Shunning performance, investors in Dangote Flour has consistently mounted buy pressure on the company’s stock, which has seen stock price maintain an 11-day upward spree on the Nigerian Stock Exchange (NSE).
This has seen the price of the company rally to its all-time high as of the close of trading on Tuesday, with share price closing at N18.80 after rising 9.94 per cent in the early hours of the trade from N17.10.
This is despite a declining performance in the company’s bottom line as shown in its recently released Q1 2019 result.
According to financials released by Dangote Flour on the NSE for the period ended Q1 2019, numbers show a loss after tax of N2.89 billion from a profit of N1.58 billion recorded in Q1 2018.
Analysts believe the reaction is on the back of information towards the acquisition of Nigeria’s third-largest miller by market capacity, by Olam, a Singaporean company.
Gbolahan Ologunro, “investors’ interest in the stock is due to the offer by Olam to acquire the outstanding shares of Dangote Flour.”
The acquisition by Olam will possibly increase resultant company’s market share to a potential 43 per cent overtaking Flour Mill of Nigeria (FMN) with a market share of 32 per cent.
Analysis of company’s financials shows that the decline by 283 per cent in Dangote Flour’s bottom line was a resultant effect of a sharp decline by 13 per cent in revenue and growth by 6 per cent in the cost of sales, pulling down significantly gross profit by 99 per cent to N51.8 million in Q1 2019.
Since the acquisition of Tiger Brand Consumer Goods plc by Dangote Flour in 2016, data collated have shown a year-on-year average decline in revenue by 11 per cent in the first quarter in the last 3 years.
Meanwhile, the cost of sales during the last 3 years has increased at an average rate of 2 per cent but grew the most in 2019 at 6 per cent.
Also, during the stated period, Dangote Flour has recorded a consistent decline in its bottom line at an average of 161 per cent.
Dangote Flour Mills has been recording double-digit growth in earnings since 2016 – a year after Aliko Dangote repurchased it from South Africa food giant, Tiger Brand Limited.
However, recorded its first full-year loss in 2018 after it posted a loss of N1.15 billion, from a profit of N15.13 billion the previous year depicting a tough and unpredictable macroeconomic environment.
Analysts say Africa’s richest man Aliko Dangote is selling the subsidiary because he wants to exit an industry he cannot have market leadership, and not because the company is underperforming or under serious financial threat.
“If you are selling a business within the space of seven years, it then means you want to exit. It is obvious they do not want to be part of a business they do not have market leadership,” Ifedayo Olowoporoku, consumer goods research analyst at Vetiva Management Limited, said.
Since the announcement of the receipt of binding offer released by Dangote Flour on the exchange, investors have seen their wealth grow by N35.25 billion to N94 billion as of the close of trading on Tuesday.
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