FSDH Initial Reaction: Dangote Sugar 2Q22 results 
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August 3, 2022/FSDH Research

Key Performance Highlights:

• Dangote Sugar reported a 41.0% YoY revenue growth to N91.0 billion in 2Q22 from N64.6 billion in 2Q21, primarily driven by the 39.4% rise in the 50kg Sugar revenue segment to N87.4 billion in 2Q22. The double-digit revenue growth was partially offset as the cost of sales shot up 32.7% YoY to N71.7 billion in 2Q22. The majority of the increase in the cost of sales is due to the rise in the raw material costs to N57.7 billion in 2Q22 from N43.9 billion in 2Q21, resulting in 493 bps YoY gross margin expansion to 21.3% in 2Q22, from 16.3% in 2Q21.
   
• Other income soared 696.7% YoY to N233 million in 2Q22, versus N29 million in 2Q21, driven by N174 million profit on the sale of assets in 2Q22, partially offset by lower rental income. The company’s selling and distribution costs declined 34.4% YoY to N108 million in 2Q22. Administrative expenses also decreased 15.0% YoY to N2.4 billion in 2Q22 versus N2.8 billion in 2Q21, primarily due to a 97.1% YoY drop in donations and scholarships to N15.7 million in 2Q22 compared to N542 million in 2Q21. Consequently, the company’s operating profit spurted 124.9% YoY to N17.1 billion in 2Q22.
   
• The finance costs vaulted 174.2% YoY to N3.8 billion, primarily due to an increase in the exchange loss to N2.3 billion in 2Q22 from a loss of N494 million in 2Q21. The investment income rose to N1.1 billion in 2Q22 from N378 million due to a higher interest earned on bank deposits at an average rate of 4% in 2Q22 versus 3.5% in 2Q21. The company recorded an effective tax rate of 29.5% in 2Q22 versus 36.8% in 2Q21. Consequently, the net profit charged 164.3% higher to N11.4 billion in 2Q22. Earnings per share ascended to N0.94/share in 2Q22 compared to N0.35/share in 2Q21.
   
• For 2Q22, revenues from all segments reported solid growth. Sugar-50 kg (96.1% of 2Q22 revenue) revenue spurted 39.4% YoY, supported by a 268.4% YoY jump in Freight income (1.2% of 2Q22 revenue). Sugar- Retail segment (2.0% of 2Q22 revenues) soared 63.4% YoY to N1.8 billion, and the Molasses segment (0.7% of 2Q22 revenues) increased 44.3% YoY in 2Q22. In terms of geographical revenue distribution, the North region reported the largest revenue growth in 1H22 with 62.3% YoY revenue growth, followed by Lagos (+29.7% YoY), West (+15.3% YoY), and East (+14.6% YoY).
   
• The company’s margins expanded across the board in 2Q22. The operating margin experienced the maximum expansion of 701 bps YoY to 18.8% in 2Q22. The company’s EBITDA margin and net margin soared 466 bps and 583 bps YoY to 20.7% and 12.5% in 2Q22, respectively.
   
• On a sequential basis, revenue edged 3.2% lower in 2Q22, while the cost of sales declined 4.4% QoQ, leading to a 0.6% QoQ decrease in the gross profit to N19.4 billion in 2Q22 from N19.5 billion in 1Q22. This decrease in gross profit was offset by a 40.3% QoQ jump in investment income, coupled with an N1.7 billion Fair value adjustment in 2Q22 compared to a loss of N729 million in 1Q22. Consequently, the net profit jumped 28.2% QoQ to N11.4 million in 2Q22, magnified by a lower effective tax rate in 2Q22.

Market Reaction: The investor reaction to the solid 2Q22 results was muted as the Dangote Sugar stock remained unchanged at N16.00, versus a 0.83% loss for the All-Share Index (1/8). Furthermore, the stock remained unchanged at N16.00 even on Tuesday (2/8) versus a 1.35% gain for the all-share index.

Dangote Sugar Earnings Highlights 2Q22

Source: Company Financials, FSDH