Dangote Cement’s share buyback program has been an undoubted benefit to shareholders. Successive tranches have seen the stock price rise. After a year in which its operations in Nigeria and the rest of Africa have faced challenges, it has called an extraordinary general meeting tomorrowto authorisemore buybacks in 2023.

Dangote Cement: Buyback for a Comeback?

On 20 November, the management of Dangote Cement called an Extraordinary General Meeting (EGM) to be held tomorrow, 13 December, to pass a special resolution to undertake another share buy-back program in 2023. Recall in our report, Coronation Research, Dangote Cement: The African Colossus, 11 April 2022, we explained that on 21 January 2020, the shareholders of Dangote Cement had unanimously endorsed the company’s first share buy-back plan as part of the organisation’s efforts to enhance shareholder value. The plan was to buy back 10% of its 17.04bn fully paid-up ordinary shares of 50k each. The buybacks were completed in tranches. 

On 21 December 2020, the first tranche, ‘Tranche I’ of the share buy-back programme, was announced. The programme commenced on 30 December 2020 and was completed on 31 December. Dangote Cement shares gained 9.98% on the day of the announcement of the Tranche I from N209.5/s to N230.4/s and, by the completion date, the stock was up 16.9% to N244.9/s. Management later undertook to carry out another tranche.

On 12 January 2022, the second tranche, ‘Tranche II’, of the share buyback programme was announced. The programme commenced on 19 January 2022 and was completed on 20 January. Dangote Cement shares gained 6.18% on the day of the announcement of the Tranche II from N259/s to N275/s and, by the completion date, the stock was up 10.0%, achieving a record share price N284.9/s. So far, the company had bought back only a combined 0.98% of the proposed 10% buy-back.

Given the myriad of challenges that have faced the company this year, from dwindling volumes, rises in operating and finance costs, a plant shut-in by a state government, culminating in lacklustre appetite for its stock (+2.06% ytd), we believe the company decided that it is timely to carry out another share buyback in order to carry out its mandate of increasing long-term shareholder value. And If history Is anything to go by, we expect to see the share price to appreciate as a result.

FX

Last week, the exchange rate at the Investors and Exporters Window (I&E Window) shed 0.26% to close at N446.50/US$1. Elsewhere, the foreign exchange (FX) reserves of the Central Bank of Nigeria (CBN) decreased by 0.31% to US$36.96bn, a 14-week low, as the CBN continues to intervene across the various FX windows.

The CBN can note, with satisfaction, that the exchange rate in the official markets has been managed within a narrow range this year. With its FX reserves not far from historic high levels, the CBN can maintain the current exchange rate, or something close to it, for several more months, in our view.

Bonds & T-bills

Last week, trading in the Federal Government of Nigeria (FGN) bond secondary market was bullish as the average benchmark yield for bonds fell by 19bps to close at 14.09%. Across the curve, the yield of the 3-year (-9bps to 13.99%) bond declined while the yields of the 7-year (+8bps to 14.53%) and 10-year (+4bps to 14.66%) bonds rose. For the last FGN bond auction of the year, the DMO is expected to offer N225.00bn worth of bonds across the April 2029, April 2032, and April 2037 maturities. Our view remains that the combination of thin system liquidity and elevated Federal Government domestic borrowing will to drive yields upwards over the coming months. 

Activity in the Treasury Bill (T-Bill) secondary market was also bullish as the average yield for T-bills fell by 252bps to 8.47%. Accordingly, the yield on the 349-day T-bill declined by 4bps to close at 14.09%. At the T-bill primary auction, the DMO allotted N104.36bn (US$233.72m) worth of bills. The auction recorded a total subscription of N728.47bn, the highest level since 28 October 2020, implying a bid-to-cover ratio of 6.89x (vs the 1.91x average of the past auctions in the year). Consequently, stop rates across the 91-day (-1bp to 6.49%), 182-day (-5bps to 8.00%) and the 364-day (-179bps to 13.05%, implying an 15.00% yield) bill declined. Elsewhere, the average yield for secondary market OMO bills fell by 2bps to 10.11%, while the yield on the 144-day OMO bill fell by 2bps to 10.87%

Oil

Last week, the price of Brent reversed its prior week's gain, falling 11.07% to settle at US$76.10/bbl, the lowest level since 22 December 2021. Consequently, Brent is now down 2.16% year-to-date and has traded at an average of US$100.08/bbl, 41.18% higher than the average of US$70.89/bbl in 2021.

Oil prices hit a 12-month low following renewed concerns of economic slowdowns in major markets. In addition, data from the Energy Information Administration showed that US crude production rose to 12.2 million barrels per day last week, its highest level since August, suggesting that global supply is rising.

Earlier it was thought that the easing of COVID-19 curbs in China would spur global demand, yet the overall global demand picture seems not to support this. We maintain that prices are likely to remain well above the US$73.00/bbl set in Nigeria’s government budget.

Equities

Last week, the NGX All-Share Index gained 1.51% to settle at 48,881.93 points. Consequently, its year-to-date return rose to 14.43%. BUA Cement (+19.09%), Ecobank Transnational Incorporation (+11.44%) and Guinness Nigeria (+10.00%) closed positive while Geregu Power (-9.61%), Cadbury Nigeria (-4.46%) and FBN Holdings (-3.57%) closed negative. Performances across the NGX sub-indices were broadly positive as the NGX Industrial Goods (+8.53%) led the increase, followed by NGX-30 (+1.86%), NGX Consumer Goods (+1.65%), NGX Insurance (+1.31%) and NGX Oil and Gas (+0.29%) while NGX Pension (-0.39%) and NGX Banking (-0.25%) closed lower. 

Model Equity Portfolio

Last week the Model Equity Portfolio rose by 1.29% compared with a rise in the NGX All-Share Index of 1.51%, underperforming it by 22bps. It has gained 19.63% year-to-date compared with a gain in the NGX-ASI of 14.43%, outperforming it by 519bps. Although our underperformance in this particular week is a concern (which was due to underweight positions in Nestle Nigeria and Presco, both of which rose) it is interesting to be close to a 20.00% gain for the year. Let us see whether the coming fortnight brings us overthe 20.00%-mark.

Last week, and as forewarned, we increased our notional positions in Guinness Nigeria, Nigerian Breweries and Flour Mills of Nigeria towards their index weights (which are not very large) and will continue to do so this week. And we will continue to do this with our bank positions, too, as described last week. We will reverse the underweight in Nestle Nigeria towards making it neutral (this may take some time) butremain underweight in Seplat, Okomu Oil and Presco. 

As the end of the year approaches, we will exercise caution with our main index positions, namely Airtel Africa, Dangote Cement, MTN Nigeria, BUA Cement and BUA Foods. Although we are quite close to index-neutral positions in Airtel Africa, MTN Nigeria, BUA Cement and BUA Foods, we will make small notional sales and purchases to make sure that we are in-line with their index weights. In the case of Dangote Cement, , we will move to create a five percentage-point overweight overthe coming weeks, liquidity permitting.