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Analysis of Dangote Sugar 2016 Performance

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Dangote Sugar

**Posts Positive Performance Despite Input Costs Pressures

By Modupe Gbadeyanka

Dangote Sugar Refinery Plc delivered a remarkable financial performance in spite of elevated input cost within the financial year, as top line recorded a solid growth of 68 percent at N169.7 billion (FY 2015: N101.1 billion) and bottom line grew by 29 percent to N14.4 billion (FY 2015: N11.1 billion).

After a review of the company’s performance and based on our expectations, we project a fair value of N8.23 for Dangote Sugar and we assign a BUY rating on the stock.

The current market price of N6.00 implies a 27 percent discount to our fair value estimate of N8.23. DSR currently trades at a forward P/E and EV/EBITDA multiple of 4.82x and 4.97x, respectively.

FY’16 Performance Highlights:

  • Revenue grew markedly by 68% to N169.7bn (FY 2015: N101.1bn) on the back of major price increases within the year, while volume growth remained muted.

The average selling price in the year increased by 69% to N214.41/kg (N126.82/kg: FY’15), while sales volume was flat at 778,518mt (FY 2015: 778,000mt).

  • The major price hikes within the year were necessitated by the sharp rise in input costs as cost of sales increased by 82% to N146.7bn (FY 2015: N80.6bn), driven by a combination of increase in the international price of raw sugar, depreciation of the domestic currency, and higher energy costs.
  • The international price of raw sugar rose by 19% to an average of USD410.6 in 2016 (USD345.3 in FY 2015) while the domestic currency depreciated by 53% to further impact the cost of imported raw sugar. Also, gas supply interruptions led to the usage of more expensive low pour fuel oil (LPFO) and this aggravated energy costs.
  • DSR was, however, unable to fully pass the higher input costs to consumers through the several increases in selling price within the year as gross profit margin declined to 14% (FY 2015: 20%) and gross profit increased marginally by 12% to N23.0bn (FY 2015: N20.5bn).
  • Profit before tax grew by 21% to N19.6bn (FY 2015: N16.2bn) as fair value gains on biological assets of N2.5bn (FY 2015: N1.2bn) recorded in the year also supported bottom line. Profit after tax rose by 29% to N14.4bn (FY 2015: N11.1bn).

Our view

We expect revenue growth in FY 2017 to be driven primarily by volume. We believe the second phase of the crop season which kicked off in November ’16 from DSL’s backward integration drive will support more increases in production volume in H1 ’17. We expect volume sales to be driven by increase in market share as foreign exchange scarcity and higher imported sugar prices continue to subdue competition.

Ultimately, we believe lower international sugar prices, relative “stability” in the FX market and improved gas supply should ease input costs pressures and support profitability margins in FY 2017.

Valuation and rating

In estimating the fair value of DSR Plc, we adopted a combination of DCF and relative valuation methodologies. Our initial year cost of equity estimate of 19% was computed using a 10-yr risk-free rate of 15.80%, beta of 0.53 (relative to the NSE ASI) and an equity risk premium of 5.69%. We arrived at a fair value estimate of N8.23 per share.

  • Our fair value estimate implies a justified forward P/E multiple of 6.61x and EV/EBITDA multiple of 6.00x.
  • The current market price of N6.00 is at a 27% discount to our fair value estimate; hence, we rate the company’s stock a BUY.

Downside Risks to Valuation

The downside risks to our fair value estimate include:

  • Gas supply disruptions and increase in energy prices;
  • Further spike in international price of raw sugar;

• Devaluation of the domestic currency and the impact on the international price of raw sugar.

http://www.wstc.com.ng/uploads/reports/Earnings%20Update%20Dangote%20Sugar%20Refinery%20Plc.pdf

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.

Economy

Nigerian Exchange Tumbles 0.46% on Profit-Taking

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exposure to Nigerian stocks

By Dipo Olowookere

The Nigerian Exchange (NGX) Limited suffered its first loss this week with a 0.46 per cent decline on Friday, influenced by profit-taking.

The market was under selling pressure yesterday, with all the key sectors of the bourse closing in red when the gong was struck by 2:30 pm.

The commodity index was down by 1.94 per cent, the insurance sector depreciated by 0.22 per cent, the industrial goods space lost 0.18 per cent, the consumer goods counter went down by 0.05 per cent, the energy industry tumbled by 0.02 per cent, and the banking sector fell by 0.01 per cent.

As a result, the All-Share Index (ASI) contracted by 498.56 points to 108,733.40 points from 109,231.96 points and the market capitalisation retreated by N314 billion to N68.339 trillion from N68.653 trillion.

The market participants traded 459.2 million equities valued at N11.2 billion in 15,723 deals on Friday versus the 554.1 million equities worth N14.4 billion traded 16,704 deals in the preceding session, implying a decrease in the trading volume, value, and number of deals by 17.13 per cent, 22.22 per cent, and 5.87 per cent apiece.

Tantalizers traded 101.4 million shares for N237.3 million, GTCO exchanged 51.3 million equities worth N3.5 billion, Access Holdings transacted 45.2 million stocks valued at N975.3 million, Zenith Bank sold 21.8 million shares worth N1.1 billion, and Sterling Holdings transacted 15.5 million equities valued at N91.8 million.

The heaviest price loser was Transcorp Power with a decline of 9.98 per cent to settle at N328.50, Haldane McCall fell by 9.57 per cent to N4.25, Meyer lost 9.09 per cent to trade at N8.00, Regency Alliance dropped 6.78 per cent to finish at 55 Kobo, and Sunu Assurances crumbled by 6.73 per cent to N4.99.

On the flip side, ABC Transport chalked up 10.00 per cent to quote at N2.86, Sterling Holdings also expanded by 10.00 per cent to close at N6.05, Chellarams improved by 9.94 per cent to N10.40, Academy Press gained 9.92 per cent to finish at N4.32, and Red Star Express appreciated by 9.90 per cent to N5.55.

Business Post reports that a total of 34 stocks appreciated, while 32 stocks depreciated, indicating a positive market breadth index and bullish investor sentiment despite the loss recorded by Customs Street during the session.

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Economy

CSCS, Three Others Weaken Unlisted Securities Market by 0.46%

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CSCS Stocks

By Adedapo Adesanya

Four stocks weakened the NASD Over-the-Counter (OTC) Securities Exchange by 0.46 per cent on Friday, May 9, bringing down the market capitalisation by N9.02 billion to N1.935 trillion from N1.944 trillion quoted at the preceding session, as the NASD Unlisted Security Index (NSI) dropped 15.42 points to settle at 3,304.74 points, in contrast to the 3,320.16 points recorded a day earlier.

Central Securities Clearing Systems (CSCS) went down by N1.28 during the trading session to finish at N22.60 per share versus Thursday’s value of N23.88 per share, FrieslandCampina Wamco Nigeria Plc lost N1.00 to close at N40.03 per unit compared with previous closing value of N41.03 per unit, Geo-Fluids Plc depreciated by 11 Kobo to end at N1.81 per share versus the previous session’s N1.92 per share, and UBN Property Plc shrank by 4 Kobo to trade at N1.96 per unit, in contrast to the N2.00 per unit it was sold in the preceding day.

However, the price of Impresit Bakolori Plc went up by 11 Kobo yesterday to close at N1.27 per share versus the previous day’s price of N1.16 per share.

The volume of transactions went down on Friday by 33.1 per cent to 231.6 million units from the 346.3 million units recorded a day earlier, the value of trades decreased by 31.3 per cent to N606.4 million from N882.8  million, while the number of deals increased by 256.3 per cent to 57 deals from 16 deals.

At the close of trading activities, Impresit Bakolori Plc remained the most active stock by volume (year-to-date) with 533.9 million units worth N520.9 million, followed by Geo-Fluids Plc with 265.8 million units valued at N469.5 million, and Okitipupa Plc with 153.6 million units sold for N4.9 billion.

Similarly, Okitipupa Plc was the most traded stock by value (year-to-date) with 153.6 million units worth N4.9 billion, trailed by FrieslandCampina Wamco Nigeria Plc with 19.9 million units valued at N765.5 million, and Impresit Bakolori Plc with 533.9 million units sold for N520.9 million.

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Economy

Naira Maintains Stability against Dollar at Official Market

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currency in circulation eNaira

By Adedapo Adesanya

The Naira was relatively flat against the United States Dollar in the Nigerian Autonomous Foreign Exchange Market (NAFEM) on Friday, May 9, though it marginally shed 0.2 per cent or 7 Kobo to settle at N1,609.64/$1, in contrast to the preceding day’s N1,609.57/$1.

Also, the Nigerian Naira traded flat against the Pound Sterling and the Euro in the official market during the session, remaining unchanged at N2,145.48/£1 and N1,818.42/€1, respectively.

In the same vein, the value of the domestic currency to the Dollar remained unchanged in the parallel market yesterday at N1,625/$1, according to data obtained by Business Post.

As for the cryptocurrency market, it remained positive as President Donald Trump announced a comprehensive trade deal with the UK and the cumulative inflows into the spot exchange-traded funds (ETFs) hit a record high above $40 billion.

According to market analysts, this has led to substantial liquidations of bearish short positions, or leveraged plays aimed at profiting from price losses. A position is liquidated or forced closed when the trader’s account balance falls below the required margin level, often due to adverse price movements. This leads the exchange to close the position to prevent further losses automatically.

Meanwhile, the US and China are said to be working on a trade deal but many are skeptical of a deal being reached this month.

Dogecoin (DOGE) appreciated by 7.6 per cent to sell at $0.2229, Litecoin (LTC) improved its value by 5.5 per cent to quote at $103.51, Binance Coin (BNB) rose by 4.6 per cent to $663.22, and Solana (SOL) recorded a 3.6 per cent growth to sell at $171.52.

Further, the price of Ripple (XRP) went up by 1.4 per cent $2.37, Ethereum (ETH) jumped by 0.8 per cent to sell for $2,366.49, and Cardano (ADA) gained 0.7 per cent to trade at $0.7952, while Bitcoin (BTC) went down by 0.3 per cent to $103,670.89, with the US Dollar Tether (USDT) and the US Dollar Coin (USDC) trading flat at $1.00 each.

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