Reasons for Dangote Group’s recent stocks decline
The recent decrease in the stock prices of the Dangote Group, which includes Dangote Sugar Refinery and NASCON Allied Industries, has been attributed to foreign exchange losses and the Securities and Exchange Commission’s decision to reject their merger request.
Analysts suggested that the ongoing inflationary pressures and forex volatility have worsened these challenges. The depreciation of the naira has increased the cost of importing raw materials, further squeezing profit margins.
From May to August 2024, Dangote Sugar Refinery’s stock plummeted by 18.67 per cent from N45.00 to N36.60, on the back of disruptions in the supply chain and volatile sugar prices, which have adversely affected the company’s financial performance. NASCON Allied Industries experienced a downturn in its stock price, falling by 12.57 per cent from N37.00 to N32.45 over the same period. However, Dangote Cement achieved a 41 per cent growth in its share price from May to August 2024, rising from N419 in May and reaching N591 by early August.
In a statement dated April and signed by the company secretary of NASCON, Adedayo Samuel, the proposed merger with Dangote Sugar Refinery Plc and Dangote Rice Limited was said to have been suspended.
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He added that this decision, initially announced on August 30, 2023, will not proceed following the comments and recommendations from the Securities and Exchange Commission, which highlighted concerns regarding the current non-operational status of Dangote Rice Limited. NASCON expressed gratitude 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 shareholders’ advocacy group leader, Bisi Bakare, stated that while Dangote Group’s subsidiaries have faced declines, they are actively seeking growth opportunities and resilience.
“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.
A financial analyst, Ariyo Olugbosun, attributed the decline to the Securities and Exchange Commission’s denial of a proposed merger involving Dangote Sugar, NASCON, and Dangote Rice Limited. Olugbosun argued that the regulatory decision led to a loss of investor interest, exacerbating the stock price fluctuations.
“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.
