FREE

DANGOTE SUGAR REFINERY PLC - Strong topline sweet on Q1'17 earnings

​Dangote Sugar PLC released its Q1’17 results showing an 83% y/y rise in revenue to ₦59.5 billion, above Vetiva estimate of ₦42.9 billion. Like prior quarters, the topline performance was solely supported by higher average selling prices which rose 121% y/y to ₦340,200/MT. Whilst volumes have been adversely impacted (down 17% y/y), the price increases have been sufficient to produce this robust topline growth. Reflecting the impact of a weaker exchange rate on the import-reliant sugar refiner, gross margin contracted 758bps y/y to 13%. Whilst this comes in better than the 7% recorded in Q4’16, it remains below our 18% estimate and the 20% guidance from Management.

Given this, Q1’17 gross profit was 2% ahead of our estimate and 16% higher y/y at ₦7.8 billion. Earnings were further buoyed by lower OPEX as a % of sales (down 137bps to 3.3%) and a jump in investment income from ₦7 million in Q1’16 to ₦971 million in Q1’17. Overall, Q1’17 profit after tax rose 43% y/y to ₦4.8 billion, above our ₦4.1 billion estimate. We revise our FY’17 revenue estimate higher to ₦200.2 billion (Previous: ₦171.6 billion) to reflect the Q1’17 revenue beat. Whilst we remain optimistic about better gross margins in the coming quarters, we revise our estimate slightly lower to 17%. Given this, coupled with an upward revision in our investment income estimate, we revise our FY’17 EPS higher to ₦1.67 (Previous: ₦1.38, FY’16: ₦1.20) and raise our Target price to ₦10.17 (Previous: ₦9.01).