Dangote Cement Plc announced Wednesday that the Securities and Exchange Commission (SEC) had validated the move for the launch of its share repurchase transaction – the third in less than three years.
This reaffirms the firm’s determination to realise the target of repurchasing up to 10 per cent of its common stock, having received the capital market regulator’s authorisation to start a new share buyback
From the first phase completed in December 2020, 40.2 million shares were repurchased for N9.8 billion, representing 0.2 per cent of the total issued shares.
The second tranche, executed last January, bought back over 126.7 million units or 0.7 per cent at the sum of N35.1 billion.
That left the total residual issued and fully paid outstanding shares of the firm at about 16.9 billion units, with more than 1.5 billion shares due to be repurchased to match Dangote Cement’s buyback ambition.
“The share buy-back programme will be executed under the approval granted by the Company’s shareholders at the Extraordinary General Meeting of Dangote Cement PLC which was held on 13 December 2022,” the company said in a statement.
Buying its own shares back in some way allows the firm to hand more money back to shareholders on the expectation that fewer outstanding shares could strengthen the share price.
Dangote Cement’s share price has risen 16.4 per cent to N285 since the company completed its first share repurchase on 31 December, 2020, hitting a high of N300 on 16 May, 2022.
Cash and cash equivalents, the balance sheet item from which the money for a buyback is typically sourced, stood at N283.8 billion, according to the company’s 2022 audited annual report
The figure is 16.5 percent weaker than one year prior.
“The share buy-back will be undertaken through an open market offer or self-tender, at such times and on such terms as the Management of the Company may determine, subject to prevailing market conditions,” the firm said.
A share buyback is a form of shareholder remuneration where companies buy back their own shares to reduce their capital by cancelling the repurchased stock. While the number of shares in circulation falls, shareholders’ stake in the company and the amount they are due from future dividends increases
There are three main benefits of share buyback.
First, since the company’s value remains the same but the supply of shares is lower, the share price will, in general, tend to increase. However, that depends on market behaviour. When the share price is lower than the tangible net asset value (TNAV) per share, the buyback will cause the latter to increase since there will be fewer shares in circulation (once the repurchased shares have been cancelled).
Second, the earnings per share (EPS) increases due to a reduction in outstanding shares. Shareholders will have a greater share in the company’s profits, which in turn makes the share price more appealing to investors.
Third, shareholders who don’t sell their shares during a buyback don’t make a cash return and, therefore, don’t have to pay any tax.
