Friday, April 22, 2016 3:20PM/ FBNQuest Research
Event: Dangote Sugar Refinery reports Q1 2016 results
Implications: Upward revision to consensus 2016 PBT forecasts expected
Positives: Q1 sales were up 45% y/y and 16% q/q respectively; opex declined -11% y/y
Negatives: Gross margin contracted -376bp y/y to 21%
This morning, Dangote Sugar Refinery (DSR) published its Q1 2016 results which showed double-digit y/y growth for key line items on its P&L. While sales were up 45% y/y, PBT and PAT were both up 35% y/y and 41% y/y to N5.1bn and N3.3bn respectively.
According to management statements, topline growth was supported by both unit volume growth and pricing. DSR increased prices by 22% y/y to N7,574 per 50kg bag to reflect higher production costs which were impacted by increased raw sugar import tariff (from 10% to 20%), higher freight expenses and increased LPFO use, which is 1.5x more expensive than gas. Sugar sales were up 23% y/y from 211,793 metric tonne (MT).
The combination of the topline growth and a -10% y/y decline in opex more than offset a -376bp y/y gross margin contraction and led to a PBT growth of 35% y/y. Sequentially, while sales were up 16% q/q, PBT and PAT both grew by 120% q/q and 52% q/q respectively. Lower q/q growth on the PAT line was due to a tax payment of around N120m in Q4 2015 vs. –N1.8bn in Q1 2016. Compared with our estimates, sales, PBT and PAT were all in line.
On an annualised basis, DSR’s Q1 2016 sales and PBT are both tracking well ahead of consensus estimates of N108.2bn and N17.4bn respectively. On the back of these numbers we expect upward revisions to consensus 2016E estimates.
Production at Savannah Sugar Company, DSR’s first backward integration project, which was up 71% y/y from 8,441 tonnes vs. 4,930 in 2015 is one of the positives we draw from these set of numbers. Harvesting is expected to continue through Q2 2016. Looking forward, DSR’s revised backward integration development projects include a green field development of 46,000 hectares (ha) in Zaria KalaKala (Kebbi State), full rehabilitation of 23,000ha at Savannah along with the Guyuk annex of 6,000 ha planned for completion within the next three years. This is expected to raise sugar production from sugar cane to close to 700,000 MT a year.
We believe the improved security situation in northern Nigeria and enhanced distribution were the drivers behind the higher sugar volumes. DSR is in a better position compared with most local manufacturers given that the firm still sources all its fx requirements from the CBN.
Year to date, DSR shares have shed -4.3%, outperforming the All Share Index which has shed -13.3%. We expect the market to react positively to the results. At current levels, on our published estimates, DSR shares are trading on a 2016E P/E multiple of 5.8x for an EPS growth of around 2% in 2017E.
We rate the stock Neutral.
Our estimates are under review.
Conference call: Details to be circulated
Dangote Sugar Refinery Q1 2016 results: actual vs. FBNQuest Research estimates (N millions)