FSDH Initial Reaction: Dangote Sugar 3Q22 results 
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November 4, 2022/FSDH Research

Key Performance Highlights:

• Dangote Sugar reported a 61.9% YoY revenue growth to N102.9 billion in 3Q22 from N63.5 billion in 3Q21, primarily driven by the 61.5% YoY rise in the 50kg Sugar revenue segment to N100.2 billion in 3Q22. The double-digit revenue growth was supported by the less than proportionate rise in cost sales, which was up 52.1% YoY to N84.2 billion in 3Q22. The majority of the increase in the cost of sales is due to the rise in the raw material costs to N69.1 billion in 3Q22 from N41.2 billion in 3Q21, resulting in 527 bps YoY gross margin expansion to 18.1% in 3Q22, from 12.8% in 3Q21.
   
• Other income soared 80.3% YoY to N62 million in 3Q22 versus N34 million in 3Q21. The company continues to manage its operating costs effectively as the selling and distribution costs declined 24.3% YoY to N189 million in 3Q22. Administrative expenses also declined 2.4% YoY to N2.7 billion in 3Q22 versus N2.8 billion in 3Q21, primarily due to a 45.8% YoY drop in donations and scholarships to N208.9 million and a 95.2% YoY fall in secretarial fees to N8.9 million in 3Q22. Consequently, the company’s operating profit spurted 206.7% YoY to N15.8 billion in 3Q22.
   
• The finance costs vaulted 7.8x YoY to N11.7 billion, primarily due to an increase in the exchange loss to N9.4 billion in 3Q22 from a mere N48.9 million in 3Q21. The investment income soared to N1.7 billion in 3Q22 from N343 million due to a higher interest earned on bank deposits at an average rate of 4% in 3Q22 versus 3.5% in 3Q21. The company recorded an effective tax rate of 29.8% in 3Q22 versus 33.2% in 3Q21. Consequently, the net profit charged 57.9% higher to N4.6 billion in 3Q22. Earnings per share ascended to N0.38/share in 3Q22 compared to N0.24/share in 3Q21.
   
• For 3Q22, revenues from all segments reported solid growth. Sugar-50 kg (97.5% of 3Q22 revenue) revenue spurted 61.5% YoY, supported by a 92.4% YoY jump in Sugar-Retail (2.0% of 3Q22 revenue). The molasses segment (0.3% of 3Q22 revenues) soared 60.4% YoY to N292 million, and the Freight income (0.2% of 3Q22 revenues) rose 23.5% YoY in 3Q22. In terms of geographical revenue distribution, the West region reported the largest revenue growth (+179.2% YoY) in 3Q22, followed by East (+74.6% YoY), North (+65.3% YoY), and Lagos (+45.4% YoY).
   
• The company’s margins expanded across the board, except for net margin (due to massive exchange loss) in 3Q22. The operating margin experienced the maximum expansion of 723 bps YoY to 15.3% in 3Q22. The company’s EBITDA margin expanded 233 bps YoY to 17.9%, while the net margin contracted 113 bps YoY to 4.5% in 3Q22.
   
• On a sequential basis, revenue grew 13.0% in 3Q22, while the cost of sales jumped 17.6% QoQ, leading to a 3.8% QoQ decline in the gross profit to N18.6 billion in 3Q22 from N19.4 billion in 2Q22. This decrease in gross profit was further worsened by a 207.0% QoQ jump in finance cost, coupled with a lower fair value adjustment of N713 million in 3Q22 versus N1.7 billion in 2Q22. Consequently, the net profit sank 59.6% QoQ to N4.6 billion in 3Q22.

Market Reaction: The investor reaction to the solid 3Q22 results was muted as the Dangote Sugar stock remained unchanged at N16.30, versus a 0.17% loss for the All-Share Index (31/10). Furthermore, the stock closed flat at N16.30 even on Tuesday (1/11) versus a 0.21% loss for the All-Share Index.

Dangote Sugar Earnings Highlights 3Q22

Source: Company Financials, FSDH