|
Getting your Trinity Audio player ready...
|
Dangote Sugar Nigeria Nigeria Plc recorded strong profit margins in the third quarter as the largest producer of sweetener in Africa’s most populous nation was able to compensate for rising production costs.
The Lagos based company, which this year plans to raise N21 billion from the capital market to fund the backward integration project and actualize its Sugar Master Plan, beat analysts’ expectations with a rise in net income and revenue in the period.
This came as a hike in the price of key products, improved gross margins, and foreign exchange availability made up for rising production costs.
Third-quarter sales increased 41.04 percent to N163.03 billion. Net income surged by 162.20 percent to N26.51 billion, the company said in a statement. 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 percent in the period under review from 8.77 percent the previous year. Analysts estimate for profit margins of 8 percent.
Gross profit margins moved to 25.20 in September 2017 from 16.52 percent the previous year despite a surge in the cost of production.
Dangote Sugar uses Low Pour Fuel (LPFO)- the expensive source of energy- to the power plant at the factory. The use of the LPFO is responsible for the rise in the cost of sales.
The company has set a target to produce 1.50 million tonnes of 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.
The Nigerian consumer goods firm has intensified its expansion plans as it signed key land acquisition agreements.
The most recent is a 60,000 hectare Tunga Project in Nasarawa which accounts for 55 percent of the Nigerian consumer goods giant’s near-term production ambition.
“According to management, the firm expects to produce around one million tonnes per annum (1MTPA) of finished sugar domestically, equivalent to two-thirds and 50% of current and projected national sugar demand by 2022,” said analysts at FBNQuest.
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 USAID.
Analysts say Dangote Sugar’s bottom line (profit) got a boost from the availability of dollars at the foreign exchange market, thanks to the introduction of the Investors’ and Exporters’ (I&E) window by the central bank.
The recent economic recovery is good news for consumer goods firms as consumer spending are expected to improve with its attendant positive impact on firms’ top lines (revenue).
Further analysis of Dangote Sugar’s financial statement shows operating profit surged by 146.97 percent to N36.56 billion as at September 2017.
The company’s return on equity (ROE) increased to 32.16 percent in the period under review from 16.19 percent as at September 2017, signalling the Nigerian consumer goods giant ability to utilize shareholders’ resources in generating higher profit.
Analysts at CSL Securities Limited raised their target price for Dangote Sugar to N18.4/s and change their rating to Buy on the stock, considering 27 percent upside potential from today’s closing price of N14.6/s, implied by the investment firm’s new target price.
“We arrive at our target price using a combination of the DCF and relative valuations in a ratio of 60:40 (we assign the heavier weighting to the DCF),” said analysts at CSL Limited.
BALA AUGIE
