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DANGOTE SUGAR REFINERY PLC 9M'20 - A sweet sail in profits

Revenue expansion strengthens in Q3

Dangote Sugar released its 9M’20 financial statements showing remarkable growth in both topline and bottom-line figures. The company’s Q3 Revenue grew 55% y/y to ₦57.3 billion, translating to a 9M’20 figure of ₦160.5 billion and a growth rate of 37% y/y (Vetiva estimate: ₦145.3 billion). The restriction of cheaper smuggled sugar from the Nigerian market has continued to support high double-digit growth in Revenue across major Revenue streams. For instance, in the nine-month period, Revenue from the sale of 50kg bags (which accounts for c.95% of total Revenue) grew 38% y/y to ₦153.8 billion, while Revenue from the sale of Retail sugar grew 55%, partly buoyed by front-loading purchases in Q2. Ahead of the festive season, we expect increased demand from food, beverage and confectionary makers in the next quarter to sustain this Revenue expansion track. Whilst this has been an outstanding performance so far, we see some downsides to this growth momentum in FY’20. One, is that the novelty gains from the closed borders may be waning given that the borders were closed around this time toward the fourth quarter last year. Two, the recent disruption to retail stores may prove a headwind to sales of Retail sugar. That said, we project a 35% rise in Revenue for FY’20 to ₦217.3 billion (Previous: ₦194.7 billion).

Earnings momentum to ride on market share gains

We expect gross margin to remain lowered at c.21% as the company battles with increased importation costs. Furthermore, we expect the slight expansion in Opex to persist in this last quarter, owing to inflationary pressures on the back of energy costs hike. Overall, we project a PBT of ₦40.6 billion and a PAT of ₦34.9 billion, a 36% y/y increase. Thus, we increase our target price for Dangsugar to ₦18.30 and maintain a BUY recommendation