Dangote Sugar Refinery Gets Hold Rating Despite Dividend Increase

Dangote Sugar Plc, Nigeria’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 Group’s top and bottom-line items (Gross Earnings and the Profit-After-Tax (PAT)) in FY’20 grew by 33.03% and 33.16% to ₦214.30 billion and ₦29.78 billion respectively when compared to ₦161.09 billion and ₦22.36 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 ₦157.66 billion to ₦212.23 billion despite a 57.00% decrease in the Freight Income from ₦2.89 billion to ₦1.24 billion.

Increase Cost of Raw Materials Drove Cost Heads

On the low side, the Group’s significant increase in its major cost heads can be attributed to the rising inflation rate within the period under review. For instance, the company’s Cost of Sales, rose by 30.74% to print at ₦160.55 billion compared to ₦122.80 billion in FY’19. This was mainly driven by a 35.13% jump in the cost of Raw materials which settled at ₦122.90 billion compared to ₦90.95 billion FY’19.

Similarly, the Net-Finance Cost of the company rose astronomically by 271.1% from ₦516.21 million in FY’2019 to ₦1.92 billion in FY’2020.

Profit-After-Tax and EPS saw modest gains

Despite the increase in overhead costs and 112.45% increase in taxation to ₦15.85 billion as against ₦7.46 billion FY’19, the group’s Profit-After-Tax rose by 33.16% from ₦22.36 billion to ₦29.78 billion FY’20.

Consequently, the group reported an Earnings-per-Share of ₦2.45k as against ₦1.86k recorded in FY’19. As a result, the Board of Directors (BODs) has proposed a dividend of ₦1.50k/Shares which represents an increase of 36.36% compared ₦1.10k paid in the FY’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 nation’s economic activities going forward, we reviewed our 12-month target price to ₦20.65 which represents a HOLD recommendation on the stock and 15.04% upside potential compared to the closing price of ₦17.95 as of Thursday, 11th March 2021.

GTI Research