Making Sense of Reuters’ Report on BUA Sugar


Wednesday, February 24, 2016 10.18AM / Cordros Capital

Last Thursday (February 18), Reuters reported that the management of BUA Sugar (BUA) is considering shutting its sugar refinery in Lagos next month.

Words from Management of BUA Group 

We spoke with management of BUA (the next day) to validate the above report. Management didn't completely discredit Reuters' assertion, as we understood, but the feedback is that no concrete decision had been taken yet. In a newspaper publication on Friday, February 19 2016, the Chairman of BUA Group, amongst other issues discussed, made some statements that somewhat validate Reuters' report.


Words from Management of Dangote Sugar Refinery Plc (DANGSUGAR)


We spoke with the management of DANGSUGAR (last week Friday) on the impact of the renewed forex pressure on their operations. They claimed to being able to source all forex requirements -- by leveraging on the strength and network of the Dangote Group -- at the relatively cheaper CBN and commercial banks' rates (N197/US$ and N199/US$ respectively). The Chairman of BUA Group confirmed this assertion in the recent newspaper publication (stated above).


DANGSUGAR's ability to source cheaper forex, amidst the possibility of competitors (including Flour Mills of Nigeria Plc's Golden Sugar, we were informed) temporarily shutting operations, suggests a possible positive outlook for the market leader in 2016.


That said, we note that the claim that DANGSUAGR is insulated from the ongoing forex pressure does not tie well with the recent pace and magnitude at which the company has been adjusting its selling prices, signaling desperation to protect margins.


We are Considering a Reassessment of the Universe of our Consumer Companies


We had stated in our previous reports that the challenges faced by Nigerian manufacturers in the current climate of USD supply shortages is grossly underestimated. The situation is more pressing for the locals -- as we were informed that companies with foreign ownerships have been receiving the backing of their offshore parent/sister companies.


The possibility of Naira devaluation at the March 2016 MPC meeting is more likely than ever. Worse still though, is that, in our view, the devaluation would not solve the fundamental challenge of reduced USD inflows into the country or end the Central Bank's supply rationing. Among our coverage universe, we are considering stringent reassessment of consumer companies that are (1) wholly local (2) largely dependent on importation for raw material requirements, and (3) significantly exposed to USD borrowings.


Please find the complete Cordros Report on BUA Here 


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