Dangote Cement Plc will see earnings per share move higher, thanks to a share buyback as the share price of the largest producer of the building material continues to rise.
Earnings per share (EPS) of Dangote cement was N9.01 as at September 2019 (as gleaned from its financial statement), but it will jump by 10.51 per cent after the share buyback, according to calculations by Markets Intelligence.
Its ordinary shares outstanding was 17.04 billion before the exercise but it reduced to 15.36 billion after the exercise, as the company had announced it would sell 10 per cent (1.70 billion) of its outstanding shares (17.04 billion) to its owners.
To arrive at the revised earnings per share, we divided the net income of N154.35 billion (9m) by the new ordinary share capital of 15.36 billion.
Earnings per share (EPS) is calculated as a company’s profit divided by the outstanding shares of its common stock. The resulting number serves as an indicator of a company’s profitability.
Dangote’s cash balance in the period under review stood at N91.27 billion, but reduced to N90.12 billion after the exercise, while its cash from operating activities of N294.46 billion means it has the financial strength to fund future expansion plans or reward its owners in form of either shares buyback or cash.
Investors have confidence in the scheme of share back as Dangote share price rose from N145 (pre-exercise) to touch down at N175 as at 2:00 pm Lagos time.
“This means it has the ability to pay a dividend to its owners. It is positive for the firm. It means it is doing better,” said Ayodeji Ebo, managing director and CEO of Afrivest Securities Ltd.
The cement markers’ stock yields 9.10 percent in dividend, which means an investor will get N90,000 for every N1million he invests in the stock.
In a notice sent to the Nigerian Stock Exchange (NSE), the cement maker said the buy-back programme would be completed within 12 months from the date of receipt of the approval of shareholders for the programme.
A buyback allows companies to invest in themselves. Reducing the number of shares outstanding on the market increases the proportion of shares owned by investors.
A company may feel its shares are undervalued and do a buyback to provide investors with a return. And because the company is bullish on its current operations, a buyback also boosts the proportion of earnings that a share is allocated.
Another reason for a buyback is for compensation purposes. Companies often award their employees and management with stock rewards and stock options. To make due to rewards and options, companies buy back shares and issue them to employees and management.