October 31, 2022/Cordros Report

Dangote Sugar Refinery Plc (DANGSUGAR) released its Q3-22 unaudited financials last Friday (28 October), reporting standalone EPS of NGN0.38 (Q3-21: NGN0.24); bringing 9M-22 EPS to NGN2.04 (9M-21: NGN1.28). The EPS growth was driven by the stellar growth in sales (+61.9% y/y) in the period.

DANGSUGAR’s revenue increased markedly by 61.9% y/y in Q3-22, supported by sturdy increases across all its business segments – 50kg Sugar (+61.5% y/y | 97.5% of revenue), Retail sugar (+92.4% y/y | 2.0% of revenue), Molasses (+60.4% y/y | 0.3% of revenue) and Freight income (+23.5% y/y | 0.2% of revenue). Across its geographical footprint, DANGSUGAR recorded marked growth in revenue across all its regions – Lagos (+45.4% y/y), North (+65.3% y/y), West (+179.2% y/y) and East (+74.6% y/y). On a q/q basis, revenue grew by 13.0%.

Gross margin (+527bps) expanded to 18.1%, as the faster growth in revenue (+61.9% y/y) masked the increased cost of sales (+52.1% y/y) balance. The higher costs highlight the effects of the increase in key raw materials costs amid inflationary pressures and FX illiquidity issues. Consequently, EBITDA (+637bps) and EBIT (+723bps) margins increased to 17.9% and 15.3% in the quarter, respectively, further buoyed by a 4.7% decline in operating expenses.

Net finance costs (+757.8% y/y) remained elevated, driven by a 677.4% y/y increase in finance costs, with finance income also growing significantly by 406.0% y/y in the period. We attribute the significant rise in finance costs to the exchange rate losses DANGSUGAR recorded. For context, the exchange rate loss as of 9M-22 settled at NGN14.33 billion (FY-21: NGN1.99 billion).

Overall, pre-tax profit grew by 50.2% y/y to NGN6.54 billion in Q3-22. Following a tax expense of NGN1.95 billion, profit after tax (+57.9% y/y) printed NGN4.59 billion in Q3-22.

Comment: DANGSUGAR’s Q3-22 performance is laudable in our view, highlighting the company’s resilience so far in the year. We like that the company was able to sustain earnings growth amid headwinds such as FX illiquidity, inflationary pressures and structural inefficiencies. We remain optimistic about DANGSUGAR’s performance for 2022FY. Our estimates are under review.