Over 2018FY, the steep decline in turnover was driven by the combination of depressed price and volume. Management linked the unfavourable pricing environment to sustained FX stability which has continuously aided the influx of smuggled cheaper sugar into the key segments of the market, and thus, exerted downward pressure on domestic sugar prices (-17% y/y). Furthermore, persisting traffic impasse across major road networks in Lagos impacted production and distribution activities, especially at its Apapa refining facility. Thus, volume moderated by 12% y/y to 588kMT in the period. Similarly, the combined impact of lower prices and depressed volume dragged Q4-18 topline as revenue dipped by 18.8% y/y.  

On the positive, gross margin came in slightly higher at 26.4% (+14 bps). This was on account of a faster decline in CoGS (-28% y/y) relative to revenue (-26% y/y). Nonetheless, gross profit came in 22% lower from a year ago. Meanwhile, the improved gross margin (+6 bps to 29%) was more evident in Q4-18, as CoGS moderated by 25% y/y, and thus, gave a hand to gross profit (+0.9% y/y) in the period.

Further down, the sharp jump in other income (+92% y/y), together with impairment gains on financial assets (NGN201 million vs. NGN3 million loss in 2017FY) offset the slight increase in OPEX (+3.9% y/y). Although EBIT declined by 26% y/y, EBIT margin improved marginally by 3 bps to 22%. Over Q4-18, OPEX moderated by 25% y/y. That, together with a 105% y/y expansion in other income, boosted EBIT by 11% y/y, with related margin improving markedly by 700bps to 25%.

Elsewhere, (1) investment income was lower (25% y/y), (2) the company booked a fair value loss of NGN325 million (from NGN2.47 billion gain in 2017FY), and (3) net finance cost printed NGN293 million (2017FY: NGN3.86 billion finance income).

Net impact of the foregoing, combined with a higher effective tax rate of 36% (2017FY: 26%), drove EPS lower by 44% y/y to NGN1.85 (2017FY: NGN3.31).

Comment: DANSUGAR’s performance in Q4, and indeed 2018FY, was unimpressive. We expect reaction to the result will be negative, with the Q4 numbers particularly suggesting no progress is being made around the challenges that the company’s earnings face. DANGSUGAR trades at a P/E of 5.98x — a significant discount to its Middle East and Africa Peers average of 18.36x. Our last communicated TP was NGN16.05, which implies a potential upside of 22% after incorporating dividend yield expectation. Our estimates are under review.