March 2, 2022/Cordros Report

Dangote Sugar Refinery Plc (DANGSUGAR) released its audited reports yesterday, reporting a 107.9% y/y growth in Q4-21 standalone PAT with an EPS of NGN0.54 (Q4-20: NGN0.26), bringing the 2021FY EPS to NGN1.82 (-25.9% y/y; 2020FY: NGN2.45). The decline in the full-year EPS was brought about by a decline in margins and a supernormal increase in net finance costs (+323.4% y/y). The company’s board proposed a dividend of NGN1.00/s, implying a dividend yield of 5.9% based on the last closing price of NGN16.90/s.

DANGSUGAR’s revenue increased by 49.8% y/y in Q4-21 (2021FY: +28.8% y/y), supported by substantial increases across all its business segments – 50kg Sugar (+49.3% y/y | 97.6% of revenue), Retail sugar (+93.7% y/y | 1.6% of revenue) and Molasses (+136.7% y/y | 0.4% of revenue) – save for the Freight income (-8.6% y/y | 0.4% of revenue) segment. Specifically, we attribute the growth across its products segment to the (1) c. 9.2% expansion in sugar volumes and (2) 22.1% y/y increase in the average price per 50kg bag. Across its geographical footprint, revenue grew across its Lagos (+28.4% y/y | 2021FY: +20.7% y/y), North (+80.7% y/y | 2021FY: +42.8% y/y), West (+70.4% y/y | 2021FY: +24.5% y/y) and East (+13.0% y/y | 2021FY: +11.6% y/y) regions.

Sequentially, revenue increased strongly by 26.8% q/q, most likely influenced by the festive induced demand in Q4-21.

Gross margin declined markedly by 19.73ppts to 16.7% in Q4-21 (2021FY: -689bps to 18.2%), following a whopping 96.3% y/y increase in the cost of sales relative to revenue (+49.8% y/y). Management ascribed the upsurge in costs to inflationary pressures, increase in key raw materials costs (121.6% y/y | 2021FY: +49.2% y/y) and the impact of foreign currency devaluation.

Unsurprisingly, EBITDA (-18.36ppts) and EBIT (-17.87ppts) margins declined to 16.1% and 12.9% in the quarter, respectively, amid a 9.3% increase in operating expenses.

Net finance costs (+323.4% y/y) more than tripled in the quarter, driven by a 246.1% y/y increase in finance costs. We highlight that the higher finance costs emanated from the inclusion of the finance cost on letter of credit as opposed to recognition as a cost of sales item, as was done in prior periods.

Overall, PBT declined by 34.0% y/y to NGN10.91 billion in Q4-21 (2021FY: -25.4% y/y to NGN34.02 billion). Following a tax expense of NGN4.37 billion, profit after tax (+107.9% y/y) printed NGN6.54 billion in Q4-21 (-25.9% y/y to 2021FY: NGN22.05 billion).

Management call on Thursday, March 3, 2022, at 1.00 pm Nigerian time. Click here to register.

Comment: DANGSUGAR’s bottom-line performance reflects the challenges faced by the business during the period including FX constraints, inflationary pressures, commodity price hikes (i.e. international sugar prices) and structural inefficiencies, particularly at the Apapa ports. Nonetheless, we like that the company sustained its double-digit topline growth trajectory for the tenth consecutive quarter. YTD, DANGSUGAR is down 2.9%, compared to the Consumer Goods index (-0.4%) and the broader All-Share index (+11.2%). Our estimates are under review.