Dangote, Transcorp IPOs, Christmas Keep Share Prices Trim

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By Kingsley Ighomwenghian,
Senior Correspondent
Independent Newspapers
6th December, 2006
The Nigerian Stock Exchange (NSE’s) primary indicators recovered slightly from recent shocks arising from poor corporate third quarter results, after weeks of declines by prices of equities traded in the secondary market.
Analyst attributed the trend to the ongoing Initial Public Offering of shares of Dangote Sugar Refinery Plc, as well as the proposed one by Transnational Corporation of Nigeria Plc (Transcorp) coming, in a few weeks. While DSR is shopping for N54 billion, Transcorp hopes to raise N50 billion.
The All-Share-Index limped by a sluggish 275.77 points or 0.87 per cent, closing at 31,632.46 points. A fortnight ago, the NSE index closed 3.69 per cent leaner at 31,356.69 points, just as market capitalisation at N3.941 billion fell by about N110 billion or 2.72 per cent in a week when shares of Transcorp were listed, adding N113 billion to the cumulative value of the Exchange.
"The drop in the prices of most blue chip companies contributed significantly to this decline," one analyst said last week. Even before then, at the end of the week ended November 10, the index caved in by about 0.43 per cent at 33,384.06. Between then and last week therefore, the index dropped by 1,751.60 points or 5.24 per cent.
Dangote Sugar owned by the Dangote Group, is the largest in sub-Saharan Africa and the second in the world after the one in Dubai, United Arab Emirate, offering three billion ordinary shares of 50 kobo each at N18 per share by way of offer for sale. The offer, which is expected to yield about N54 billion, would primarily enable the company to be admitted onto the Daily Official List of the Nigerian Stock Exchange (NSE).
Transcorp, on the other hand, had its 18.55 billion shares listed on the Exchange at N6 each, by introduction, even as it prepares to return to the market after a very successful private placement that yielded N19 billion as against the original N6 billion that was being sought by the promoters of the conglomerate. Since its listing, shares of Transcorp have continued to appreciate, a situation market sources attribute "to the fact that most investors have not de-materialised their certificates and the potential upsides in the company on which investors’ expectation is based."
The corporation was listed on the conglomerates’ sub-sector and would be operating in five key areas expected to stimulate economic development, such as: Energy (oil and gas, power); technology (IT and telecommunications); agro-business (processing and semi processing); hospitality (tourism, leisure and entertainment); as well as trade (international trade, free trade zone, logistics, shipping and maritime).
The listing of Transcorp’s shares, according to Mr. Bernard Longe its Group Managing Director and Chief Executive, is a logical thing, to ensure that more Nigerians become co-owners. He noted that the listing is another opportunity for those who could not participate during the private placement to buy into the future and development of the company.
"Today’s event is an affirmation that Transcorp is indeed a truly wholly private sector company. In addition, it is a significant step in the actualisation of our vision of making co-ownership of our diversified business group accessible to the generality of Nigerians and the investing public," he said.
Longe expressed satisfaction with the quality of assets in the portfolio of the company and confidence in the ability of the conglomerate to increase and improve them in the near future.
"Trancorp was set up to grow ownership of key structures and aims at reposition Nigeria in Africa and repositioning Africa in the world," Longe said. He also assured all that Transacorp is an entirely private sector company with almost 3,000 individual and institutional investors already.
The mega-corporation, he stressed, is one of those that would help to check capital flight in the country, (being a 100 per cent Nigerian company), while remaining globally competitive by servicing the world market with quality goods and services.
Dangote Sugar Refinery
One feature that makes the offer by Dangote Sugar Refinery attractive, among others, is the promise by the directors as contained in the offer prospectus to pay dividend per share of N1 for the 2006 financial year. Addressing a media forum a fortnight ago in Lagos, Chairman of the company, Alhaji Aliko Dangote expressed readiness by the DSR to pay prospective investors the dividend, even when the offer proceeds would be received and annual general meeting held way into the next financial year. On the other hand, by promising to distribute share certificates and dividend warrants electronically, the company seem to have taken care of those with a phobia for primary market offers, due to the delay encountered by investors.
"DSR relied mainly on retained earnings to support its growth over the last five years. This strategy accounts for the non-payment of dividend within this period and has helped the company to maintain consistent growth. Consequently, total assets have grown from N7.7billion in 2001 to N44.49billion in 2005, translating to a Compound Annual Growth Rate (CAGR) of 55.09 per cent.
"Based on the last full year audited accounts of DSR (2005) and the Offer price of N18 per share using the adjusted EPS of N0.938 (on 10 billion ordinary shares) the current price earnings ratio is 19.19x. This is lower than the industry average P/E ratio of 32.12x. Based on the forecast of DSR and our forecast for the selected companies (as shown in our table below), the PE ratio for DSR at the end of 2006 would be 10.04x (at the offer price), the lowest among the companies selected.
"Our computed fair value of DSR is N25.65 per share, which arrives at a forward PE ratio of 14.30x. DSR intends to pay a cash dividend of N1 per share for the financial year ended 31 December, 2006. It is not clear from the Offer document if new investors will qualify for this cash dividend. Discounting the dividend, we project a return of 42.50 per cent from capital appreciation when the stock is listed on the floor of the NSE. We are of the opinion that the Offer is issued at a discount and therefore recommend a buy for the stock at the current price," according to one analyst’s report.
These two offers, aided by the Christmas season, have successfully trimmed prices at the secondary market in recent weeks, a situation, which according to observers offer discerning investors an opportunity to buy in, while the bearish trend continues in the weeks ahead.
"Investors should however take advantage of the downward trend in the market to take positions in stocks that have good fundamentals ahead of a likely bullish run which may follow the bearish trend."
Another analyst in his report agrees that the declining trend would continue "in the coming week as investors sell their shares in the secondary market in order to take position in the primary market."
Stocks expected to present good buy opportunities, they say include: Nigerian Breweries, Diamond Bank, West African Portland Company and the United Bank for Africa. Reasons adduced include the fact that: "Nigerian Breweries is trading close to its year low; Diamond Bank has one of the lowest P/E (price earnings ratio) in its industry, while Wapco and UBA are currently trading below their intrinsic value."
Other stocks investors are urged to buy, taking advantage of the low tide include: Ashaka Cement, which offers an opportunity for long term players; Flourmills, a growth stock through products diversification; UBA, with strong fundamentals aided by enhanced management; GlaxoSmithKline, capable of above average return on equity and good product lines; and First City Monument Bank, because of anticipated high growth rate.
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