Culled-Proshare

October 26, 2017/FBNQuest Research

Event: Dangote Sugar Refinery reports Q3 2017 results

Implications: Positive reaction by the market likely

Positives: Q3 PBT and PAT of N14.0bn and N9.4bn up 236% y/y and 244% y/y respectively; gross margin expanded 2153bps y/y to 32.9%

Negatives: Sales were flattish y/y at N44.4bn

Dangote Sugar Refinery (DSR) published its Q3 2017 results today which showed several positives across the P&L. Although sales were flattish, both PBT and PAT were up significantly, 236% y/y and 244% y/y, respectively. Profitability was driven by a marked gross margin expansion of +2153bps y/y to 32.9%. 

Although we were expecting a healthy gross margin performance, the magnitude of the expansion comes as a surprise. We believe production costs which were substantially lower y/y benefitted from consistent gas supply through the quarter. A few weeks back management had stated that gas (which is relatively cheaper than the alternative LPFO) accounted for 100% of the Lagos Refinery’s fuel usage for July and August. Opex which came in flattish y/y also helped. 

Sequentially, sales declined q/q while PBT and PAT both fell by around 24% y/y. Given that the month of Ramadan (seasonally DSR’s highest sales month) fell within Q2, the q/q decline is unsurprising. 

Compared with our estimates, while sales missed our estimate by 16%, PBT beat our N12.6bn estimate by around 11%. The variance is driven by the positive surprise on the gross margin line. On an annualised basis, DSR’s 9M 2017 PBT is tracking well ahead of consensus full year estimate of N47.3bn. Year to date, DSR shares have gained +139%, outperforming the All Share Index by over 100%. At current levels, on our published estimates, DSR shares are trading on a 2017E P/E multiple of 5.5x for flattish EPS in 2018E. 

We rate the stock Neutral.

Our estimates are under review. 

Conference call details: To be circulated 

Dangote Sugar Refinery Q3 2017 results: actual vs. FBNQuest Research estimates (N millions)