Dangote Cement could buy Nestle three times over and still have enough left to buy Cadbury Nigeria and PZ Nigeria.
On that same day, Dangote Cement shares sold for N195 per share and Nestle Nigeria shares sold for N1,249.50 per share. Wondering why?
It's just like Ghana and Nigeria. Obviously, Nigeria can buy Ghana several times over (regardless of how the valuation is done, even if we're given a higher discount rate due to corruption). Yet 1 Ghanaian cedi is about N70.
Here's the full explanation for why Dangote Cement sold at N195/share and Nestle at N1,249.50/share even though Dangote Cement could buy Nestle 3 times over.
Today is Wednesday 27 November 2013, and the time is 3:30pm (or whatever new time NSE closes).
Dangote Cement has 17,040,507,405 issued shares (all are outstanding, not a single treasury share).
Nestle Nigeria has 792,656,252 issued shares (again, all are outstanding, not a single treasury share).
Dangote Cement is valued at N3,322,898,943,975
Nestle Nigeria is valued at N990,423,986,874
Dividing each's valuation by its number of issued shares we can get the stock price for each.
For Dangote Cement, it is N3,322,898,943,975 / 17,040,507,405 = N195
For Nestle Nigeria, it is N990,423,986,874 / 792,656,252 = N1,249.50
And that's all the maths there is to it.
A lot of us look at the stock prices of the listed companies and say, "Hmm, this Nestle is very expensive. For the same money I'll use to get 1,000 units of it, I can get 6,407 units of Dangote Cement. In fact, I'll rather use the money to buy 1,373,000 units of AIICO shares."
It's a wrong way to compare stocks. The absolute price they sell at has no relation with their value. Even their market valuation is of very little use when comparing stocks for investment purpose.
The truth is all the information I have provided in this post is not useful in making any stock purchase decision. It's just to help you understand some of the things we often get wrong.
In the later part of this series, I will show you how to compare stocks when making a purchase decision.