Dangote Sugar is the most attractive consumer goods stock

Dangote Sugar Refinery is the most attractive consumer goods stocks, and little wonder analysts at CSL Stockbroker Limited have a Buy recommendation on the stock.

The largest producer of sweetener in Africa’s largest economy defiled the laws of gravity when it recorded marked improvement in key performance indicators and earnings even amid a myriad of challenges deviling the industry.

Interestingly, a sound financial health that includes steady income and strong return on investment allures an investor to the stock of a company.

And Dangote Sugar is a good bet as the consumer goods giant has the lowest price to earnings ratio among peer rivals.

Remarkably, its price to earnings ratio of 5.49 times is lower than average return on equity of 30.19 percent (based on third quarter results).

Dangote Sugar’s competitors are overvalued and unattractive as they capitulated to weak consumer purchasing power, decrepit infrastructure, tough regulatory environment, currency devaluation, and the coronavirus induced headwinds.

Nigerian Breweries is trading at 38.57 times earnings; Nestle Nigeria, (27.64 times), and Cadbury Nigeria, (12.90 times).

PZ Cussons, Unilever Nigeria, International Breweries have nil price to earnings multiples as they all recorded losses, which raises concerns about their ability to pay dividend.

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Plunge your nose and Buy Dangote Sugar as it is the highest dividend paying stock, which means an investor will earn more in dividend by owning each unit of the company’s shares.

For instance, Dangote Sugar has dividend yields of 7.10 percent, therefore, an investor would earn 7.10 percent on shares of the producer of the sweetener.

That compares with Nigerian Breweries’ dividend yields of 3.87 percent; Cadbury, (5.76 percent), Honeywell, (3.96 percent0, and Nestle Nigeria, (4.92 percent).

Notably, the recent stock rally in the last few weeks caused by the dovish stance of the central bank that reduced the CRR that led to low yields present an opportunity for investors to pile into equity with preferred firms in mind.

The Nigerian Stock Exchange (NSE) and All Share Index (ASI) year to date (YTD) surged at +14.53 percent as at 2:00 pm on November 4. Worthy of note, investors gained almost N2.0 trillion in the month of October as equity market capitalization closed at c. N16.0 trillion.

Analysts at Chapel Hill Denham said Dangote Sugar now has more flexibility on price control.

For the first nine months through September 2020, the producer of the sweetener saw revenue spike by 36.69 percent to N160.51 billion compared to117.42 billion the previous year.

Across business segments, performance was broadly positive as Revenue from 50kg SKU (+38.3 percent year on year to N153.8 billion), Retail packs (+54.7 percent year on year to N5.1 billion), Molasses (+46.6 percent year on year to N700 million) all recorded accelerated growth.

Dangote Sugar has generated more money from its operation and has enough to cover operating expenses and finance charges as operating profit increased to 21.72 percent to N27.87 billion in September 2020 from N22.90 billion as at September 2019.

The company has utilized direct sales attributable to projects as gross profit grew by 17.66 percent to N34.14 billion in the period under review from N29.01 billion as at September 2019.

Dangote Sugar’s net income surged by 81.12 percent to N26.63 billion as at September 2020, that compares to Nestle, (-13.31 percent), and Nigerian Breweries, (-43.46 percent).

The company has transformed its revenue into profit as net profit margin increased to 16.59 percent in the period under review from 12.52 percent the previous year.

The management of Dangote Sugar is using financing from equity to grow the business as return on average equity (ROAE) increased to 30.09 percent from 18.90 percent the previous year.

The manufacturing industry felt the pang of the coronavirus pandemic that paralyzed business activities across the country.

Nigeria’s employment rate has continued to contract across manufacturing and non-manufacturing sectors as confidence in the economy continues to wane.

The figures have become increasingly gloomy, pointing to recession, which economists say can be deeper than the 2016 experience.the Purchasing Managers’ Index (PMI) released by the Central Bank of Nigeria (CBN) yesterday showed employment had contracted across focal areas of manufacturing and non-manufacturing sectors in October.

In the manufacturing sector, the employment index stood at 46 points, indicating a contraction for the seventh consecutive month. Of the 14 subsectors of manufacturing, only three recorded growth in employment level while nine recorded lower employment. Employment in the remaining two sectors has been static.

Company Profit and History

Dangote Sugar Refinery Plc 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 MT of raw sugar per annum. In December 2007, DSR Plc successfully exported its first consignment of 1,500MT of sugar to Ghana.

Dangote Sugar Refinery Plc is listed on the Nigerian Stock Exchange (NSE). The company’s shares were listed on the NSE on March 8, 2007 at N18/share following the divestment of 25 per cent holdings of The Dangote Group (Dangote Industries Limited) via an initial public offering (IPO) of 10 billion shares in November/ December 2007.

The company’s installed capacity is close to 1.44million metric tons p.a with about 75 per cent current capacity utilisation.

DSR Plc was awarded the Best African Initial Public Offer for 2007 by Africa Investors’ Index series; in November 2007, DSR Plc won the Nigerian Stock Exchange’s President Merit Award for best quoted company in the Food and Beverage sector; the Standardg4 s Organization of Nigeria awarded the Company the NIS ISO 9001:2000 International Quality Management Award; it won the 2008 Nigerian Stock Exchange’s President’s Merit Award for Best Quoted Company of the Year in the Food and Beverages Sector; and the 2009 International Quality Award in the Gold Category, by renowned Business Initiative Directions- Madrid Spain.