Dangote Cement market capitalization increased by 28% to cross N3 trillion mark in November
The market capitalization of Dangote Cement Plc increased from N2.73 trillion at the open of trade on the 2nd of November 2020, to N3.49 trillion at the close of trade on the 30th of November.
Further checks revealed that the market capitalization of Dangote Cement Plc increased by 28.13% during the period under review.
The drive behind the gains
It is important to note that the increase in Dangote Cement’s market capitalization was driven by the renewed buying interests by investors in key Nigerian stocks with huge values and impressive fundamentals.
This hunt for value on the bourse led to a wild increase in the share price and also the market capitalization of key companies on the Nigerian Stock Exchange in the month of November.
However, the renewed buying interest can be attributed to the strong performance which Dangote Cement displayed in the third quarter of 2020, despite the challenging macroeconomic environment.
Given the strategic positioning of the cement producer in the industry,
- Dangote cement reached a record high EBITDA margin of 24% in the third quarter of 2020.
- Group net profit of N82 billion, which is 135.1% higher than the profit reported by the Group in the third quarter of 2019.
This strong performance made analyst review their models, and also the Group’s valuation, this however triggered buying pressures in the shares of Dangote Cement, with its market capitalization increasing by 28.13% in the period under consideration.
What you should know
- Market capitalization is the aggregate valuation of a company based on its current share price and the total number of outstanding stocks.
- Market capitalization tells how much investors value a company, and gives an idea of what a company is worth on the stock exchange, as well as investors’ perception of a company’s future prospectus.
Dangote Lagos refinery all set in 2017
Understanding the Dangote Cement share buyback
Dangote Cement made headlines recently with news of its share buyback, but how well do you understand the concept?
Dangote Cement Plc (DCP), Nigeria’s most capitalized stock, announced it will buy back up to 10% of her issued 10.04billion ordinary shares on December 30.
Dangote says these shares bought back will be held as Treasury Shares and subsequently canceled.
Ok, what’s Dangote GOAL?
It is called a Share Buy-Back (SBB). The process of an SBB involves the company buying back her issued shares from shareholders at market prices, in effect the company is investing in itself.
The company accomplishes this by utilizing her assets to exchange for shares from investors. Assets could be cash in the company’s bank account or even fixed assets that can be sold to fund the purchase.
Is this a good legal manuver?
Yes, Section 161 of the Corporate and Allied Matters Act lays out the process for a company to execute an SBB, also Rule 398 (3)(xiv) of the Securities and Exchange Commission’s Rules and Regulations with Rule 13.18 of the Rulebook of The Nigerian Stock Exchange gives Regulatory backing to this action
Why a Share Buyback
A share buyback improves the financial statements of the company by boosting Shareholder Equity and Return on Assets. The SBB does this by decreasing the number of shares on the stock markets, which then boost reported earnings per share.
When a company buys shares, those shares cannot be traded on anymore, essentially those shares are extinguished which then increases the price per existing share.
Look at it this way, a company that has five company cars bought with a loan must buy gas every month, budget is N50,000 or N10,000 per car. What happens if the company decided to use the cash in their bank account, pay off the one car loan 100%
Two things will happen
- There will only be four cars, which means the N50,000 will be divided by 4 not 5, meaning each car gets 12,500 not 10,000.
- The company’s cash position will reduce because it took cash from her bank account to pay off the loan
If you think of those cars as shareholders and the budget for fuel as dividends, you can see that when the company takes its assets and reduces the number of shareholders, then the shareholders left will get a large share of dividends.
Also, instead of the company buying new tires for 5 cars, it will only buy tires for 4 cars, this cost reduction improves Earnings per Share and the Price Earnings Ratio.
That is why SBB tends to make the market share price go up because investors can project a bump in share prices, again note, even if revenues stay the same.
However, shares shall only be purchased out of profits of the company, which would otherwise be available for a dividend.
So, share buybacks are a form of dividend payment to existing shareholders because going forward they get a larger share, even if profits stay the same.
There are three reasons a company buys back its shares
The company believes her share price is too cheap. To measure cheap, I will relate DCP market price to earnings or the PE Ratio, DCP is trading at PE of 16, its competition WAPCO is trading at 17, the overall Nigeran Stock market is trading at 14.66.
A company can also wish to improve its financial ratios. Dangote EPS (TTM) is about 14.94 and easily beats WAPCO her nearest competitor that posts an EPS of 1.28 (TTM). Again Dangote does well.
Another key reason for a company to do a share buyback is if it has sufficient reserves or cash and can see no other viable options. In this instance, Dangote does carry far more debt on her books than WAPCO.
DCP Debt to Equity Is 0.56 compared to 0.15 for WAPCO, Dangote Debt is about N271.33b. The argument can be made as to why DCP cannot utilize the cash for the buyback to pay off debt.
However, in closing, keep in mind the tax treatment of Share Buy Backs to the Company, there is no effect; but to the holders of Dangote stock, they are taxed differently (lower) on dividends received because these dividends have already been taxed as part of company profits.
WHO IS ALIKO DANGOTE
Aliko Dangote, GCON
President & Chief Executive
Aliko Dangote is the founder and president/chief executive of the Dangote Group, the largest conglomerate in West Africa. The Group currently has a presence in 17 African countries and is a market leader in cement on the continent. One of the Group’s subsidiaries, Dangote Cement Plc, is the largest listed company in West Africa and the first Nigerian company to join the Forbes Global 2000 Companies list.
The Group has diversified into other sectors of the Nigerian economy including agriculture and is currently constructing the largest petroleum refinery, petrochemical plant and fertilizer complex in Africa.
Internationally, Dangote sits on the board of the Corporate Council on Africa and is a member of the Steering Committee of the United Nations Secretary-General’s Global Education First Initiative, the Clinton Global Initiative, the McKinsey Advisory Council, and the International Business Council of the World Economic Forum. He was named Co-chair of the US-Africa Business Center, in September 2016, by the US Chamber of Commerce. In April 2017, he joined the Board of Directors of the Clinton Health Access Initiative, which is helping countries build the systems necessary to provide health services to their people.
A dedicated philanthropist, Dangote made an initial endowment of $1.25 billion to the Dangote Foundation in March 2014, enabling it to scale up its work in health, education and economic empowerment. In addition, he is collaborating with the Bill and Melinda Gates Foundation to fight polio. He is also on the Board of ONE, the anti-poverty group, co-founded by Bono.
A graduate of Al-Azahar University in Cairo, Egypt, Dangote began his business career in 1978, trading in rice, sugar and cement, before he ventured into full-scale manufacturing. In 2013, Forbes listed him as the ‘Most Powerful Man in Africa.’ In April 2014, TIME Magazine listed him among its 100 ‘Most Influential People in the World.’ He also made the list of CNBC’s ‘Top 25 Businessmen in the World’ that changed and shaped the century.
Total Group Earnings: NOVEMBERÂ 2020 YTD
$4.3 billion
15 Subsidiaries
3 Public Listed Companies
Awards and memberships
- Dangote was awarded Nigeria’s second-highest honour, the Grand Commander of the Order of the Niger (GCON) by the former president, Goodluck Jonathan.
- Dangote was named as the Forbes Africa Person of the Year 2014.
- For six consecutive years, 2013, 2014, 2015, 2016, 2017, and 2018 Forbes listed him as the ‘Most Powerful Man in Africa’.
- In 2014, he was listed CNBC‘s ‘Top 25 Businessmen in the World’ that changed and shaped the century.
- In April 2014, TIME Magazine listed him among its 100 Most Influential People in the World.
- In October 2015, Dangote was listed among ’50 Most Influential Individuals in the World’ by Bloomberg Markets.
- He won ‘The Guardian Man of the Year 2015′.
- He won the ‘2016 African Business Leader Award,’ organised by the Africa-America Institute (AAI).
Memberships
Dangote sits on the board of the Corporate Council on Africa, and is a member of the steering committee of the United Nations Secretary-General’s Global Education First Initiative, the Clinton Global Initiative and the International Business Council of the World Economic Forum. He was named Co-chair of the US-Africa Business Center, in September 2016, by the US Chamber of Commerce. In April 2017, he joined the Board of Directors of the Clinton Health Access Initiative. He is also on the Board of One Campaign.
