DANGSUGAR’s revenue increased by 40.1% y/y in Q1-22, supported by substantial increases across all its business segments – 50kg Sugar (+39.8% y/y | 97.2% of revenue), Retail sugar (+30.7% y/y | 1.7% of revenue) and Molasses (+234.6% y/y | 0.9% of revenue) – save for the Freight income (-9.8% y/y | 0.3% of revenue) segment. Across its geographical footprint, revenue from the Eastern region (-62.4% y/y) was the only laggard, as the company recorded growth across its Lagos (24.3% y/y), Northern (72.9% y/y) and Western (90.6% y/y) regions. Sequentially, revenue increased by 17.2% q/q, influenced by broad-based expansion across its business segments.

Gross margin (-617bps) compressed to 20.6%, as cost of sales (+52.0% y/y) grew faster than revenue (+40.1% y/y). The surge in costs was majorly influenced by a surge in key raw materials costs (+59.2% y/y) amid inflationary pressures and FX inadequacies.

Consequently, EBITDA (-561bps) and EBIT (-554bps) margins declined to 20.6% and 18.0% in the quarter respectively, amid a 10.8% increase in operating expenses.

Net finance costs (-18.0% y/y) fell in the quarter, owing to a whopping 539.1% y/y increase in finance income (Q1-22: NGN810.50 million | Q1-21: NGN126.82 million) and a slower growth in finance costs (+2.7% y/y).

Overall, pre-tax profit was higher by 13.8% y/y to NGN13.60 billion in Q1-22. Following a tax expense of NGN4.73 billion, profit after tax (+6.8% y/y) printed NGN8.87 billion in Q1-22.

Comment: Notwithstanding the sturdy topline growth, DANGSUGAR’s earnings continue to reflect the existential issues that have plagued the company’s operations, most prominently, FX constraints, inflationary pressures, commodity price hikes (i.e., international sugar prices) and structural inefficiencies, particularly at the Apapa ports. In the near term, we expect these issues to persist and continue to inhibit margins and drag earnings growth. Market reaction to the result was negative as the company’s stock closed lower by 4.4% in today’s trading. Our estimates are under review.