MoneyMossPike

9 Sept 7 min read

I'm seriously considering buying Dangote Refinery shares — but should I?

I've been thinking about the Dangote Refinery IPO quite a lot lately, and honestly, I'm still trying to decide whether I should buy when the offer opens or just wait until the shares start trading. At ₦525 per share, it doesn't look like a huge amount to get started, especially with the minimum subscription being 10 shares. But the more I think about it, the more I realize that "Dangote is a big company" isn't really enough of a reason to buy the stock. So I'm trying to look at this from both sides. Maybe I'm missing something, so I'd genuinely like to hear what other people are thinking. Why I'm tempted to buy The biggest reason is that this isn't some company that is still trying to prove that its idea works. The refinery is already operating. It has already started producing refined petroleum products, and we've all seen how much attention it has received in Nigeria and internationally. Nigeria has spent years importing refined petroleum products despite producing crude oil. If Dangote Refinery can continue increasing its output and supplying both Nigeria and other countries, I can see why this could become a very important company over the long term. And then there's the expansion. The refinery has talked about eventually increasing capacity significantly, potentially up to around 1.4 million barrels per day. If that actually happens successfully, we're talking about a completely different scale of business. There's also the fact that the refinery isn't only about petrol. There is diesel, aviation fuel, petrochemicals and other products, as well as the possibility of significantly increasing exports. So from a long-term perspective, I can understand the argument that this could become one of Africa's most important energy companies. Another thing I find interesting is that ordinary Nigerians can participate in the IPO with a relatively small amount of money. At ₦525: 10 shares = ₦5,250 100 shares = ₦52,500 500 shares = ₦262,500 1,000 shares = ₦525,000 That makes it accessible to people who normally wouldn't be able to invest in a company of this size. But here's what is making me hesitate The first thing I'm wondering is: Are we getting carried away because it's Dangote? It's very easy to hear "Dangote Refinery IPO" and immediately assume the shares are going to go up. But that's not how investing works. A very good company can still be a bad investment if you pay too much for it. And ₦525 by itself doesn't tell us whether the shares are cheap or expensive. I'd want to know what the company's actual valuation means in relation to its earnings, debt, assets and expected future profits. If the company is already being valued at tens of billions of dollars, then a lot of future growth may already be built into the price. That's probably my biggest question. How much future success am I already paying for at ₦525? What happens if refining margins fall? This is another thing I've been thinking about. Refining is a cyclical business. The refinery can make very large profits when refining margins are favourable, but that doesn't necessarily mean those margins will remain at the same level forever. Oil prices can change. Global refining capacity can change. Fuel demand can change. Geopolitical events can change. So if Dangote Refinery makes an incredible amount of money this year, should we assume it will make the same amount every year? I'm not convinced we should. I'd actually like to hear from people who understand the oil and refining business better than I do. What about crude oil supply? This is another big question for me. A refinery this large needs an enormous and reliable supply of crude. Nigeria has crude oil, obviously, but we've also seen how complicated crude production and supply can be. So I'd like to know how secure Dangote's long-term crude supply really is and at what cost. Because having a massive refinery is one thing. Having enough competitively priced crude to keep it running efficiently is another. And then there's the expansion The planned expansion is exciting, but it also makes me cautious. Building and expanding something at this scale costs a lot of money. So I'm wondering: How much additional capital will be required? How much debt will the company carry? Could the expansion cost more than expected? What happens to the investment case if the expansion is delayed? I'm not saying these things will happen. I'm just saying that if I'm putting my money into the company, I want to think about what happens if things don't go according to plan. Should I buy during the IPO or wait until after listing? This is probably where I'm most undecided. Buy during the IPO The obvious advantage is that I get the opportunity to buy at the announced ₦525 offer price. If the shares eventually trade significantly above ₦525, obviously I'd be happy that I got in early. But what if they don't? What if the stock lists at ₦500? Or ₦450? Or even lower? There is no rule saying an IPO has to rise after listing. Wait until the shares start trading There's something attractive about waiting too. I could see what the market actually thinks the company is worth. If everyone is rushing to buy and the shares become extremely expensive immediately, I could simply stay out. On the other hand, if the shares fall after listing, I might get an opportunity to buy them cheaper than the IPO price. The downside is obvious too. What if I wait and the shares shoot up? Then I'll be sitting there thinking, "I should have just bought the IPO." 😂 Or maybe do both? I'm also considering a third option. Maybe buy a relatively small amount during the IPO and keep some money aside. That way I'm not completely out if the shares rise, but I'm also not putting everything into the IPO before we see how the market reacts. I'm not sure whether that's actually a good strategy, though. What I really want to know before buying If you're seriously considering this IPO too, what information are you looking at? For me, these are some of the things I'd want answers to: What is Dangote Refinery's current profit? How sustainable are those profits? What is the company's debt? How much free cash flow is it generating? How much crude can it reliably secure? What are its current refining margins? How much of its products are sold in Nigeria versus exported? What will happen if refining margins fall? How much will the expansion to 1.4 million barrels per day cost? How much additional borrowing will be required? What is the company's dividend plan? How does its valuation compare with other large international refiners? How much growth is already priced into the ₦525 IPO price? And there's one question I think every investor should ask themselves: If I buy at ₦525 and the share price falls to ₦400 shortly after listing, will I still be comfortable holding it? If the answer is no, maybe I shouldn't be buying it simply because everyone is talking about it. I'm also curious about something else A lot of people seem to be approaching this as a short-term opportunity. "Buy the IPO." "Wait for listing." "Sell when it doubles." But I'm wondering whether the more interesting question is actually: What could Dangote Refinery look like 5 or 10 years from now? If the refinery becomes a major exporter, expands its capacity, grows its petrochemical business and generates consistently strong cash flow, maybe today's price will look cheap in hindsight. But if growth doesn't happen as expected, maybe ₦525 won't look cheap at all. That's the part I don't think we can answer simply by looking at the Dangote name. So what are you doing? I'm genuinely undecided right now. Are you buying Dangote Refinery shares during the IPO? Are you waiting until the shares list on the Nigerian Exchange? Are you planning to buy a small amount first and see what happens? Or are you staying completely away? And if you're investing, what is your main reason? Is it the long-term potential of the refinery? The possibility of dividends? The expected growth? The Nigerian energy story? Or are you simply hoping the shares rise after listing? I'd especially like to hear from people who have actually gone through previous Nigerian IPOs. Did you buy during the IPO, and would you do the same thing again? Because right now I'm trying to separate the actual investment opportunity from all the excitement surrounding the name. What am I missing?