Dangote Cement begins 10% share buyback in ‘testing the waters’ move

By Charles Abuede

Analysts say decision to negligibly impact company’s EPS estimate

Dangote Cement Plc on Monday announced that it was commencing its share buyback programme which will see Africa’s leading cement producer repurchase 10 per cent of its issued capital.

The programme is being executed under an approval granted by its shareholders at an extraordinary general meeting held earlier in January and it is expected to be effected in tranches.

In a regulatory disclosure filed with The Nigerian Stock Exchange on Monday, the scheduled programme is within the framework provided under Rule 398 (3)(xiv) of the Securities and Exchange Commission’s rules and regulations and also as applicable and in accordance with Rule 13.18 of the Rulebook of the Nigerian Stock Exchange.

As detailed in the disclosure, the programme, which is to be conducted on the local exchange via the open market, will see up to a tranche size up of 85,202,537 fully paid up ordinary shares of 50 kobo each, representing 0.5 per cent of the total current issued shares (17,040,507,404 fully paid-up ordinary shares of 50 Kobo each) traded in two days under tranche I.

However, subject to prevailing market conditions and under the current daily trading rules of The NSE, the company, through its appointed stockbrokers, will at its discretion purchase DCP shares in the open market over the duration of Tranche I.

But research analysts at FBN Quest Capital Research have been quick off the block to react to the development. In a note to Business A.M. on the matter, they stated that the buyback of tranche I which is just 0.5 per cent of all outstanding shares will have a negligible impact on the estimated earnings per share (EPS) for the year 2020.

“The market had anticipated an announcement through last week, which resulted in the 14.5 per cent rally week on week. To our mind, it appears that the firm is ‘testing the waters’ and, given the discretionary nature of the exercise, may not eventually purchase shares if prevailing conditions are unsuitable. However, we note that shares purchased under the buyback programme will be held as treasury shares and may subsequently, be cancelled.

“According to our estimates, the tranche I buyback programme would have a negligible impact on our ‘20E EPS forecast. However, looking further out and assuming that the 10 per cent buyback is successfully completed, we estimate a positive potential improvement of around +11.1 per cent to our estimated FY 21 EPS projection to N20.46. Though, we anticipate a similar impact on Dangote Cement share price under current conditions. Meanwhile, on a relative basis, the company’s shares are trading on EV/EBITDA multiple of 8.4x for 8.6 per cent EPS growth in ‘21f as forecasted in 2020,” the analysts wrote.

But the company in its disclosure statement advised its shareholders and investors to exercise caution when dealing in the securities of Dangote Cement until the completion of Tranche I of the Share buyback Programme. It however assured that an announcement will be published upon completion of Tranche I of the Programme.