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   Market Date: 19-09-2014   
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Dangote Cement Plc (DANGCEM), and the Unexplained Decline in Stock Price

Category: Capital Market


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Dangote Cement Plc (DANGCEM), and the Unexplained Decline in Stock Price

 

 

Background:
 
Dangote Cement Plc (DCP) is one of the biggest cement manufacturer and importer in Africa. The company has projects and operations in Nigeria, Benin, Senegal, Zambia and Ghana.
 
The listing of Dangote Cement on the NSE on October 26, 2010 made it Nigeria's biggest listed firm accounting for approximately one third (1/3) of the exchange capitalization. The listed company is a result of the merger of Benue Cement Company Plc (BCC) and Dangote Cement Group (DCP) of companies.
 
BCC which was previously listed on the Nigerian Stock Exchange (NSE) was delisted after the merger. The shareholders of BCC received one share for every two Benue shares held as part of the merger with Dangote Cement (Refer to the report of the quotations committee).
 
There was so much fanfare with the introduction of Dangote Cement Plc at the NSE.  At the listing ceremony, the NSE Interim Administrator, Mr. Emmanuel Ikazoboh stated that the listing will add N2.1 trillion, or 25 percent to market capitalization of the Exchange, adding that the event was historic because it is the biggest issue by a single company to be listed on the NSE. Mr. Ikazoboh “disclosed that the development will boost investors’ confidence on NSE, urging Nigerian entrepreneurs to come and take advantage of the market by listing their companies on the Exchange”.
 
It is instructive to note that DCP was not raising money from the market; rather DIL is cashing out (re: NASCON). The market chorus was that the listing would increase the market capitalisation of The Exchange - not knowing that market capitalisation is one thing and liquidity is another. Of what use is a highly capitalised market that is illiquid? The turnover ratio of the market since the listing of DCP provides a good indicator.  
 
Several analysts represented that listing of Dangote Cement will shift the market reliance on the banking sub sector as the major drivers of the market. Most analysts believed that the low free float, should serve as a catalyst for the stock in the short term. Additionally, analysts at "Stanbic IBTC” (one of the advisers on the merger) set a 12-month target price of N170.50 and a "buy" recommendation.
 
Incidentally, Vetiva, another adviser on the merger/listing, this week excluded DCP from their broker's recommendation. It said it was "neutral" on the stock, confirming low upside/downside prospects at current price.
 
Technical Analysis:
 
The company listed 15,494,019,668 billion ordinary shares of 50 kobo each at N135.00 per share by way of introduction on the floor of the Nigerian Stock Exchange (NSE). On the first day of the listing, 196 million shares were traded.
 
However, since the listing of the stock, the price movement has been disappointing. When Dangote Cement was listed on the NSE on October 26, 2010, it was touted as the offering that will rescue the NSE from its "Abyss".
 
What was the basis of this expectation? The increased market capitalisation? The point has been made that market capitalisation is just one item in assessing the performance of a market. In fact, the Nigerian market is already carrying the burden of this listing: Vetiva projected that the ASI would move sideways this week because of the influence of DCP on the market. Attention has earlier been drawn to the issue of market liquidity ratio.
 
Thus, since the stock was listed on the NSE, it has done nothing but trend downwards. 
 
At the closing price of N121.15 on November 19, 2010, the stock is below its 5 day and 10 day cumulative simple moving averages of 5 day and 10 day.
 
Also, the daily trading volume has been lackluster as shown in the graph below:
 
 
 
Support and Resistance:
 
Technically, the stock appears to be heading lower as it has violated all short-term pertinent moving averages. As the stock continues to head downwards, traders should watch for the following four (4) support levels. Violations of these supports will mean further downtrend.
 
 
 
However, if the short-term downtrend reverses, the following four (4) resistant levels should be pertinent benchmarks for traders to watch.
 
 
 
Downtrend Impact on Benue Cement Shareholder Portfolio
 
As previously noted, the shareholders of Benue Cement received one share of Dangote Cement for every two Benue shares held as part of the merger with Dangote Cement. Therefore, it means that shareholders with one hundred thousand (100,000) shares pre-merger received fifty thousand shares (50,000) post the merger. 
 
As of close of trading on November 19, 2010, BCC shareholders whose shares were converted to Dangote Cement shares have lost approximately 10% of their portfolio value as highlighted in the schedule below:
 
 
 
Conclusion:
 
Although it is too early to write a postmortem on the shares of Dangote Cement, but the current downtrend should be very troubling to management and shareholders of the company, as well as the regulators; because the stock price has declined by N13.5 or 10% since the merger and the listing of Dangote Cement shares on the NSE (after adjusting for the "loss" arising from the price adjustment for the interim dividend).
 
Normally the stock price of newly listed companies experiences uptrend before any pull back, but it is baffling that the stock price of Dangote Cement Plc has exhibited an aberration from the norm.
 
 
Prepared by Chukwumah Biosah, President CEBAL Audit Group, USA and InvestIQ, Technical Analysts to Proshare. All opinions on this page/site constitute our best estimate judgement as of this date and are subject to change without notice. Investors should see the content of this page as one of the factors to consider in making their investment decision. Proshare Limited, its employees and analysts accept no liability for any loss arising from the use of this information. All enquiries should be directed to Biosah@ca.rr or info@proshareng.com


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