How Dangote Sugar Merger Will Enhance Investors’ Return

Kayode Tokede

Investors stand to reap robust returns with the proposed merger between Dangote Sugar Refinery Plc (DSR), NASCON Allied Industries Plc, and Dangote Rice Limited.

DSR and NASCON Allied Industries over the years on the Nigerian Exchange Limited (NGX) have maintained stronger earnings and dividend payout to shareholders, a fundamental that have impacted on stock prices.

Take for instance, DSR in 2022 financial year declared N54.74billion profit, an increase of 148.24 per cent from N22.05billion in 2021, while NASCON announced N5.47billion profit in 2022, an increase of 84.1 per cent from N2.97billion reported in 2021. 

The growth reflected in dividend payout to shareholders as DSR paid N N1.50 per ordinary share of 50kobo, while NASCON Allied Industries declared N1.00 per share dividend.

The growth in both household companies’ profit was driven by strong revenue and effective management of cost.  

DSR revenue grew by 46 per cent in 2022 financial to N403.2billion following a N121.9billion Year-on-Year (y-o-y) increase in sales of 50kg sugar.

The company’s H1 2023 revenue grew by 9.4per cent in same period to N202.8billion. Regardless, PAT contracted by N28.0billion as the knock-on effect of the official exchange rate floatation on finance cost (up 1,142.4per cent) dented the topline gains.

The group declared a total assets increased by N32.9billion in 2022 due to expansion in trade receivables and cash balances. ROE and EPS for 2022 stood at 31.9per cent and N4.51 respectively, showing strong commitment by management to advance shareholders’ wealth.

However, NASCON topline witnessed substantial growth of 76.6per cent to N58.8billion in 2022 due to expansion in the salt business during the year. Meanwhile, PBT almost doubled to N8.4billion from N4.3billion reported in 2021. 

For H1:23, NASCON gross profit grew by over 200per cent over the same period to N18.9billion as the company was able to significantly manage production cost.

NASCON’s total assets has been on a steady rise, rising by N15.0billion in 2022 before an additional N13 in the first half of the year.

The proposed merger between DSR, NASCON, and DRL would help the Dangote Group consolidate its position as a market leader in the consumer goods industry. This combined entity is estimated to be at least N500.0 billion after the process.

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NASCON, formerly known as National Salt Company of Nigeria, was incorporated in 1973 as a salt refinery to address the identified need for Nigeria’s self-sufficiency in the production of salt.

Dangote Rice Limited was incorporated in 2014 and is a subsidiary of Dangote Industries Limited. It is in the business of creating rice processing facilities across the country, along various models to satisfy its paddy rice needs, customised to each catchment area’s situation.

Proposed merger

This internal restructuring will be executed through a Scheme of Merger under relevant laws as shareholders of NASCON will receive 11 fully paid-up DSR shares for every 12 NASCON shares they hold, resulting in 2,428,651,847 new DSR shares. Shareholders of DRL will receive 14 fully paid-up DSR shares for each DRL share, totaling 2,775,792,508 new DSR shares.

On July, 2023 DSR in a statement said the proposed merger would be an internal restructuring executed through a Scheme of Merger, under Section 711 of the Companies & Allied Matters Act, 2020 (as amended) and other applicable rules and regulations.

DSR  and NASCON Allied Industries Plc with market capitalisation of N464.40 billion and N88.75 billion respectively, would together with Dangote Rice Limited, with an estimated value of over N100 billion become a N553 billion entity after the merger.

According to the statement signed by the Company Secretary/Legal Adviser, Dangote Sugar Refinery Plc, Mrs. Temitope Hassan, “Dangote Sugar Refinery Plc hereby notifies the Nigerian Exchange Limited and the investing public that the Board of Directors of the Company at its meeting held on July 28, 2023 resolved to recommend the proposed merger between the Company, NASCON Allied Industries Plc and Dangote Rice Limited to the shareholders of the company for consideration and approval, subject to parties agreeing terms and conditions.

“The Company, NASCON & DRL hereinafter referred to as the “merging entities” are all subsidiaries of Dangote Industries Limited.

“The company will apply for the Securities and Exchange Commission’s approval of the Scheme, and other requisite approvals. The scheme is also subject to the approval of the shareholders of the merging entities at the respective Court-Ordered Meetings of the companies, as well as the sanction of the Federal High Court.”

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The company added, “It is expected that the transaction will consolidate and solidify the Group’s market position and ultimately reposition the Group to harness future opportunities in the foods industry.

“Further details will be communicated to the market upon relevant approvals being obtained from shareholders and regulators. Shareholders of the company are advised to exercise caution when dealing with the shares of the Company until a further announcement is made.”

Analysts at views on the merger

Following the proposed merger, analysts at Afrinvest Research have urged investors to strategically take advantage and take position by investing in the company for the long-term benefits, advising investors with short-term gains to cautiously invest.

According to analysts at Afrinvest Research, “Given current prices for DSR (N57.45) and NASCON (N54.10) as of August 29, 2023, DSR is anticipated to have a slightly higher conversion factor to reflect the price differential between both companies.

“Also, the higher conversion factor for DSR is expected to be backed by its larger contribution to the overall entity in terms of topline contribution (c.80 per cent of consolidated revenue).”

Analysts at Afrinvest Research stated that it expected total return over the next 12 months to be at 25per cent or more.

“Investors are advised to take positions at the prevailing market price as at the report date.

“The stock trades at a premium to its intrinsic value and is thus expected to lose up to 10.0% or more of its market value. Immediate exit is therefore advised at the prevailing market price as at the report date,” the firm said.

On July 31, 2023, DSR, a leading brand in the sugar industry, notified the public of its proposed merger with NASCON Allied Industries Plc (NASCON) – producers of salt and other seasonings, and Dangote Rice Limited (DRL) – a player in the rice processing industry.

“Pending the approval, the transaction is anticipated to consolidate and solidify the market position of the combined entity in Nigeria’s consumer goods industry, while positioning Dangote as a group to harness future opportunities locally and abroad,” analysts at Afrinvest Research explained.

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