November 13, 2026/Cordros Report
We revise our estimates for Dangote Sugar Refinery Plc (DANGSUGAR) following the release of its 9M-26 results, which reflected a strong recovery in profitability. In our view, strong H1-26 cost optimisation offset weaker topline momentum and softer Q3-26 operating performance, while FX gains of NGN23.39 billion and a 43.3% y/y decline in net finance costs provided additional support to earnings.
As broadly expected, proceeds from the NGN485.88 billion rights issue accelerated deleveraging, with NGN332.30 billion in borrowings repaid in Q3-26 (9M-26: NGN479.31 billion). This significantly strengthens the balance sheet and supports a return to positive working capital, which we forecast at NGN82.34 billion in 2026E (2025A: deficit of NGN448.53 billion), partly reflecting a substantial reduction in financial liabilities.
However, the sharp increase in trade and other payables points to some pressure on cash conversion, tempering our outlook for the sustainability of operating cash flows. Given the softer revenue outlook, weaker cash conversion and 66.7% increase in outstanding shares to 20.24 billion, we revise our TP to NGN78.90/share (Previous: NGN84.48/share), while retaining our BUY recommendation. On our estimates, DANGSUGAR currently trades at 2026E P/E and EV/EBITDA multiples of 11.2x and 6.3x relative to MEA peer average of 18.6x and 8.8x.
Weaker volumes offset by cost and finance savings: We revise our 2026E revenue decline forecast to 8.9% y/y (Prev.: 5.4%), reflecting weaker volume offtake (-13.2% y/y; Prev.: -9.9%) and moderate pricing growth (+5.0% y/y). Nevertheless, direct cost optimisation and lower raw material expenses (-38.0% y/y; Prev.: -36.5%) are expected to support a 910bps y/y expansion in gross margin to 23.9% (Prev.: +10.80ppts y/y to 25.6%), although below our previous expectation. EBIT margin is also projected to expand by 11.65ppts y/y to 23.2% (Prev.: +12.22ppts y/y 23.8%), supported by higher FX gains of NGN23.76 billion (Prev.: NGN15.42 billion) and a contained OPEX margin of 3.8% (+40bps y/y). Below the operating line, a 69.9% y/y decline in net finance costs (Prev.: -55.1%) is expected to support PBT rebound of NGN124.13 billion (Prev.: NGN110.11 billion).
Tax shields sustain earnings; dilution caps EPS growth: We lowered our effective tax rate forecast to 5.4% (Prev.: 30.0%), in line with the 9M-26 run-rate, supporting an increase in projected PAT to NGN117.37 billion (Prev.: NGN77.07 billion). This reflects the potential benefit of accumulated tax losses and unutilised tax credits from prior loss-making years, which could sustain a below-statutory tax burden in the near term, although we expect the benefit to moderate as these tax attributes are utilised. Despite the stronger PAT outlook, the 66.7% y/y increase in shares outstanding following the rights issue tempers our EPS forecast to NGN5.80 (Prev.: NGN6.35).
Valuation: Our target price is NGN78.90/s derived from an equal blend of a DCF and sector relative valuation approach (P/E & EV/EBITDA). Our DCF FV is derived from an equal blend of FCFF (NGN59.15/s) and FCFE (NGN48.76/s), providing methodological balance. We assume a 24.4% WACC, 22.0% cost of equity and a 4.0% terminal growth rate. Similarly, our relative valuation FV was derived from a blend of EV/EBITDA (NGN99.95/s) and P/E (NGN107.73/s) based values, utilising Bloomberg’s Middle East and African peer average multiples (8.8x and 18.6x).