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DANGOTE SUGAR REFINERY PLC Q1'23 Earnings release - Favourable sugar prices increase profitability

Dangote Sugar Refinery released its Q1’23 Earnings results, delivering topline growth of 8% y/y to ₦102.2 billion. In the Q1 period, the National Sugar Development Committee (NSDC) reported that wholesale sugar prices per tonne rose 36% higher y/y which supported sugar revenue for the industry. By geography, higher growth stemmed from Lagos operations, growing 15% y/y and contributing 40% to revenue.

On the Opex front, while selling expenses declined by 33%, admin expenses increased by 23% y/y, taking opex 17% higher y/y to ₦2.9 billion. After accounting for a ₦1.1 billion fair value gain and net finance costs of ₦5.5 billion, which was driven by a 2.3x rise in finance expense to ₦8.1 billion and cushioned by a ₦2.6 billion investment income, the company’s earnings before tax came to ₦18.5 billion (+36% y/y), with PAT printing 44% higher y/y at ₦12.8 billion.

Consequently, if we model the current Q1 growth pace for the year, our revenue expectation comes to ₦427.8 billion for the full year. In terms of margins, raw sugar price per tonne increased by 19% y/y and 14% q/q in Q1, which is expected to influence DSR’s cost of sales for the coming quarter. Further out, raw sugar prices are expected to remain volatile, given weather-driven supply constraints in some Asian-producing regions. As such, we could see margins taper slightly.