My Unpopular opinion about the Dangote IPO.
If I were to advise anyone with extra money to invest right now, I’ll say don’t buy Dangote Refinery share now. I’ll rather buy some of the other shares dropping now or put the money in an interest-yielding investment and buy Dangote months or a year after it starts trading.
My reason is a permutation of history and economics.
First, Dangote is selling at ₦525 until October 13.
Part of the strong refining margins today is being helped by the current geopolitical disruptions. If Trump’s war ends and refining margins normalise, that would put some pressure on the valuation. It doesn’t mean the shares must fall, but I think there is a reasonable chance of getting a better entry price later.
Second is opportunity cost.
If the IPO becomes heavily oversubscribed and you don’t get your full allocation, some of your money will eventually be refunded. ₦10 million earning 16% p/a is roughly ₦400k in three months or ₦800k in six months. So while waiting for allocation/refund, your money could have been earning something elsewhere.
Third, this is a ₦2 trillion-plus IPO. Some investors are selling other shares to raise money to buy Dangote. That can temporarily push down the prices of otherwise good companies.
I’ll rather look at shares like Access, GTCO and others that become cheaper without any fundamental problem with the companies.
Then I wait.
History is also why I’m comfortable waiting. Dangote Sugar listed around ₦18 in 2007, went significantly higher, but eventually traded far below ₦18 few years later. Dangote Cement also traded below its initial listing price some months after listing.
History doesn’t mean Dangote Refinery must fall below ₦525; it simply shows that an IPO price is not necessarily the cheapest price you will ever get.
If Dangote drops to a price I like, I move my money into it and leave it there for 5–10 years.
My argument isn’t that Dangote Refinery is a bad investment. I actually think it is an excellent long-term investment of 5 to 20 years. I just don’t think I need to join the rush to buy it at ₦525.
Picture: Throwback with Alh. Dangote 9 years ago, with a copy of my Book: Yes, Africa Can.