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Dangote Sugar Refinery Q1 2018 Results - Sales Declined by -31% YoY to N41.1bn

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Monday, April 30, 2018 /02:20 PM / FBNQuest Research 

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.

D
angote Sugar Refinery Q1 2018 results vs. FBNQuest Capital Research estimates (N millions)
Proshare Nigeria Pvt. Ltd.
Source: NSE, F
BNQuest Capital Research estimates                                                                               

Proshare Nigeria Pvt. Ltd.

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