Dangote Sugar Refinery: No clear-cut positives in FY’14

Recently, Dangote Sugar Refinery plc published its full-year 2014 results on the Nigerian Stock Exchange (NSE), recently.

The consolidated audited financial statements for year ended December 31, 2014, shows Dangote Sugar Refinery reporting revenue decline to N94.855 billion against N103.153 billion in 2013.

The full-year 2014 results show the group’s profit before tax (PBT) declined to N15.273 billion from N16.265 billion in 2013. Profit after tax (PAT) rose to N11.635 billion from N10.845 billion in 2013. Also, the group’s basis earnings per share grew to 97 kobo from 90 kobo in 2013.

In their first reaction to the full-year results of Dangote Sugar, Uwadiae Osadiaye-led team of analysts at FBN Capital noted that the naira devaluation more than offset a 6 percent decline in global raw sugar prices in fourth-quarter (Q4) 2014.

“Nonetheless, we await management’s comments for further clarification. Also, we deduce from these numbers that sales remained weak as cross-border trade and sales in Northern Nigeria continue to suffer from the insecurity in the region, similar to Q3 2014,” the analysts said.

According to the FBN Capital analysts, “we believe the negative impact of disturbances in the North-East is a key business risk for Dangote Sugar Refinery in 2015. The flattish year-on-year (y/y) PBT performance was driven by a 6x rise in other income to N4.7 billion, offsetting the weaker trends further up the P&L. Excluding the other income line, PBT would have shown a substantial decline. Dangote Sugar Refinery proposed a dividend per share of 40 kobo, which works out to a dividend yield of 5.5 percent and a 41 percent payout. We estimated a DPS of 60 kobo (Consensus: 59 kobo).”

Dangote Sugar commenced business in March 2000, as the sugar division of Dangote Industries Limited. The sugar-refining factory at Apapa port was commissioned in 2001, with an initial installed capacity to process 600,000 metric tons (MT) of raw sugar per annum.

The refinery has since undergone two expansions, increasing the production capacity to about 1.44 million MT per annum, making it the largest sugar refinery in sub-Saharan Africa and second largest in the world.

“Negative surprises on the gross margin and opex lines were partially offset by the strong positive surprise on the other income line. Dangote Sugar full-year sales and PBT of N94.9 billion and N15.3 billion came in well behind consensus sales and PBT forecasts of N101.8 billion and N17.1 billion, respectively.

“As such, we expect cuts to analysts’ 2015E estimates. Given the de-facto devaluation of the naira in Q1 2015, and continued insecurity in the North, we suspect Dangote Sugar Refinery performance in H1 2015 (more especially Q1) is likely to be unimpressive. Dangote Sugar Refinery is likely to hold a conference call this week as well as publish its Q1 2015 numbers,” FBN Capital analysts further said.

They also noted that year-to-date, Dangote Sugar shares were up +13.7 percent, compared with +1.0 percent for the All Share Index (ASI). “We expect the market to react negatively to the results. At current levels, on our published estimates, Dangote Sugar Refinery shares are trading on a 2015E P/E multiple of 10.1x for an EPS growth of 20 percent in 2016E. We rate the stock Neutral,” according to them.

 

Iheanyi Nwachukwu