Acting Managing Director of Afrinvest Securities Limited, Abiodun Keripe, has said the investment case for Dangote Refinery should be viewed from a medium- to long-term perspective, with refinery margins, expansion and execution expected to play key roles in its valuation.
Speaking during an interview with ARISE News on Thursday, Keripe said Dangote Refinery’s valuation should be viewed from a medium to long-term perspective, with cash flows from its expansion potentially contributing to the business from around 2030, underscoring the long-term investment opportunity.
“The valuation story in this offer is not in the short term. It’s in the mid to long term.”
Keripe said AfriInvest’s valuation was based on a combination of discounted cash flow and comparable-company multiples, with the assessment largely reflecting the refinery’s underlying fundamentals.
“Our base case target price is N593, and our bull case is N755, while our bear case is N340.”
He said Afrinvest’s base-case valuation represented about 13 per cent upside over the next 12 months, although he stressed that the more significant opportunity lies beyond the immediate period.
“The sweet spot is actually in the long term.”
Keripe said the firm’s base case assumes a gross refinery margin of about $26.8 per barrel in 2027, slightly below management’s forecast of $27 per barrel, alongside 91.7 per cent capacity utilisation.
“Our base case is gross refinery margin of about $26.8 per barrel for 2027, slightly below management forecast of $27, with 91.7 per cent utilisation.”
Under the bull-case scenario, he said capacity utilisation could rise to about 97 per cent, while gross refinery margins could increase by about $3 per barrel to approximately $29.
“In our bull case, we see capacity utilisation at about 97 per cent, and gross refinery margin moving up by $3 to about $29.”
However, Keripe said Afrinvest had adopted a slightly conservative approach to its 12-month target price because the refinery’s IPO valuation was relatively high.
“We adopted a slightly conservative approach to our 12-month target price because the IPO is somewhat valuation rich.”
On refining margins, Keripe said he did not expect a sharp compression even if some geopolitical tensions ease, citing damage to refinery assets and infrastructure in key markets.
“We do not expect gross refinery margin to compress quite sharply.”
He said some damaged refinery assets could take several years to return to operation, potentially supporting elevated refining margins.
“It probably still take another four to seven years window to get those assets back on stream.”
Keripe said global gross refinery margins were around $15 per barrel, below the margins projected for Dangote Refinery.
“Global gross refinery margin levels are about $15 per barrel.”
He identified the refinery’s expansion plans as another key consideration for investors, with the project estimated to cost about $14.7 billion.
“The expansion is estimated at about $14.7 billion, and that cost could potentially overshoot by about $2 billion.”
Keripe said Afrinvest had factored execution risks into its assessment, particularly the timeline for delivering the second train and the refinery’s ability to achieve projected capacity utilisation.
“Those execution risks are also part of our assessment, especially the timeline for the second train and whether the refinery can achieve the projected capacity utilisation.”
He also advised investors to monitor the refinery’s tax position, noting that the business enjoys a tax advantage through 2028 before the benefit begins to diminish.
“Investors should also watch the refinery’s tax position. It has a tax advantage up until 2028, and after that, the benefit starts to fade.”
Keripe said profit growth should not be expected to follow a straight-line trajectory, as earnings could moderate before rising again as higher volumes come through and the full impact of taxes takes effect.
“Profit growth is not necessarily going to be a straight line. You could see earnings moderate before they begin to rise again, as higher volumes come through and the full tax impact starts to take effect.”
He said the planned increase in production capacity from about 700,000 barrels per day to 1.4 million barrels per day was an important part of the refinery’s long-term investment story.
“The potential increase in production from about 700,000 barrels per day to 1.4 million barrels per day is an important part of the refinery’s long-term investment story.”
Keripe urged investors to pay close attention to research, particularly the evolution of refinery margins and the timeline for the second train.
“One thing is they must pay attention to research.”
He also advised investors to monitor global crude prices and geopolitical developments, particularly their impact on refined-product prices and refinery margins.
“The pressure is how geopolitics affect refined prices globally because that feeds back into gross refinery margins.”
Keripe said the Dangote Refinery investment case would ultimately depend on its ability to sustain margins, deliver its expansion plans and increase production volumes over the long term.
“The investment case will ultimately depend on the refinery’s ability to sustain margins, deliver its expansion plans and achieve higher production volumes over the long term.”
Goodness Anunobi
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