March 2, 2023/Cordros Report
Dangote Sugar Refinery Plc (DANGSUGAR) released its 2022FY audited financials today, reporting EPS of NGN4.51 (2021FY: NGN1.82). The EPS growth was driven by the stellar growth in sales (+46.1% y/y) and a decline in net finance costs (-34.3% y/y) in the period. The achieved revenue was in line with our estimate (-1.3% variance). However, the EPS outturn surpassed our estimate (NGN2.87) by 57.1%, owing to a positive surprise in net finance costs. The board proposed a dividend of NGN1.50/s, which implies a yield of 8.5% on the last closing price of NGN17.60 (01 March).
DANSUGAR’s revenue increased markedly by 46.1% y/y in 2022FY, supported by the stellar increases across its business segments – 50kg Sugar (+45.3% y/y | 97.0% of revenue), Retail sugar (+65.9% y/y | 2.0% of revenue), Molasses (+80.4% y/y | 0.5% of revenue), and Freight income (+111.6% y/y | 0.6% of revenue). Across its geographical footprint, DANGSUGAR recorded marked growth in revenue across all its regions – Lagos (+36.7% y/y), North (+58.0% y/y), West (+36.7% y/y) and East (+52.9% y/y). A further perusal of the numbers reveals a significant growth in Q4-22 revenue (+42.7% y/y) to its highest ever print, driven by the festive induced demand typically associated with the end of the year.
Gross margin (+462bps) expanded to 22.8%, following the faster growth in revenue (+46.1% y/y) relative to cost of sales (+37.8% y/y). We highlight that the bulk of DANGSUGAR’s cost pressures emanated from the increase in input costs (+39.8% y/y) amid inflationary pressures and FX illiquidity issues. Consequently, EBITDA (+536bps) and EBIT (+630bps) margins increased to 22.9% and 20.4% in the period, respectively, further buoyed by a 4.2% y/y decline in operating expenses.
Net finance costs outturn was the biggest surprise of the results in our view, as it declined by 34.3% y/y. We highlight that the decline was driven by significant spikes in the finance income (4.5x y/y) and fair value adjustment (15.6x y/y) lines, amid a 47.9% y/y increase in finance costs. The significant expansion in finance income is attributable to the increase in interest income on deposits (2022FY: NGN6.38 billion | 2021FY: NGN1.42 billion). On the fair value adjustment, we note an increase in (1) total cane plantation to 8,092 ha (2021FY: 7,350 ha), and (2) industry out-grower assumed price/ton to NGN17,874 (2021FY: NGN12,502). Notably, exchange rate loss which was a key sticking point across the year declined by 5.0% y/y to NGN1.89 billion (9M-22: NGN14.33 billion | 2021FY: NGN1.99 billion).
Overall, pre-tax profit grew by 141.9% y/y to NGN82.30 billion in 2022FY. Following a tax expense of NGN27.56 billion (Effective tax rate: 33.5%), profit after tax printed NGN54.74 billion in 2022FY.
Comment: DANGSUGAR’s 2022FY performance was in line with our expectations (Click here for our Q3-22 update) highlighting the food producer’s resilience amid headwinds such as consumers’ price sensitivity, FX illiquidity, inflationary pressures and structural inefficiencies. Market reaction to the results have been positive as the stock is currently up by 9.9%. Our estimates are under review.