By Nkiruka Nnorom
THE divestment of Dangote FlourMill Plc from its noodles business will result in more value accretion to its shareholders, operators in the Nigerian capital market have said. According to them, selling the noodles business will allow the company to concentrate on the pasta and flour businesses where it has efficiency and competitive advantage.
Dangote Flourmills had said last week it has sold its noodles business to Dufil Prima Foods Plc, makers of the Indomie Noodles. The company said it took the decision after a regular portfolio review revealed that Dangote Noodles was not strategic to its vision.
According to the company, the divestment was part of strategies of focusing on core areas of flour and pasta production where the company has substantial market share. With the divestment, Dangote Flour will now focus on its strengths in flour and pasta and become more profitable by improving in areas of quality, distribution and marketing. Financial Vanguard analysis of the income stream of the company showed that the noodles business represents only a minute portion of the company’s operation. In the year ended December 31, 2016, it contributed only N8.14 billion, representing 7.7 per cent to the company’s total revenue for the year. Dangote FlourMills raked in N105.77 billion in 2016.
According to Tola Odukoya, the Chief Executive Officer of FSL Asset Management, shareholders will still get value since the company would rake in more money from the sale. “Based on whatever due diligence they must have done, they are letting go of a division of their business that they believe they cannot make more efficient now under their own management,” he said.
Odukoya noted that based on the greater efficiency they will get from the divestment by concentrating only on the flour and pasta business, shareholders will still get more value at the end of the day. “By the divestment, they are simply saying that in terms of noodles business, they do not have the competency and efficiency to run the business and rather than using shareholders fund to continue to run the business, let us sell it to somebody who can do it better and get value for it, which means that shareholders’ value has increased in that regard.”
Johnson Chukwu, Managing Director/CEO, Cowry Asset Management Limited, said: “If a company is divesting, two may happen. One is that the company can pay special dividend to its shareholders from the proceeds of the divestment and it can also decide to reinvest the proceeds of that divestment into its operation to drive its core business.
“If the company decides to reinvest the proceeds of the business and that reinvestment leads to higher profitability from its core business, then we will see an improvement in the stock price, but if in the alternative, the proceeds of the divestment will be shared to the shareholders as special dividend, then you are going to see a downward correction in the stock price of Dangote FlourMill share price.”
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