed online and offline, that spring up during internal crises, corporate scandals and market turmoil to decimate the value of the company’s securities.

Unfortunately, companies repeatedly miss the opportunity to tell their own side of the story using their websites. For example, during the public scandal over the manipulation of its share price, African Petroleum (AP), the petroleum marketing company, never updated its website to provide visitors with information on the case and the steps it was taking to seek redress. Yet, the company spent tens of millions on full page adverts.

In a recent academic paper, ‘Financial Reporting on the Internet by Quoted Companies in Nigeria’, Rafiu O. Salawu of  the Obafemi Awolowo University found that out of 220 companies on the NSE only 119 (54.1%) have official websites and that only 31 (14.1%) companies publish their financial information on their websites. The reality is even more dismal. Among companies that do have websites, many contain outdated information and among those that do publish financial information, many do not do so in a timely manner.

For instance, just this week, in an open letter to customers and shareholders, John Aboh, CEO, Oceanic Bank, announced that the bank’s results which were released last week would be published on its website in later this week. This defeats the entire purpose of a company website which should be the in-house proxy for a wire service. The results should have been uploaded to the website at the same time they were released to the media.

It is time the Nigerian Stock Exchange and Securities & Exchange Commission made it mandatory for every quoted company to have a website that includes an investor relations and governance section, with detailed specifications on content. To ensure compliance, the regulators should also impose heavy fines for failure to update the sites around material events or news.

When investors are under-served with information, the mispricing gap widens and resources are misallocated. In the end, market inefficiency increases and the economy suffers. As the old rhyme goes:

For want of a nail the shoe was lost
For want of a shoe the horse was lost
For want of a horse the rider was lost
For want of a rider the battle was lost
For want of a battle the kingdom was lost
And all for the want of a horseshoe nail.

It all starts with the company website.

The original article can be read here on the NEXT website.

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