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Implications of Tranche 1 Share Buyback Programme by Dangote Cement

According to our estimates, the tranche I buyback programme would have a negligible impact on our ’20E EPS forecast.

Event: Dangote Cement (DangCem) begins share buyback programme 

Implications: Buyback of tranche I – 0.5% (85,202,537) of all outstanding shares – will have negligible impact on ’20E EPS. However, we estimate an improvement of c.11.1% to our 2021E EPS forecast, assuming management completes the full 10% buyback programme over the next 12 months.

This morning, DangCem announced the resumption of its long-awaited share buyback scheme. According to the firm, the programme will be executed in tranches, with the first tranche commencing on December 30th and closing on the 31st or when the tranche size is complete.The market had anticipated an announcement through last week, which resulted in the 14.5% rally w/w. 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. 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% buyback is successfully completed, we estimate a positive potential improvement of around +11.1% to our ’21E EPS projection to NGN20.46 (see table below). We anticipate a similar impact on Dangote Cement share price under current conditions.

Dangote Cement Share Buyback Programme – 10%

Dangote Cement(N millions)No of shares (millions)Price (N)
Dangote Cement current
Market cap
Dangote Cement Share Buyback1,704
*Dangote Cement Market cap – buyback 3,212,98815,336209.5
2021 PAT forecast pre buyback (N’ millions)313,714
2021 PAT forecast post buyback (N’ millions)313,714
EPS pre-buyback (N)   18.41
EPS post-buyback (N)20.46
Potential EPS impact11.1%
Pre-buyback P/E (x) 11.4
Post-buyback P/E (x)10.2
*assuming current DangCem share price as at 21/12/2020

On a relative basis, DangCem’s shares are trading on a ’20f EV/EBITDA multiple of 8.4x for 8.6% EPS growth in ’21f. We have a Neutral rating on the stock.

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