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Dangote Cement Plc has scheduled an Extraordinary General Meeting (EGM) for January 22, 2020 to consider its proposed share buyback programme, among other issues.
According to the circular published on the Nigerian Stock Exchange (NSE), Dangote Cement plans to buy back 10 percent of its outstanding shares and thereafter cancel those shares within 10 business days of the last date of completion of the programme.
The company intends to fund the programme from its reserves which stood at N731.2 billion as at September 2019.
The share buy-back, which provides support for Dangote Cement share price which declined in 2019 and drive long-term shareholder value, has been lauded by capital market operators, according to the News Agency of Nigeria.
Share buyback, also known as a share repurchase, is when a company buys its own outstanding shares to reduce the number of shares available on the open market.
Companies buy back shares for a number of reasons, such as to increase the value of remaining shares available by reducing the supply or to prevent other shareholders from taking a controlling stake.
Dangote Cement said the share buyback scheme was intended to improve its return on equity and shareholder value in order to facilitate future long-term growth.
The company said that the buyback would also be either at the prevailing market price, or through a self-tender offer at a price to be determined by the board. However, it will not be more than 5 percent above the average calculated market price over the five days preceding the offer.
Sola Oni, a chartered stockbroker and CEO, Sofunix Investment and Communications, said that share repurchase was a strategy deployed by a company to reduce its float by taking advantage of undervalued shares.
“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 reduce the burden of dividend and bonus shares among others,” Oni said.
“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,” he said.
Ambrose Omordion, chief operating officer, InvestData Limited, said the Dangote Cement buyback share was the first in the history of NSE.
He said the proposed share buyback was an indicator that Dangote Cement was trading below the fair value. He said that companies which choose to buy back their shares were trading below the fair value.
“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,” Omordion said.
Iheanyi Nwachukwu
