Dangote Flour Mills’ enterprise value, which is seen by investors as a better measure of the market value of a firm, is N143.23 billion, according to Businessday’s calculation.
The enterprise value (EV) including equity (money that belongs to shareholders) and debt (obligations to creditors and financial institution), is the theoretical takeover price of a firm if it were bought.
EV is calculated as market capitalization (total number of ordinary shares multiplied by market price per share) plus total debt (both long and short term) minus cash and cash equivalent in the balance.
Because the value of a firm’s debt will have to be paid off by a buyer when taking over a firm, the EV is a more accurate takeover valuation.
Olam International Limited, a Singaporean agro-allied company, had offered to acquire Dangote Flour for a consideration of N120 billion, an amount that is N23.23 billion less than the millers’ EV. .
This means Dangote Flour is about to be bought at an amount below its true worth, but the deal has not been consummated.
Olam International will have to assume Dangote Flour’s total debt of N55.39 billion as at June 2019, while the miller has cash and cash equivalent of N16.15 billion in the same period under review.
Tiger Brands, a South African firm had in 2012 bought a 63 per cent stake in Dangote Flour and pasta maker, but few years down the line the Dangote Group bought back the company after the new owner’s sustained losses repeatedly on its operations.
Dangote Flour Mills and other consumer goods firms are feeling the pains of a harsh and unpredictable macroeconomic environment as a high inflationary environment, decrepit infrastructure, double taxation and weak consumer spending continues to squeeze margins.
Low growth and high unemployment has further dampened consumer purchasing power, which is showing up in lower sales volumes for consumer firms.
The country’s GDP expanded by 2.01 percent in the three months through March 2019, from a year earlier; that compares with 2.4 percent expansion in the fourth quarter.
While inflation figure for the month of July fell to a 12 months low of 11.08 percent, the figure, however, falls below the central bank’s target range of 6 percent and 9 percent.
Over eighty percent of Chief Executive Officers surveyed by a polling agency say the gridlock at the Apapa Port is responsible for poor performance and their goods get trapped for an indeterminate period of time. Such delays causes disruption on the production floor and it also distorts the inventory cycle.
Dangote Flour has a price to earnings ratios of 9.64 times, and a market capitalization of N104 billion as at August 16.
