Friday, June 04, 2021 / 09:43
AM / by FBNQuest Research / Header Image Credit: Dangote Sugar Refinery
to our EPS estimates over the '21-23f period; Neutral rating maintained
Dangote Sugar Refinery's (DSR) better-than-expected results in Q1 '21, we have
upgraded our EPS estimates over '21-23f period by 12.8% on average to reflect
the improvement in fundamentals. Nonetheless, we retain our Neutral rating.
Compared with our forecasts, higher-than-expected sales volume helped drive a
stronger sales growth in Q1.
such, we have raised our '21f sales forecast by 9.5% to NGN256.3bn (from
NGN234.1bn previously) to reflect an increase in sales volumes by 2% to
793,498MT (from 780,299MT) and prices (8%, to reflect the increase in retail
prices of 50kg bag to NGN20,500 in May from an average of NGN20,000 in Q1'21).
We note that our new sales forecast is behind the Q1 '21 annualised run-rate of
NGN269.6bn. The change in our sales estimate implies a gross margin forecast of
27.6% (from 26.0% previously).
DSR's gross margin rose by 7bps y/y to 26.8% in Q1 '21. We estimate opex at
NGN11.1bn (+5.0% vs previous forecast of NGN10.6bn), following the +12.7% y/y
increase in opex in Q1'21 (to NGN2.3bn). Further down the P&L, we have
raised our '21f interest expense forecast to NGN3.6bn (+191.3% vs. prior
forecast) after a NGN2.3bn exchange loss in Q1 '21 increased interest expense
to NGN3.4bn. We raise our tax forecast to NGN18.3bn (from NGN16.2bn
previously), culminating in a PAT forecast of NGN33.7bn in '21f (vs. prior
estimate of NGN32.9bn).
valuation estimates, we have raised the risk-free rate in our DCF model to
12.5% (from 11%), while our adjusted beta estimate is lowered to 1.0 (from 1.1
previously). Our new price target of NGN18.1 is up by 5.9%. At current levels,
our price target implies a potential upside of 5.6%. Year-to-date, DSR shares
have shed -3.4% vs. the ASI's decline of -4.3%.
Faster-than-expected volume growth lifts earnings in Q1 '21
Q1 '21 results surprised positively. The company recorded sales of NGN67.4bn
(41.5% y/y and 25.3% q/q respectively) in Q1 '21, which beat our forecast by
14%. The increase in sales was largely due to higher sales volume (expanded by
5.7% y/y), and supportive low base price effect.
margin expanded by +7bps y/y to 26.8% while operating profit increased by
+41.9% y/y to NGN15.2bn Net interest expenses surprised negatively, as an fx
exchange loss of NGN1.3bn pushed net interest expense to NGN3.3bn (+167.4 y/y
and 543.8% q/q). PAT came in at N8.3bn (+30.3% y/y and 163.9% q/q), ahead of
our forecast of NGN7.3bn.
- Dangote Sugar Declares N8.3bn PAT in Q1 2021 Result,(SP:N17.10k)
- Dangote Sugar Refinery Q4 2020 Results Review: Stable Volume and
Price Mix to Anchor Growth in 2021
- Dangote Sugar Refinery Q2 2020 Results Review: Neutral Rating
Maintained Despite Upside
- Dangote Sugar Refinery Q4 2019 and Q1 2020 Results Review: Price
Target Cut Driven By FX Constraints
- Dangote Sugar Refinery Plc FY'19 and Q1'20 Results - Operating Cost
Pressures Erode Margins
- DANGSUGAR Notifies of Proposed Business Combination Within The
Dangote Sugar Group
- Dangote Sugar PLC 9M 2019 Earnings : Sustained Cost Pressure Weighs
- Dangote Sugar Plc H1 2019 Earnings Update - Revenue And Cost
Pressures Dampen Outlook
- Dangote Sugar Refinery Q1 2019 Results Review: Neutral Rating
- Dangote Sugar Q1 2019 - Sustained Cost Efficiency To Salvage Lost