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Dangote Sugar Refinery Gets Hold Rating Despite Dividend Increase

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Dangote Sugar Refinery Gets Hold Rating Despite Dividend Increase Brandnewsday

Dangote Sugar Plc, Nigeriaโ€™s 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 Groupโ€™s top and bottom-line items (Gross Earnings and the Profit-After-Tax (PAT)) in FYโ€™20 grew by 33.03% and 33.16% to โ‚ฆ214.30 billion and โ‚ฆ29.78 billion respectively when compared to โ‚ฆ161.09 billion and โ‚ฆ22.36 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.

Dangote Sugar Refinery Gets Hold Rating Despite Dividend Increase Brandnewsday

The increase in Gross Earnings was buoyed by 34.60% increase in the sales of sugar (50kg and retails) from โ‚ฆ157.66 billion to โ‚ฆ212.23 billion despite a 57.00% decrease in the Freight Income from โ‚ฆ2.89 billion to โ‚ฆ1.24 billion.

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Increase Cost of Raw Materials Drove Cost Heads

On the low side, the Groupโ€™s significant increase in its major cost heads can be attributed to the rising inflation rate within the period under review. For instance, the companyโ€™s Cost of Sales, rose by 30.74% to print at โ‚ฆ160.55 billion compared to โ‚ฆ122.80 billion in FYโ€™19. This was mainly driven by a 35.13% jump in the cost of Raw materials which settled at โ‚ฆ122.90 billion compared to โ‚ฆ90.95 billion FYโ€™19.

Similarly, the Net-Finance Cost of the company rose astronomically by 271.1% from โ‚ฆ516.21 million in FYโ€™2019 to โ‚ฆ1.92 billion in FYโ€™2020.

Profit-After-Tax and EPS saw modest gains

Despite the increase in overhead costs and 112.45% increase in taxation to โ‚ฆ15.85 billion as against โ‚ฆ7.46 billion FYโ€™19, the groupโ€™s Profit-After-Tax rose by 33.16% from โ‚ฆ22.36 billion to โ‚ฆ29.78 billion FYโ€™20.

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Consequently, the group reported an Earnings-per-Share of โ‚ฆ2.45k as against โ‚ฆ1.86k recorded in FYโ€™19. As a result, the Board of Directors (BODs) has proposed a dividend of โ‚ฆ1.50k/Shares which represents an increase of 36.36% compared โ‚ฆ1.10k paid in the FYโ€™19.

Conclusion

In spite of the 2020 headwinds on businesses around the world, the impressive performance of the Group in 2020 and improvement in the nationโ€™s economic activities going forward, we reviewed our 12-month target price to โ‚ฆ20.65 which represents a HOLD recommendation on the stock and 15.04% upside potential compared to the closing price of โ‚ฆ17.95 as of Thursday, 11th March 2021.

GTI Research

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