Nigeria: Dangote Sugar, Getting Sweeter for Investors

Lagos — Capital market analysts have said that investors in Dangote Sugar Refinery Plc will continue to enjoy benefits of their investments in the company as the fundamental of the company remains strong. Analysts at United Capital said that Dangote Sugar is a good stock for investors, recommending a buy rating and Target Price (TP) of N21.70.

They explained that their "investment case is premised on Dangote Sugar's strong positioning in the thriving consumer goods space and execution of strategy to consolidate market position and sustain margins."

They forecast full year 2018 average revenue growth rate of 12.8 per cent and earnings per share of above nine per cent. "The key drivers to the growth will include, favourable macro environment and demography; Dangote Sugar's low leverage relative to peer average; potential upside from currently low capacity utilisation and huge margin prospects from ongoing backward integration programme.

"The outlook for Dangote sugar is hinged on its 'Sugar for Nigeria Project that was embarked on in 2012, with the goal of achieving the capacity of producing 1.5million tonnes of refined sugar from locally sourced sugar cane over the span of 10 years.

"This was not just to enable the company become a fully integrated sugar business but to also eliminate high cost of imported raw material and enhance the capacity to serve local and export markets. In addition, as an offshoot of running an integrated sugar business, the company plans to source power in-house from bagasse and produce fuel ethanol, animal feeds from bagasse and bio-fertiliser from sugar mud-cakes,"the analysts explained.

Dangote Sugar Refinery increased dividend paid to shareholders for the 2017 by 192 per cent to N21 billion or 175 kobo per share from N7.2 billion or 60 kobo per share in 2016, which is in line with its resolve to deliver decent returns on investments.

Dangote Sugar in its financial statements for the first quarter ended March 31, 2018, reported a revenue of N41.14 billion compared to N59.53 billion reported for the period ended March 2017. This represents a 31 per cent decrease for the comparative period in 2017.

Profit before tax was N8.39 billion for the period ended March 2018, a 19 per cent increase from the N7.04 billion reported for the period ended March 2017, while its profit after tax for the period was N5.28 billion compared to N4.76 billion reported March 2017. This represented an 11 per cent increase for the comparative period in 2017.

Dangote Sugar also reported earnings per share of 45 kobo for the period ended March 2018 compared to 40 kobo reported for the period ended March 2017. This represents a 13 per cent increase for the comparative period in 2017.

Historically, Nigeria has shown a record of reliance on imported refined and raw sugar for household consumption and industrial uses. In the last decade, data from the Nigerian Sugar Development Council (NSDC) as at 2016 showed that a yearly average of $5.1 million was spent on sugar importation. This is despite upspring of sugar refineries, Nigeria is still heavily reliant on importation of raw materials. In 2008, the Nigerian Sugar Master Plan (NSMP) was birthed but was not approved until 2012. The Master Plan was designed to curb unbridled importation and facilitate local production.

The NSMP compels private sector players to embark on backward integration programme, regulation of importation through quotas and granting of fiscal incentives to participants. Three refineries, Dangote Sugar, Golden Sugar and BUA Sugar were approved for the backward integration programme.

According to United Capital, Dangote Sugar leads the sugar industry with 61.5 per cent market share and production capacity of 1.44mmtp/a, a feat it has been able to achieve through pioneer advantage, long-standing presence in the market, large production capacity, volume driven marketing strategy, strong distribution and delivery network.

Speaking recently at the company's 2017 Annual General Meeting (AGM), the chairman of the company, Alhaji Aliko Dangote stated that the company has spent N121 billion on equipment, land acquisition, compensation to land owners, consultancy and related services towards a progressive actualization of the company's Sugar for Nigeria Backward Integration Project Plan.

"In accordance with plans to realign implementation phases, the 60, 000ha Tunga Sugar Project in Nasarawa was included in the project during the year under review. Full payment was made for the land to the tune of N3.250 billion, with an MOU signed by the state government; sequel to which necessary developmental work has been mobilized on site.

"The Board remains committed to the medium and long-term goals of the Sugar for Nigeria Project, despite challenges that surround. The cost efficiency project in Apapa refinery prior to and during the year under review will impact positively on the Company's performance in the years ahead", he said.

Also speaking, the acting managing director/CEO of Dangote Sugar Refinery Plc, Abdullahi Sule said the company would continue to pursue its target to achieve 1.08 metric tonnes of refined sugar annually in six years and eventually 1.5 million metric tonnes in 10 years.

According to Sule, the focus of the company remains leveraging on its strengths to maximise every opportunity to generate sales, increase its market share and create sustainable value for all stakeholders.

"Though the business terrain remains very challenging, we remain resilient in the face of the situation and are focused on increasing our market share and customer base as well as the creation of sustainable value for our stakeholders. Our priority in the current year is the achievement of our Sugar for Nigeria Project goals and sustenance of our leadership position by improving efficiency and growing our markets," the CEO said.

Acting chief finance officer of Dangote Sugar, Etim Bassey, said "the Group would continue to ensure that its liquidity and working capital are optimally managed."

Dangote Sugar is Nigeria's largest producer of household and commercial sugar with 1.44M MT refining capacity at the same location and was listed on the Nigerian Stock Exchange (NSE) in March 2007.

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