Dangote Cement just became a company that’s too big for investors to ignore. Its flotation on the Lagos stock market on Tuesday gave it a capitalisation of $14bn and made it the largest African-listed company south of the Sahara and north of Johannesburg.
Index fund managers trying to match the performance of the Nigerian stock market index will have to buy it. But that doesn’t mean that it’s good value.
Dangote is Nigeria’s dominant cement producer and it now makes up around 25 per cent of the capitalisation of all listed companies in Nigeria. Plenty of investors do think it is cheap, according to reports of strong demand emerging from Nigeria. But there are sceptics who question some of the aggressive assumptions behind the valuations.
The shares listed at N135 on Tuesday and closed at the same price after a flurry of trading. Based on Dangote’s own results projections, that puts the shares on a prospective multiple of 8.4 times 2011 earnings.
This looks cheap if you compare it to its main domestic rival Wapco, which is owned by Lafarge of France and trades on a forecast 2011 price/earnings multiple of 11.1. PPC of South Africa, meanwhile, is on 13.1.
But Dangote is a tricky creature to value. “There are too many moving parts,” is how one investor put it to beyondbrics.
One reason is that Aliko Dangote, the company’s founder and one of Africa’s richest men, is only part way through an ambitious drive to expand his company’s capacity from 11m tonnes of cement a year to 26m tonnes.
Based on those plans, Dangote forecasts that its turnover will rise from N226bn ($1.5bn) this year to N398bn in 2011 and N511bn in 2012.
The positive notes on the stock from analysts seem to outnumber the negative ones. But in one of the more downbeat missives, African Alliance Securities analysts say Dangote’s earnings forecasts are based on “very optimistic” assumptions about its future fortunes.
