The recent dip in stock prices of the Dangote Group, which includes Dangote Sugar Refinery and NASCON Allied Industries, has been linked to foreign exchange losses and the Securities and Exchange Commission’s rejection of a proposed merger.
According to The PUNCH, analysts pointed out that ongoing inflationary pressures and fluctuations in foreign exchange rates have exacerbated these challenges.
The depreciation of the naira has driven up the cost of importing raw materials, squeezing profit margins further.
Between May and August 2024, Dangote Sugar Refinery’s stock saw an 18.67 per cent decline, falling from N45.00 to N36.60.
This was largely due to supply chain disruptions and volatile sugar prices, which negatively impacted the company’s financial results.
During the same period, NASCON Allied Industries’ stock price dropped by 12.57 per cent, from N37.00 to N32.45.
On the other hand, Dangote Cement experienced a significant 41 per cent increase in its share price, rising from N419 in May to N591 by early August.
In a statement dated April, NASCON’s company secretary, Adedayo Samuel, announced the suspension of the proposed merger with Dangote Sugar Refinery Plc and Dangote Rice Limited.
This decision, which was first announced on August 30, 2023, came after the SEC raised concerns about the non-operational status of Dangote Rice Limited. NASCON expressed appreciation to its stakeholders for their continued support.
“NASCON Allied Industries Plc. (“NASCON”) at this moment notifies the Nigerian Exchange Limited and the investing public that, further to its announcement of August 30, 2023, in respect of the proposed merger of Dangote Sugar Refinery Plc, NASCON and Dangote Rice Limited, a decision has been taken to suspend the said merger at this time.
“The suspension is due to the comments and recommendation of the Securities and Exchange Commission centred around the current non-operational status of Dangote Rice Limited. NASCON wishes to express its appreciation to all its stakeholders and will keep the public informed of any developments as they arise.”
A leader of a shareholders’ advocacy group, Bisi Bakare, acknowledged the challenges faced by Dangote Group’s subsidiaries, but emphasized their efforts to seek growth opportunities and resilience in the face of adversity.
“I do not think the refinery is playing any role in it. It has to do with similar challenges facing the manufacturing sector. One of the challenges is the effect of foreign exchange losses, which arose as a result of the continuous depreciation of the naira.
“Also, inflationary pressures, which arose as a result of a continuous increase in inflation, led to a high interest rate on borrowing, which has an untold effect on finance costs and bottom line. Also, the high cost of raw materials imported and the high cost of energy. All these factors continue to impact on manufacturing sector of which Dangote Cement isn’t an exception,” she said.
Financial analyst Ariyo Olugbosun linked the decline to the SEC’s decision to block the merger involving Dangote Sugar, NASCON, and Dangote Rice Limited. He argued that this regulatory move led to a loss of investor confidence, further contributing to the volatility in stock prices.
“While FX losses are a concern, the SEC’s decision on the merger has been a major driver behind the fluctuating stock prices. The SEC decision is best known to them, but I think it would have helped Dangote make more profit,” Olugbosun explained.
President of the Progressives Shareholders Association of Nigeria, Boniface Okezie, emphasized that the fluctuations in Dangote Cement’s price are primarily driven by market forces.
He noted that these trends are not unique to Dangote Cement but are also observed in other companies within the cement industry, such as BUA Cement and Lafarge. Despite the challenges, Dangote Cement remains more valuable compared to its competitors, with BUA Cement closely following.
Regarding the much-anticipated Dangote refinery project, Boniface pointed out that its performance cannot yet be assessed, as it is not a publicly traded company.
He emphasized the need for quick resolution of ongoing issues with the Nigerian National Petroleum Corporation (NNPC) and other regulatory bodies to prevent further damage to the oil and gas industry.
“The refinery isn’t fully operational, and until it is, we can’t gauge its market strength,” Boniface explained. They added that ongoing issues with the Nigerian National Petroleum Corporation (NNPC) and other regulatory bodies are hampering progress. “Nigeria stands to lose if the regulatory relationships aren’t quickly resolved.”
Boniface also warned about the potential impact on foreign investment, stressing that unresolved regulatory issues could deter investors from entering the Nigerian market.
“We urge him not to lose faith in the Nigerian economy. Though the journey might not be easy, his massive investments will yield benefits once the challenges are resolved. It’s a long-term investment, and he won’t reap the rewards immediately, but he will in time,” Boniface added.
