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Dangote Sugar Refinery Plc 9M'18 results - Unimpressive top line performance weighs on earnings
(Source: Cardinal Stone, Date: 31-Oct-2018)

Dangote Sugar Refinery Plc 9M'18 results - Unimpressive top line performance weighs on earnings

 

 

30 October 2018

 

 

Dangote Sugar Refinery Plc (DANGSUGAR) 9M'18 results "" revenue declined by 28.4% YoY to N116.8 billion - lower than our projected N125.3 billion for the period (-6.8% deviation). In the same vein, after tax earnings slumped 37.0% YoY to N16.7 billion, behind our N17.9 billion estimate (-6.7% deviation). 

 

 

Other highlights:

 

·     In Q3'18, revenues slumped by 26.3% YoY to N32.7 billion. We believe the pressure on top-line growth stems from both lower prices and slower volume growth. On a quarter-on-quarter basis, sales dipped by 23.9%, owing principally to seasonality. We highlight that volumes are typically lower in the rainy season.

 

·     Down the line, cost of sales declined at a slower pace (-13.0% YoY) than revenue growth (-26.3% YoY). As such, gross margin was pressured in Q3'18, as it advanced by 12.1 ppts YoY and 9.5 ppts QoQ to 20.8% (Q2'18: 30.3%, Q1'18: 25.0%, Q4'17: 23.0%).

 

·     DANGSUGAR incurred higher operating expenses during the quarter (N0.06 per unit of revenue, compared to N0.05 per unit of revenue incurred in Q3'17), weighed by 35.3% YoY increase in selling and distribution expenses. Consequently, operating profit margin worsened to 15.0% (Q3'17: 28.5%, Q2'18: 23.0%), given higher production and operating costs. 

 

·     Overall, decline in sales, higher production and operating costs, as well as a higher effective tax rate (Q3'18: 36.6% vs. Q3'17: 32.7%) weighed on after-tax earnings, as it declined more than two-fold to N4.0 billion (-57.6% YoY). 

 

Analyst take: Until the smuggling of unlicensed sugar into the country is addressed, we believe DANGSUGAR's ability to grow its top line might remain stunted. The increase of the unlicensed non-fortified sugar has been occasioned by i) lower price of global sugar prices (-21.0% YtD) and ii) continued FX stability and availability. Furthermore, the Apapa-gridlock remains a hindrance for the company to push out volumes and we believe that this also had a negative impact on distribution costs, thus weighing on margins. We will adjust our estimates after getting further clarity from management. Our target price for the counter is under review.

 

 

 

Kindly click here for a copy of Dangote Sugar Refinery Plc. 9M'18 results.

 

Regards,

 

Analyst Certification

As to each security or issuer mentioned in this report, the respective primary research analyst(s) covering that security or issuer hereby certify that their views about the issuers and their securities discussed in this report are accurately expressed and that they have not received and will not receive direct or indirect compensation in exchange for expressing specific recommendations or views in this report.

 

CardinalStone Research 

Lagos Office: 5 Okotie Eboh Street 

            South-West Ikoyi, Lagos

            Nigeria

Abuja Office: 12 Dar Es Salaam Street

             Wuse II, Abuja, Nigeria

Tel: +234(1) 7100433, 7100434

Email: research@cardinalstone.com 

Website: www.cardinalstone.com    

 

---------------------------------------------------------------------------------------------------------------------------------

CardinalStone is an investment management firm located in Nigeria and registered with the Securities and Exchange Commission (SEC).

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