Business & Economy
Dangote Sugar Refinery Gets Hold Rating Despite Dividend Increase
Dangote Sugar Plc, Nigeriaโs largest producer of household and commercial sugar with an output capacity of 1.44 MT/PA and the biggest company (by market capitalization) in the Food products segment of the Consumer goods sector on the Nigerian Stock Exchange (NSE) on Monday 1st of March 2021 to the investing public.
Drivers of the Revenue Performance
From the released result, the Groupโs top and bottom-line items (Gross Earnings and the Profit-After-Tax (PAT)) in FYโ20 grew by 33.03% and 33.16% to โฆ214.30 billion and โฆ29.78 billion respectively when compared to โฆ161.09 billion and โฆ22.36 billion in 2019, despite the weak macro-economic fundamentals caused by the underlying impact of the coronavirus pandemic partly due to the activation of Business Continuity Management System during the lockdown and the merger deal with Savannah Sugar Company Ltd which took effect September 1, 2020.
The increase in Gross Earnings was buoyed by 34.60% increase in the sales of sugar (50kg and retails) from โฆ157.66 billion to โฆ212.23 billion despite a 57.00% decrease in the Freight Income from โฆ2.89 billion to โฆ1.24 billion.
Increase Cost of Raw Materials Drove Cost Heads
On the low side, the Groupโs significant increase in its major cost heads can be attributed to the rising inflation rate within the period under review. For instance, the companyโs Cost of Sales, rose by 30.74% to print at โฆ160.55 billion compared to โฆ122.80 billion in FYโ19. This was mainly driven by a 35.13% jump in the cost of Raw materials which settled at โฆ122.90 billion compared to โฆ90.95 billion FYโ19.
Similarly, the Net-Finance Cost of the company rose astronomically by 271.1% from โฆ516.21 million in FYโ2019 to โฆ1.92 billion in FYโ2020.
Profit-After-Tax and EPS saw modest gains
Despite the increase in overhead costs and 112.45% increase in taxation to โฆ15.85 billion as against โฆ7.46 billion FYโ19, the groupโs Profit-After-Tax rose by 33.16% from โฆ22.36 billion to โฆ29.78 billion FYโ20.
Consequently, the group reported an Earnings-per-Share of โฆ2.45k as against โฆ1.86k recorded in FYโ19. As a result, the Board of Directors (BODs) has proposed a dividend of โฆ1.50k/Shares which represents an increase of 36.36% compared โฆ1.10k paid in the FYโ19.
Conclusion
In spite of the 2020 headwinds on businesses around the world, the impressive performance of the Group in 2020 and improvement in the nationโs economic activities going forward, we reviewed our 12-month target price to โฆ20.65 which represents a HOLD recommendation on the stock and 15.04% upside potential compared to the closing price of โฆ17.95 as of Thursday, 11th March 2021.
GTI Research