Analysts are optimistic that Dangote Sugar Refinery (DSR) Plc will continue its impressive gross margin expansion through 2018, thanks to foreign exchange stability, favourable raw material price and improved economic activities. Improved gross margins are expected to cover other expenses and hence result in increased profit.
Also, an improvement in gas supply to the factory and the availability of dollars to import raw sugar could help reduce the cost of production hence bolster bottom line (profit). The Nigerian consumer goods’ giant’s gross margins rebound to growth following a recession that saw cost spike and margins shrink.
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On a year on year basis, Dangote Sugar’s gross margins increased to 25.44 per cent in September 2017 from 16.48 per cent as at September 2016. On a quarter on the quarter basis (QoQ), gross margins increased to 32.90 per cent in the third quarter of (Q3) 2017 from a low of 7.30 per cent as of December (Q4) 2016.
Margins hit the lowest in the last quarter of 2016 as Dangote Sugar and other consumer goods firms were squeezed by dollar shortages that forced them to buy dollars at the inaccessible parallel market rate. However, the country exited the recession as evidenced by a 0.55 per cent expansion in GDP in the second quarter, thanks to a rebound in oil production as a result of the relative peace in the Niger Delta region.
The introduction of the Investors’ and Exporters’ window by the central bank and the subsequent liberalization of the foreign exchange market paves the way for increased dollar supply for Dangote Sugar and other consumer goods firms. Analysts are upbeat that the DSR could maintain its earning winning streak next year on the back of some improved fundamentals.
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“In 2018, we expect the impact of lower production costs to reinforce earnings on the back of sustained FX stability – strengthened by improved crude oil output and higher crude oil price -, and favourable raw sugar prices – which according to industry experts is expected to remain lower in the near term on improved harvest in Brazil and India,” said analysts at Cardinal Stone Limited.
Dangote Sugar’s sales increased by 41.04 per cent year on year to N163.03 billion as the company benefitted from an increase in the price of a key product. Profit after tax surged by 162.12 per cent year on year to N26.51 billion. Analysts estimated profit of N13.16 billion and revenue of N148.23 billion, according to data compiled by BusinessDay.
The company’s net margins increased to 16.26 per cent in the period under review from 8.77 per cent the previous year. Analysts estimate for profit margins of 8 per cent. The Lagos based company, which this year plans to raise N21 billion from the capital market to fund the backward integration project. Dangote Sugar’s shares have gained 130.19 per cent since the start of the year as an investor are increasingly buying into the company’s stocks because of its strong earnings and expansion plans.
Ani Micheal
