Dangote Cement Plc has continued to boost its shareholders’ value as the company is now set to commence second tranche of its share buyback programme.
Among the several measures outline by the federal government to help the Nigerian capital market stabilize at the peak of the financial market crisis in 2008 was the concept of share buyback.
Stock buybacks refer to the repurchasing of shares of stock by the company that issued them. A buyback occurs when the issuing company pays shareholders the market value per share and re-absorbs that portion of its ownership that was previously distributed among public and private investors.
Dangote Cement is the first Nigerian corporate body to undertake a share buyback as a corporate action, to buy back 10 per cent of its entire issued shares from shareholders was unanimously granted on January 22, 2020 as the company’s shareholders voted in support of the share buyback plans. This has opened the doors to other corporate entities that may wish to use share buyback as an instrument of corporate financial management, as Airtel Africa recently embarked on the programme.
The company will commence the second tranche of the programme on the January 19 to January 20, 2022. Tranche II will be executed under the approval granted by the Company’s shareholders at the Annual General Meeting of Dangote Cement, which was held on May 26, 2021, within the framework provided under Rule 398 (3)(xiv) of the Securities and Exchange Commission’s (SEC) Rules and Regulations (as applicable) and in accordance with Rule 13.18 of the Rulebook of the Nigerian Exchange Limited (NGX). Based on the aforementioned shareholders’ approval, the number of shares to be repurchased under the share buy-back programme will not exceed 10 per cent of Dangote Cement’s issued capital.
The second tranche of the programme entails that up to 170.003 million fully paid-up ordinary shares of 50 kobo each, representing one per cent of the currently issued shares, less treasury shares will be repurchased.
Dangote Cement, which currently has 17.041 billion fully paid-up ordinary shares of 50 kobo each, would be buying back 170.003 million shares. As at January 14, 2022, Dangote Cement share price stood at N270.00, with a total market capitalization of N4.601 trillion, the most capitalised company on the NGX.
Reasons for Dangote Cement buying back shares are to increase long term shareholder value. Considering the review of the company’s share price and prevailing equity market conditions, the board of Dangote Cement believed that at the current market valuation values, the initiative is considered as one of the appropriate capital allocation decisions to improve long term shareholder value.
Also, the exercise is expected to support the cement manufacturer’s continuous capital structure and balance sheet optimisation process. This means that repurchasing shares while improving financing and balance sheets efficiency is expected to reduce the cost of capital and enhance investors’ value.
The company stated that the purchase of the shares will take place in the open market over the duration of the programme and will be subject to prevailing market conditions and under the current daily trading rules of the NGX.
The Company also said the shares being repurchased under the share buy-back programme will be held as treasury shares and may subsequently be cancelled, saying that execution of this Tranche II is not expected to have any material impact on the Company’s financial position.
The company will continue to monitor the evolving business environment and market conditions in making decisions on further tranches of the Share Buy-Back Programme.
It noted that “Shareholders and investors are advised to exercise caution when dealing in the securities of Dangote Cement until the completion of Tranche II of the Share BuyBack Programme.”
On December 31, 2020, Dangote Cement completed the first tranche of its share buyback programme, repurchasing shares worth N40.20 million w N243 per share, at a total value of N9.8 billion.
Market stakeholders recently commended Aliko Dangote led Management for coming up with another scheme that will both enhance the share value of the company and also ensure more returns on their investment.
National coordinator of the Independent Shareholders Association, Sir Sunny Nwosu said Nigerian shareholders will forever appreciate the share buyback plan of the company especially at this time of the year.
He noted that “This is very good as against the practice of share deconstruction that is being practiced by some Nigerian companies which never gave back anything positive to the shareholders.”
The chief executive officer, Sofunix Investment and Communications, Mr Sola Oni, said that share repurchase was a strategy deployed by a company to reduce its float by taking advantage of undervalued shares, saying that “This helps to reduce cost of capital or equity financing for the company. It also helps to firm up the share price in the medium and long term.
“A company can use share buyback to consolidate its equity. This is a way of reducing the numbers of shareholders and thereby reduces the burden of dividend and bonus shares among others.”
He also noted that “The method increases Earnings Per Share (EPS) and boosts Return on Equity (ROE) for shareholders while upward trends in the share price as a multiplier effect of share buyback creates demand for the shares and therefore attracts more investors into the market.”
The chief operating officer, InvestData Limited, Mr. Ambrose Omordion said that the Dangote Cement buyback share was the first in the history of Nigerian Exchange.
Omordion said that the proposed share buyback was an indicator that Dangote Cement was trading below the fair value, saying that the shares buyback would later be cancelled, and that would enhance value of Dangote Cement shares in the market, saying “The cancellation of the shares will enhance earnings per share and better dividend. My take, for a long term buy Dangote Cement and at least hold for two or more years.”
Dangote Cement is Africa’s leading cement producer with nearly 48.6Mta capacity across Africa. A fully integrated quarry-to-customer producer, the company has a production capacity of 32.25Mta in its home market, Nigeria. Its Obajana plant in Kogi state, Nigeria, is the largest in Africa with 16.25Mta of capacity across five lines; our Ibese plant in Ogun State has four cement lines with a combined installed capacity of 12Mta and our Gboko plant in Benue state has 4Mta.
Through its added investments, Dangote Cement has eliminated Nigeria’s dependence on imported cement and has transformed the nation into an exporter of cement serving neighbouring countries.
In addition, it has operations in Cameroon (1.5Mta clinker grinding), Congo (1.5Mta), Ghana (1.5Mta import), Ethiopia (2.5Mta), Senegal (1.5Mta), Sierra Leone (0.5Mta import), South Africa (2.8Mta), Tanzania (3.0Mta), Zambia (1.5Mta).