Monday, April 30, 2018 /02:20 PM /
Event: Dangote Sugar Refinery (DSR) reports Q1 2018 results
Implications: Negative reaction by the market likely
Positives: Q1 PBT and PAT of N8.4bn and N5.3bn up 19% y/y and 11% y/y respectively
Negatives: Sales declined by -31% y/y to N41.1bn
This morning, DSR published its Q1 2018 results. Although sales declined -31% y/y to N41.1bn, both PBT and PAT grew by double-digits y/y. While PBT was up 19% y/y to N8.4bn PAT grew 11% y/y to N5.3bn. We await management statements to determine the primary driver for the y/y topline decline. However, we suspect that sales prices remained at Q4 levels given the expansion in gross margin because raw sugar (a key raw material) prices are down -25% ytd.. Sales came in weaker y/y across all key regions, declining -46% y/y, -28% y/y and -27% y/y in the North, West and Lagos respectively. A gross margin expansion of +1,183bps y/y to 25.0% completely offset the topline decline and relatively weaker other income line to lead to the PBT growth.
Sequentially, sales came in flattish q/q while PBT and PAT both declined by -42% q/q and -60% q/q respectively. Benefits coming through from a gross margin expansion of +202bps q/q and an -11% q/q decline in opex were more than offset by an -81% q/q decline in net finance income. DSR also posted a fair value adjustment loss of –N880m.
Compared with our estimates, sales and PBT both came in behind by -23% and -32% respectively. The variance on the PBT line was driven by negative surprises on the sales and other income lines. On an annualised basis, DSR’s Q1 PBT of N8.4bn is tracking significantly behind consensus’ 2018E PBT forecast of N51.7bn. Although the y/y trend was positive, we believe the magnitude of the variance with analysts’ expectations will lead to a downward adjustment to estimates and a negative reaction by the market to these numbers. DSR shares have gained 7.0% ytd, broadly in line with the market.
We rate the stock Outperform. Our estimates are under review.
Dangote Sugar Refinery Q1 2018 results vs. FBNQuest Capital Research estimates (N millions)
Source: NSE, FBNQuest Capital Research estimates
1. Dangote Sugar Refinery Plc Appoints Mrs Adebola Falade as Chief Financial Officer
2. Dangote Sugar Refinery Q4 2017 Results Review - Lower Input Costs to Drive Earnings in 2018
3. Dangote Sugar Refinery Plc FY 2017 Earnings - Resilient Earnings Despite Increasing Competition
4. DANGSUGAR Declares N39.78bn PAT in 2017 Audited Result,(SP:N21.45k)
5. Dangote Sugar Refinery Plc Announces Closed Period
6. Improved Margins Of Dangote Sugar Refinery Underpin Solid Earnings Growth in FY 17, Rated Overweight
7. Dangote Sugar Refinery Plc Announces Its Annual General Meeting
8. Dangote Sugar Refinery - Q3 Profitability Primarily Driven By Higher Pricing
9. DANGSUGAR Declares N26.5 billion PAT in Q3 2017 Result,(SP:N14.56k)
10. DANGSUGAR Plc -Target Price Upgrade on Strong H1’17 Earnings and margin Uplift