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DANGOTE SUGAR REFINERY PLC FY'17 Earnings - Resilient earnings despite increasing competition

Resilient earnings despite increasing competition                                                     

Dangote Sugar’s FY’17 financial results showed a 20% y/y rise in Revenue for the period as a 43% y/y increase in average selling prices offset a 16% y/y decline in sugar volumes sold. Particularly, the top line figure came in at a record high of ₦204 billion – marginally below our expectation. The deviation was largely driven by lower than expected volume rollout in Q4’17 (3% q/q rise vs 11% Vetiva estimate) as well as some price cut recorded within the quarter. Supported by well contained Operating Expenses, stronger (y/y) selling price, as well as moderation in FX related production cost, FY’17 EBIT margin rose to 23% (FY’16: 10%).

Bottom line was further supported by an extraordinary Finance Income of ₦4.3 billion in Q4’17 (attributed to exchange rate gains) as well as ₦3.3 billion Investment Income recorded for FY’17 (FY’16: ₦601 million). Overall, FY’17 PAT came in 8% above our estimate at ₦39.8 billion, a significant leap from ₦14.4 billion recorded in FY’16. The Board proposed a final dividend of ₦1.25 (Total dividend: ₦1.75, Dividend yield: 13%). We revise our Revenue forecast lower to ₦189 billion amidst lower y/y prices and volumes – particularly given previous year’s high base. Though sustained stability in gas supply and benign global raw sugar prices are expected to support margins, we revise our FY’18 EBIT margin estimate 100bps lower to 22% (Previous: 23%; historic average of 20%) amidst lower selling prices. Also driven by our expectation of normalization in FX related gains, we estimate a ₦29 billion PAT for FY’18.