EUR 48.04 For Business Accounts Only

Dangote Sugar PLC - Earnings improve on volume growth, price increase

• ​ DANGSUGAR started the year on a strong note, posting better than expected Q1 numbers with revenue up 45% y/y (Vetiva’s revenue estimate: 28% y/y). This performance was driven by a material growth in volume (14% y/y), and a 22% price increase in the period. Despite the tough operating environment, resilient demand from both trade and corporate customers (accounting for 30% and 70% of sales respectively), relatively reduced smuggling activities, and improved route-to-market buoyed the significant volume growth recorded in the quarter. Asides this volume growth, a price increase from an average of N124,360 per ton to N151,480 per ton was recorded in the quarter. 

• Gross margin for the quarter contracted 376bps y/y to 21% (tracking below our 22% estimate) as higher production costs from using alternative fuel (LPFO: 1.5 times more expensive than regular gas) and higher import tariffs outweighed the moderation in raw sugar prices (down 7% q/q) within the quarter. We have updated our model to reflect the impressive performance, raising our FY’16 price per ton assumption to N150,000 (Prev: N140,000) and FY’16 volume forecast to 780,000 tonnes. FY’16 revenue forecast has therefore been revised upwards to N117 billion (Previous: N106 billion) and our EPS forecast revised to N1.13 (Previous: N1.04). Consequently, our 12-month target price is also revised upwards to N8.36 (Previous: N7.33).