Tuesday, April 03, 2018
10:20 AM / ARM Research
Dangote Sugar Refinery (Dangsugar) finished its
financial year 2017 on a high note with its recently released full year results
revealing impressive earnings of N39.8 billion which almost tripled its
performance in 2016 and translates to earnings per Share (EPS) of N3.31 (FY 16:
The company declared a final dividend per Share (DPS)
of N1.25 which in addition to the interim of N0.50 amounts to total DPS of
N1.75, representing a payout ratio of 53% (vs. 50% in 2016) and 191.7% YoY
higher than 2016 total DPS of N0.60. Proposed final DPS translates to a yield
of 5.7% based on current pricing.
Higher product pricing support revenue. The step
up in earnings stemmed principally from revenue which rose 20% YoY to N204.4
billion underpinned by higher product pricing. Precisely, average pricing per
ton over 2017 was higher 43.4% than 2016 following price hikes to pass-through
input price pressures in a bid to protect margins. On the flipside, sales
volume declined 15.5% to 657,775MT which we attribute to higher product
pricing, smuggling of unlicensed sugar as well as reduced industrial demand
from major corporates whose production levels were challenged by the inability
to source FX for the importation of needed raw materials.
Energy pressures offsets gains from lower raw sugar
prices. Over 2017, raw material cost1 declined 2.1% YoY to
N123.9 billion driven by lower raw sugar prices and naira appreciation from
improved dollar liquidity as well as currency stability. However, the company
faced energy pressures2 during the year from a 42% increase in Low Pour Fuel
Oil (LPFO) with more usage of expensive LPFO (25% in 2017 vs. 10% target of
total energy) due to gas instability in the first three quarters of 2017.
Consequently, energy pressure masked gains from lower raw sugar prices with a
resultant 4.6% YoY increase in Cost of Goods Sold (COGS) to N153.4 billion.
Irrespective, the faster rise in revenue relative input cost, drove a 121.8%
YoY increase in gross profit to N51 billion with gross margin expanding
11.4ppts to 24.9%, above past 5-year trend level of 19%.
Finance Income provides further boost to earnings. Over
2017, finance income3 of N7.5 billion was 12.5x ahead that of 2016. Firstly,
the increase stemmed from investment income of N3.4 billion given its robust
cash position (2017 average cash at N38.2 billion vs. N22 billion in 2016) and
favourable deposit interest rate of 13.5% (versus 11.5% in 2016). Secondly, the
company recorded exchange gain of N3.9 billion which, in our view, might be
related to gains on its short-term dollar credit position. Given the foregoing,
profit before and after tax rose 173% YoY and 176% YoY to N53.6 billion and
N39.8 billion respectively.
Price cuts leave Q4 revenue lower. Over Q4
17 revenue declined 24% YoY to N41.4 billion due to lower product pricing (we
estimate per ton refined sugar price declined 17% YoY to N274,858 over Q4) and
decline in sales volume (-8.4% YoY). In our view, competition from smuggled
refined sugar and distribution disruptions, a consequence of the Apapa
gridlock, continued to weigh on volumes over the quarter. Nonetheless, COGS
declined faster than revenue (-36.9% YoY to N31.9 billion) underpinned by lower
raw material cost (-47.2% YoY) which induced a 138% YoY increase in gross
profit to N9.5 billion and 15.7ppts expansion in related margin to 23%. OPEX
also moderated 4.8% YoY to N2.2 billion to drive a fourfold increase in
operating profit to N7.3 billion.
Highest quarterly EPS in Q4 17. Overall,
supported by higher net finance income of N5.3 billion (versus N390 million in
Q4 16), after-tax earnings over Q4 rose 210% YoY to N13.2 billion, translating
to an EPS of N1.10 (vs. N0.36 in Q4 16).
DANGSUGAR trades at a P/E of 8.5x compared to Bloomberg
Middle and East Africa Peers at 14.4x. Our last communicated FVE on the
stock is N24.16 which translates to an OVERWEIGHT rating on the stock.
We will revisit our numbers after further analysis and discussion with
1 Raw sugar accounts for 80% of aggregate
cost of sales
2 Energy contributes 12% to aggregate cost of sales
3 We included investment income in the
calculation of finance income
Sugar Refinery Plc Announces Its Annual General Meeting
Sugar Refinery - Q3 Profitability Primarily Driven By Higher Pricing
Declares N26.5 billion PAT in Q3 2017 Result,(SP:N14.56k)
Plc -Target Price Upgrade on Strong H1’17 Earnings and margin Uplift
Declares N17.10 billion PAT inQ2'17 Result,(SP:N10.86k)
Sugar Refinery Q1 2017 Sales of N59.5bn Grew by 83% YoY
Sugar Refinery Plc - Update After Speaking with Management
Declares N14.40 billion PAT in 2016 Audited Result,(SP:N0.50k)
Sugar Refinery Plc - Recommendation Upgraded
Sugar Refinery Plc - Production costs surge, caps earnings growth
- DANGSUGAR Declares N10.12billion
PAT in Q3 2016 Result SP N6.25k
- Note on the
Tax Component of Dangote Cement Results
- PZ Reports
Q3 2018 Results - Shares Have Gained 10.9% YTD vs 8.5% YTD for the ASI
Cement - Weaker Growth, Higher Valuation, Turning Cautious!