May 2, 2023/Cordros Report
Dangote Sugar Refinery Plc (DANGSUGAR) released its Q1-23 unaudited financials earlier today, in which the company recorded a PAT growth of 44.3% y/y with an EPS of NGN1.05 (Q1-21: NGN0.73), following an expansion in gross margin (+458bps y/y).
DANGSUGAR’s revenue grew by 8.2% y/y in Q1-23, supported by increases across its product lines – 50kg Sugar (+7.5% y/y | 96.5% of revenue), Retail sugar (+42.5% y/y | 2.2% of revenue) and Freight income (+163.8% y/y | 0.6% of revenue) – save for the Molasses (-19.0% y/y | 0.6% of revenue). Across its business segments, revenue from the West (-21.6% y/y) was the only laggard, as the company recorded growth across its Lagos (+14.6% y/y), Northern (+8.1% y/y) and Eastern (+42.4% y/y) segments. Sequentially, revenue decreased by 11.1% q/q, following a relatively lower demand as the festive induced consumption dissipated.
Gross margin (+458bps) increased to 25.2%, as revenue (+8.2% y/y) grew faster than cost of sales (+2.0% y/y). Consequently, EBITDA (+407bps) and EBIT (+437bps) margins expanded to 24.7% and 22.4% in the quarter respectively, amid a 16.8% increase in operating expenses.
Net finance costs (+103.2% y/y) surged in the quarter, owing to a 129.9% y/y increase in finance costs (Q1-23: NGN8.06 billion | Q1-22: NGN3.51 billion) amid a 218.5% y/y growth in finance income.
Overall, pre-tax profit was higher by 36.3% y/y to NGN18.53 billion in Q1-23. Following a tax expense of NGN5.73 billion, profit after tax (+44.3% y/y) printed NGN12.80 billion in Q1-23.
Comment: DANGSUGAR’s performance in Q1-23 came in as expected with profitability growing significantly in the period. However, we are surprised about the slow pace of revenue growth, which came in lower than our expectation for the quarter (NGN129.00 billion), possibly driven by lower-than-expected price increases. As stated in our 2022FY update, we maintain our expectations that the favourable demographics for sugar consumption will remain positive for DANGSUGAR’s performance. Our estimates are under review.
