Thursday, May 04, 2017 8:45 AM / Vetiva Research
· Higher prices continue to support topline, up 83% y/y
· Group sugar sales volumes decline 17% y/y, but up 7% q/q
· Surprise in investment income, lower OPEX boost earnings
· PAT up 43% y/y, 15% above Vetiva estimate
· Target price revised to ₦10.17 (Previous ₦9.01)
Q1’17 earnings exceed estimates, albeit margins miss mark
Dangote Sugar PLC released its Q1’17 results showing an 83% y/y rise in revenue to ₦59.5 billion, above Vetiva estimate of ₦42.9 billion.
Like prior quarters, the topline performance was solely supported by higher average selling prices which rose 121% y/y to ₦340,200/MT.
Whilst volumes have been adversely impacted (down 17% y/y), the price increases have been sufficient to produce this robust topline growth. On a quarterly basis however, it is important to note that volumes did not decline for the first time in three quarters, rising instead by 7% to 174,981MT.
We believe this was driven by management’s decision to cut prices by ₦20,000/ton in March.
Reflecting the impact of a weaker exchange rate on the import-reliant sugar refiner, gross margin contracted 758bps y/y to 13%.
Whilst this comes in better than the 7% recorded in Q4’16, it remains below our 18% estimate and the 20% guidance from Management.
Our expectation for a margin recovery was hinged on improved liquidity in the FX market since February, given that the company had to source FX from the more expensive parallel market in Q4’16 amidst severe scarcity in the official FX market.
Nonetheless, if liquidity remains robust in the official market till the end of Q2’17, we expect to see further margin improvement.