August 1, 2017/InvestmentOne Research
Q2:2017 results highlight: Appreciable growth in earnings on account of price increase
§ Mixed sales performance: Mixed sales performance: flat q/q, +56.3% y/y
§ Improved Gross margin : expanded +1903q/q; +1332bps y/y
§ PBT and PAT up +201.4% and 399.5% y/y respectively.
Late Friday, DANGSUGAR published its Q22017 results which showed a +201% y/y growth in PBT to c.N18.2bn inspite of weak consumer environment. In our opinion, the upsurge in earnings was supported largely by a combination of a +56% y/y growth in topline to c.N59.2bn, a +1332bps y/y expansion in gross margin to 32.2%, as well as a +475% y/y jump in investment income.
That said, we highlight that the y/y growth in topline was not unexpected given over +70% y/y price increase effected by the company in the last twelve months to pass cost inflation to consumer while the expansion in gross margin may be attributed to improved access to FX for import of input materials.
Moving down the P&L, finance cost rose by +116.9% y/y mirroring interest expenses on c.N2.5bn facility obtained from Dangote Industries Limited. However, opex/sale ratio was relatively flat at 2.4% (down -71bps y/y) reflecting relative stability in PMS pricing during the period. Margin wise, Dangsugar’s PBT and PAT margins of 30.8% and 34.1% expanded by +1483bps y/y and +2346bps y/y, driving the +201.4% and +399.5% y/y growth in PBT and PAT.
On a q/q basis, Dangsugar recorded improved performance across key metrics. With the exception of turnover which came in flat, gross margin expanded by +1903bps q/q, leading to a +143% q/q growth in gross profit to c.N19.05bn. That said, inspite of the -26.1% q/q and -27.3% q/q decline in both other income and investment income, PBT was up +158.6% q/q due to support from expansion in gross margin and a +31.7% q/q growth in fair value adjustment.
Overall, the result was headlined by strong growth in turnover, expansion in margin as well as improved profitability position.
In the near term, we see support to Dangsugar performance from improved FX liquidity and reduced energy cost following improvement in gas supply as well as relative stability in diesel and PMS pricing. These, in addition to benefit from ongoing backward integration efforts bode well for earnings in the medium to longer term.
Dangote Sugar Refinery Plc Q2 2017 figures ( N’ millions)
Q2 2017 | Q/Q | Y/Y | H12017 | Y/Y | |
Sales | 59,149 | -0.6% | 56.3% | 118,677 | 68.4% |
Cost of Sales | (40,100) | -22.4% | 30.6% | (91,787) | 62.3% |
Gross Profit | 19,050 | 143.0% | 166.5% | 26,890 | 93.2% |
Gross margin | 32.2% | 1903bps | 1332bps | 22.7% | 291bps |
OPEX | (1,438) | -26.9% | 20.9% | (3,405) | 25.5% |
Opex/sales | 2.4% | -87bps | -71bps | 2.9% | -98bps |
Other income | 54 | -26.1% | 77.6% | 128 | 9.7% |
Fair value adjustment | 161 | 31.7% | 121.6% | 284 | -3869.0% |
Net finance cost/income | (301) | 116.9% | (301) | 5.6% | |
Investment income | 687 | -29.3% | 475.5% | 1,658 | 1211.9% |
PBT | 18,212 | 158.6% | 201.4% | 25,254 | 126.4% |
PBT margin | 30.8% | 1896bps | 1483bps | 21.3% | 545bps |
Tax | 1,982 | -186.8% | -199.1% | (301) | -92.0% |
Tax rate | -10.9% | -4331bps | -4398bps | 1.2% | -3264bps |
PAT | 20,194 | 324.4% | 399.5% | 24,952 | 238.0% |
PAT margin | 34.1% | 2615bps | 2346bps | 21.0% | 1055bps |
Source: NSE, Investment One Research
