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DANGOTE SUGAR REFINERY PLC 9M'18 - External Factors Weigh On Q3'18 Performance

External factors weigh on Q3’18 performance                                                                                   

DANGSUGAR released its 9M’18 results showing a 28% y/y revenue decline to ₦117 billion, 5% below our estimate. While we had expected revenue in Q3 to come in lower q/q, given that it is a seasonally slower quarter, topline still came in at ₦33 billion (Q2: ₦42 billion), below our ₦38 billion estimate. This variance was driven by further reduction in sugar prices in the quarter (Average selling price down 3% from H1’18 to ₦256,680/MT) as well as lower than expected volumes (Q3’18 volumes 9% below estimate at 131,581 MT). Bucking the trend of gross margin improvement recorded in previous quarters, Q3’18 gross margin came in 952bps weaker q/q at 21% (Vetiva: 27%), the lowest level since Q1’17. As such, Q3’18 EBIT declined 54% q/q to ₦5.4 billion (Vetiva: ₦9.4 billion), weakest EBIT in eight quarters. Overall, 9M’18 PAT came in at ₦16.7 billion, 37% and 11% lower when compared to 9M’17 and Vetiva estimate respectively.                                     

Despite the more competitive operating environment, we expect DANGSUGAR’s volumes to improve 20% q/q in Q4’18 supported by the seasonal boost from the festive season. Nonetheless, we revise our revenue estimate for the year to ₦156 billion (Previous: ₦171 billion) to account for the Q3 results as well as lower sugar prices for the rest of the year. Overall, we highlight that most of the challenges facing DANGSUGAR in the current financial year are more external with respect to the Nigerian operating environment. While these factors should be transient in nature, efforts to curtail the smuggled sugar by government authorities as well as improve traffic flow in the Apapa axis have yielded very dismal results and we are less optimistic about the timeline for improvement in these conditions.

 Dangote Sugar Refinery PLC (DANGSUGAR) is the largest sugar refinery in Sub- Saharan Africa with installed capacity of 1.44 million MT. DANGSUGAR is listed under the Consumer Goods sector, in the Food Products subsector on the Nigerian Stock Exchange. Following the acquisition of Savannah Sugar in Q1 2013, the group’s operations now comprise of three key areas which include: i) Planting and milling of sugar cane ii) Refining of granulated white sugar; iii) Marketing and Distribution. DANGSUGAR is majority owned by Dangote Industries Limited.