ga('create', 'UA-82078971-1', 'auto'); ga('require', 'displayfeatures'); ga('require', 'linkid', 'linkid.js'); ga('set', 'forceSSL', true); ga('send', 'pageview');

Dangote Sugar Refinery Plc: Strong Ending from Troubled 2016

By Modupe Gbadeyanka

Dangote Sugar Refinery Plc released its Q4 and full year 2016 results last week and its 94.5 percent y/y revenue and PAT growth apiece, in the final quarter, summed up an impressive year for the company, wherein top-line grew by 67.9 percent while post-tax profit increased by 29.2 percent.

The Board is recommending N0.60 dividend per share (vs. N0.50 in 2015, and in line with our estimate).

Q4-2016 – The Hand of Price and Fair Value Adjustments

The revenue growth of 94.5 percent y/y reported during the fourth quarter was ahead of our estimate of 77 percent y/y, on higher-than-expected sales volume (+14% ahead of our forecast). The volume sold during the period (164k tonnes), though ahead of our estimate, was expectedly at record low level considering the magnitude of price increase (+34%) implemented during the period. Compared to other FMCG companies in our coverage, DANGSUGAR implemented about the highest (+70% average) price increase over 2016 to prevent the severe NGN depreciation and raw materials price increases experienced during the year from eroding margins.

ALSO READ  Dangote Sugar Outlook Remains Positive Despite Market Share Dropping to 60%

Gross margin fell sharply (403bps q/q) to 7.3%, as the price increase mentioned above trailed the 39 percent increase in cost per tonne.

Raw materials cost (+46% q/q per tonne) was the biggest driver of the increase in per tonne cost, reflecting both the increase in the international price of raw sugar from the third quarter and the continued slippage of the Naira exchange rate at the alternative markets.

ALSO READ  5 Ways Small Businesses In Nigeria Can Build Positive Online Reputation

A significant surge in depreciation charge (the highest during the year) was also responsible for the shrinkage in gross margin.

Operating expenses was down 0.5 percent y/y, but was the highest – consistent with the historical trend – in all quarters of the year. But thanks to the huge price-driven revenue growth, the opex/revenue ratio was maintained at 4 percent.

Below the EBIT line, fair value adjustments came in at N1.82 billion, similar to Q4-15, and had a major positive impact on PBT (84.8% y/y and 3.2% q/q). The fair adjustments relate to the revaluation of the sugar cane plantations.

ALSO READ  Customs Lifts Ban On Rice Importation

Below PBT, a significantly lower effective tax rate of 0.4% (vs. 34% average in 9M-16 and 5% in Q4-15) had positive feed-through to PAT.

The management claims to have had a strong start to 2017, capturing market share from competitors and smugglers. It expressed optimism in the ability of the strengthening Naira to eliminate the challenges of sourcing FX. Risk, however, is that raw sugar prices remain volatile in the international market and subsequent appreciation could more than offset gain from a stable Naira exchange rate.

http://research.cordros.com/view-reports

Related Articles

Modupe Gbadeyanka is a fast-rising journalist with Business Post Nigeria. Her passion for journalism is amazing. She is willing to learn more with a view to becoming one of the best pen-pushers in Nigeria. Her role models are the duo of CNN's Richard Quest and Christiane Amanpour.

more recommended stories

%d bloggers like this: