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DANGOTE SUGAR REFINERY PLC - Margins strengthen, earnings beat in H1'17

Margins strengthen, earnings beat in H1'17                                                                

Dangote Sugar PLC released its H’17 results showing a 68% y/y rise in revenue to ₦118.7 billion. Like prior quarters, the topline performance was supported by higher average selling prices amidst triple digit price increases implemented in 2016. On a quarterly basis however, Q2’17 revenue fell 8% below our expectation despite historically stronger volume roll out during the Muslim festive season. Amidst the positive macroeconomic environment in Q2’17, we had expected Q2’17 gross margin to rise 380bps q/q to 17%. Surprisingly however, margins recorded a much stronger leap within the period with gross margin up to 32% (Q1’17: 13%) - much higher than pre-recession average of c.24% and Management’s 20% guidance.

Also, supported by improving operational efficiency, OPEX to Sales ratio moderated 87bps q/q to 2.4% (Vetiva: 4.0%). Overall, coupled with already positive Q1’17 result, H1’17 EBIT rose from ₦11 billion in H1’16 to ₦25 billion. With a 32% tax rate, H1’17 PAT came to a record high of ₦17 billion (Vetiva: ₦11 billion, H1’16: ₦7 billion).The Board of Directors have recommended an interim dividend of ₦0.50/share for the H1’17 period. We cautiously forecast a 24% gross margin for H2’17 and revise our FY’17 EBIT estimate to ₦50 billion (Previous: ₦34 billion; H1’17: ₦25 billion). With our FY’17 EPS revised higher to ₦2.79 (Previous: ₦1.89, FY’16: ₦1.20), we raise our 12-month Target price to ₦11.12 (Previous: ₦10.34).                  

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.