Dangote Sugar Refinery Q4 2018 Results Review: Topline Improvement Key to 2019 Outlook


Monday, April 15, 2019 / 10:20 AM / by FBNQuest Research / Header Image Credit: Dangote Sugar


EPS forecasts over the 2019-2021E period up by 6%

Dangote Sugar Refinery’s (DSR) Q4 2018 earnings declined by -60% y/y to N5.3bn but came in well ahead of our estimate. The variance was primarily driven by a better-than-expected outcome on the gross margin line due to relatively lower raw material and direct labour costs. 

As such, we have raised our EPS forecasts over the 2019-21E period by 6%. Our 2019E sales growth forecast of 9% y/y to N164.1bn is driven by our expectation of higher (+14% y/y) finished sugar sales to 660,000 tonnes. We expect negligible price increases given the tough business environment. 

For sales, firstly, we expect that efforts, in conjunction with federal government agencies such as Customs, to reduce smuggled sugar sales in the northern markets will begin to payoff this year. Secondly, we anticipate a much better sugar output from Savannah Sugar Company (DSR’s pioneer backward integration project -BIP). A decongestion of access roads to the Apapa Port in the near term is unlikely. In the event this occurs, sales growth would be more significant than estimated. In 2018, average capacity utilisation was 39%, the lowest in a decade. 

Nonetheless, we expect utilisation to come in slightly higher at 45% this year. Ultimately, our topline growth forecast is the primary driver behind our EPS growth estimate of 22% y/y for 2019E. Our new price target of N14.9 is up 7% and implies a potential upside of 8% from current levels, hence, we retain our Neutral rating on the stock. 

Year-to-date, DSR shares have shed -10%, underperforming the broad index by c.-4%. DSR shares are trading on a 2019 P/E multiple of 6.1x for an EPS growth of 8% y/y in 2020E.


All key line items on the P&L declined y/y

Similar to Q3, all key line items on the P&L declined y/y. However, this decline was largely anticipated. Q4 sales declined by -19% y/y, driven by a -12% y/y fall in sugar sales volumes to 587,899 metric tonnes (mt) due to evacuation issues at the Apapa Port (key evacuation route for DSR’s Apapa Refinery) and lower-than-anticipated sugar production at Savannah Sugar Company (SSC) – DSR’s pioneer backward integrated project. 

PAT and PBT both declined by -42% y/y and -60% y/y respectively. On the flip side, sequential trends were strong. While sales were up 3% q/q to N33.6bn, PBT and PAT grew by 33% q/q and 32% q/q respectively. Compared with our estimates, while sales were in line, earnings beat by 44%, primarily driven by a positive surprise on the gross margin line. DSR proposed a dividend of N1.10 which works out to a yield of 8%.


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