Question: Someone is offering shares of Dangote Refinery at $0.70 per share, claiming to have acquired them during a private placement at $0.35 per share. Many people in my WhatsApp group are interested because they believe the shares could rise to $1.00 per share when the company eventually goes public. Is that a good deal?
My Response: First, I have no knowledge of the authenticity, validity, or transferability of any Dangote Refinery shares that an individual may claim to possess. Therefore, I cannot comment on whether the offer itself is legitimate. My focus is solely on the pricing assumptions and why investors should be cautious when extrapolating future values.
At $0.35 per share, Dangote Refinery’s implied enterprise value is approximately $39 billion. If one assumes the shares will trade at $1.00 per share upon an eventual IPO, that implies an enterprise value of roughly $111 billion. In my view, that expectation is highly optimistic. While the refinery is a remarkable asset, investors should anchor their assumptions on realistic valuation frameworks rather than enthusiasm.
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Personally, I would expect a more modest premium over the private placement valuation. If the market were to assign, for example, a 30% premium to the private placement price, the implied enterprise value would rise to about $51 billion, corresponding to roughly $0.46 per share. Under that scenario, purchasing shares today at $0.70 per share would offer limited upside and potentially expose investors to valuation risk.
The lesson is simple: investing is not just about buying a great company; it is about buying at a sensible price. Even the finest assets can become poor investments when acquired at unrealistic valuations. Before investing, understand the implied enterprise value you are paying for and ask whether the future assumptions embedded in that price are truly reasonable.
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When did the poor man get hold of the PP that he’s already auctioning at 2X upside pre IPO, who gave him access? I will take it as a lie, because the assumption sounds incorrect.
If at IPO the price is $1, it’s no longer a great investment, because to get 3X of the initial investment, the valuation may become unrealistic, so it has to be much cheaper. How many cents per unit is can the investment return per annum? That needs to be factored, before one dumps a lot of money in exchange for meagre dividends.
September is almost here, the speculations can wait.