Dangote Sugar Refinery Plc Q3 17: Easing cost pressures underpin sturdy bottom line
- In line with our expectation, Dangote Sugar Refinery Plc (DSR) posted an impressive 9M 17 result, wherein revenue rose 44% YoY to N163 billion while EPS surged to N21 (+2.6x YoY). Taking DSR’s Q3 17 result as a standalone, PAT jumped 3.44x YoY to N9.4 billion to establish the business’ strongest earnings growth on record. In our view, this performance was reflective of bearish commodity prices which offset the impact of marginal decline in revenue (-1% YoY). Precisely, global raw sugar price was lower (-7.8% QoQ, -31.5% YoY) relative to the corresponding period of 2016 with the attendant impact underpinning the company’s first decline in COGS (-26% YoY to N29.7 billion) in seven quarters. Against this backdrop, DSR’s gross margin expanded 21.5pps YoY to a record level of 32.9%. Elsewhere, OPEX also moderated marginally (-2% YoY to N1.9 billion) in the period to leave operating profit fourfold higher YoY at N12.7 billion with related margin expanding 21.6pps YoY to 28.6%.
- In addition to declining cost pressures, DSR also benefitted from sturdy finance income (+4x YoY to N709 million) underpinned by its sizeable outstanding cash balance (+15% YoY to N38.1 billion) even as interest expense grew at a slower pace (+14% YoY to N126 million). Finally, DSR paid lower effective taxes in the quarter (-1.6pps YoY to 32.7%) to bolster realised gains from easing cost pressures and higher finance income.
- Currently, DSR trades at a P/E of 6.3x compared to 14.3x for Bloomberg Middle and East Africa Peers. We have a BUY rating on the stock with a FVE of N75.
- More analysis to follow.
- See attached for full report
ARM Securities Limited is a full-service brokerage house that offers best-in-class brokerage services to local as well as foreign private and institutional investors. Formerly known as Hamilton Hammer, the Company commenced operation in 1994 and was acquired by ARM Investment Managers in 2008--an acquisition which has successfully re-positioned the company as a recognized brokerage firm in Nigeria. The Company is a dealing member of the Nigerian Stock Exchange (NSE) and is regulated by Securities and Exchange Commission (SEC). ARM Securities research team provides insightful commentaries on the Nigerian economy and its equity and debt markets using an approach which incorporates a thorough understanding of the fundamentals of the industries and companies under coverage. The research therefore adopts an integrated methodology of top-down analysis and bottom-up stock selection, which focuses on publicly quoted companies on the Nigerian Stock Exchange that are judged to offer the highest potential for earnings growth. In addition, its analysts provide periodic commentaries on a range of topical global and local issues which provide investing clients with a holistic view of the opportunities and risks in today’s financial market landscape.
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