Warren Buffet, the oracle of Omaha, and Chairman, Berkshire Hathaway, once said, “Be fearful when others are greedy, greedy when others are fearful”
If an investor was greedy when others were fearful, he would have hit a jackpot if he had invested in the shares of Dangote Sugar Refinery (DSR) Plc.
DSR stock has soared the most in 2017 among Fast Moving Consumable Firms (FMCG). Year to date (YTD), the shares have gained 129 percent, outperforming both the broad index and peers by 94 percent and 89 percent respectively
While other consumer goods firms succumbed to a volatile and tough operating environment, DSR remained steadfast as it recorded double-digit growth in sales and profit.
Analysts are optimistic that the producer of the sweetener will continue the winning streak to the end of the year, probably extending it to 2018.
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This is because of the consumer goods giant’s aggressive backward integration expansion plans which is in line with the federal government’s sugar master plan
DSR plans to raise N21 billion from the capital market in order to fund the backward integration project and actualize its Sugar Master Plan. The company has set a target to produce 1.50 million tonnes for refined sugar from locally grown sugar cane by 2023.
Dangote Sugar said N106 billion will be required to fund the project of which 20 percent will be by way of equity while the remaining by debt financing.
DSR’s 68.40 percent increase in sales and 131.58 percent surge in net income as at June 2017 beat analyst’s expectations. Net margin increased to 14.40 percent in June 2017 as against 10.40 percent as at June 2016. Operating profit margin rose to 19.89 percent in June 2017 as against 16.60 percent the previous year.
Gross profit increased to 22.65 percent in the period under review from 19.37 percent the previous year despite a surge in cost of production.
Analysts are bullish about the company’s near term outlook.
“In the near term, we forecast full year sales and earnings growth of 29% y/y and 121% y/y to N218.4bn and N31.8bn respectively in 2017E. Our projections are primarily driven by a +42% y/y rise in finished sugar prices,” said Olajumoke Okeowo, equity research analyst at FBN Quest Limited.
The Nigerian consumer goods giant is in a growth spurt as the country’s sugar consumption is expected to rise.
Nigerian sugar consumption is estimated at 8kg/capita. This pales in comparison with African peers South Africa (46kg/capita) and Ghana (16kg/capita) respectively, according to analysts at FBN Quest.
“Although sugar demand growth may have been subdued in recent years, we believe growing domestic sugar and ethanol (a by-product) production are likely to have a positive impact on sugar consumption over the medium term,” said Okeowo.
DSR is the only firm on the NSE 30 Index to have very low debt in its capital structure. It has a debt to equity ratio of 2.56 percent, which means there is more room to borrow and finance future expansion plans.
DSR cost of production will continue to ease due to the central bank intervention in the foreign exchange market that will continue to ease costs. The adoption of Importers and Exporters’ window by the apex bank and the subsequent liberalization of the foreign exchange market have resulted in increased dollar supply in the system.
