Proshare - Facebook Proshare - Twitter Proshare - Google+ Proshare - Linked In Proshare - RSS Feed

Dangote Sugar Refinery Plc Q1-17 PAT; Growth As Expected; Management Misses on Margin Target

Proshare

Tuesday, May 02, 2017  6:32 PM / Cordros Capital

Dangote Sugar Refinery Plc released Q1-17 result last Friday, recording revenue (82.5% y/y), EBITDA (13.8% y/y), and PAT (42.5% y/y) that are well ahead of Q1-16.

Revenue and PAT beat our estimates by 16% and 8% respectively. Annualized, revenue and PAT are above consensus by 30.9% and 1.4% respectively.

The revenue growth was driven by the significantly higher average price (121% y/y), which more than compensated for relatively lower sales volume (17% y/y).

Management said it sold 174,981 tonnes of sugar during the period, 7% more than the 164,129 tonnes achieved in Q4-16, and 13% above our estimate.

The q/q volume growth is consistent with the encouraging demand the management guided to during the 2016FY conference call.

That said, the management's reported average selling price of N17,010/50kg bag is above our computed N16,775/bag, and is not consistent with the N1,000/bag reduction (implemented in March) from the N17,000/bag as at end of 2016.

Also positively impacting PAT was the significant increase in investment income (N971.4 million vs. N7.1 million in Q1-16), enabled by growing cash generation, and consequent investments in short term money market instruments (N40.3 billion).

Management said it earned 11.5% (vs. 7% in Q1-16) average interest on its bank deposits. We also note that the yields on shorter maturing T-bills are significantly above Q1-16 (by over 1000 bps).

In addition, an amount of N122.5 million was reported as fair value adjustment on biological assets, compared to –N80.3 million in Q1-16. And while operating expenses increased by 29.1% y/y, it fell by 136 bps y/y as a proportion of revenue.

Although gross margin improved from the trough of 7.3% in Q4-16, the 13.2% realized during the period was significantly shy of the 20% guided by management, and lower than our 14.7% estimate.

Management had cited the (1) purchase of forex at a relatively lower average rate (compared to Q4-2016) and (2) higher output from Savannah where margins are higher, as the potential enablers of margin recovery.

Overall, DANGSUGAR's Q1-17 PAT is consistent with our strong growth expectation (22%) for 2017F.

We look for lower PAT growth in subsequent quarters as narrowing y/y price differential (with sales volume unlikely to improve significantly from current level) forces revenue growth to taper.

We maintain HOLD rating on the stock. A conference call for analysts and investors will be held Thursday this week.

Related News

1.       Dangote Sugar Refinery Q1 2017 Sales of N59.5bn Grew by 83% YoY

2.      Dangote Sugar Refinery Plc - Update After Speaking with Management

3.      DANGSUGAR Declares N14.40 billion PAT in 2016 Audited Result,(SP:N0.50k)

4.      Dangote Sugar Refinery Plc - Recommendation Upgraded

5.      Dangote Sugar Refinery Plc - Production costs surge, caps earnings growth

6.      DANGSUGAR Declares N10.12billion PAT in Q3 2016 Result SP N6.25k

7.       Increase in Selling Price to Cushion Dangote Sugar Plc Cost Pressures

8.      Dangote Sugar Refinery’s Rising costs Weigh on Growth Outlook

9.      DANGSUGAR Declares N7.38billion PAT in Q2 2016 Result SP N7.00k

10.  Dangote Sugar Refinery Plc Q2 16 - Interest savings on debt pay-down saves the day

11.   Dangote Sugar Refinery Operating Expenses Grow by 28% YoY in Q2'16

12.  Dangote Sugar Records N70.5bn Revenue in Q2’16

13.  DANGSUGAR Declares N3.34billion PAT in Q1 2016 Result SP N5.50k

14.  DANGSUGAR Maintains Neutral Rating as Sugar Production Growth is Likely in 2016

15.  DANGSUGAR Records Strong Sales Performance as PBT Drops by 47.4 QoQ in Q4 15

READ MORE:
Related News