Dangote Sugar Plunged by 10% after Heartbreaking Loss
Fast moving consumer goods (FMCG) player Dangote Sugar Refinery (DSR) Plc lost 10% of its market valuation on Monday after posting a heart-breaking loss due to weak sales and large foreign currency exposure.
Its share price fell to N53.1 after investors rushed for the door because the sugar company announced a N73.8 billion loss that was primarily driven by foreign exchange losses incurred during the period.
The sugar refinery’s net exchange losses on its business operation grew to N172.2 billion from N1.9 billion in 2022 while its letters of credit increased steeply, up by 280.5% to N29.2 billion.
In addition to the impact of FX movements, the new intercompany loan of N117.5 billion added further pressures to finance cost and bottom line, according to CardinalStone Limited.
So, Dangote Sugar gave shareholders a loss per share of N6.07 as against N4.51 in 2022, driven by about 20% year-on-year increase in net finance costs in the period. In 2023, its revenue increased slowly by 9.5%, a slowdown from a +14.6% surge achieved in 2022.
Across its geographical footprint, DANGSUGAR witnessed top line growth in its Lagos, North and West) regions, while revenue from the East declined by more than 6.5%.
Gross margin contracted by 326 basis points to 19.5%, following 14.1% growth in cost of sales.
In its equities review, analysts at Cordros Capital Limited noted that the bulk of cost pressure emanated from the higher raw materials costs. The trend was attributed high inflationary environment and local currency devaluation.
Consequently, EBITDA margin weakened to 18.7% in the period, further pressured by a 26.0% growth in operating expenses, according to analysts’ review.
Unavoidably, net finance costs surged by 19.6x year on year in 2023 because net exchange losses rose by 91.1x to N172.20 billion while the company interest payment rose by 272.4% on letters of credit, lease, intercompany and bank loans.
Elsewhere, finance income grew by 65.5% due to a rise in short-term deposits, up 6.7% year on year to N161.86 billion. Consequently, its annual pre-tax loss settled at N108.92 billion, a reverse mode when compared with a profit before tax of N82.30 billion posted in 2022.
With a tax credit of N35.16 billion, loss after tax came in at N73.76 billion in 2023 against net profit of N54.74 billion in 2022
.Cordros Capital said DANGSUGAR’s 2023 subpar performance underscores its sloppy operation and poor sales turnover in the year, further exacerbated by broader operational challenges, including escalating inflation, currency devaluation, and constrained consumer wallet.
Looking ahead, analysts envisage an uptick in sales volume coupled with further price adjustments to ensure decent topline growth.
“Even as we like management’s initiatives of containing rising costs and moderate FX dependence in the long term with the pursuit of more efficient supply chain infrastructure and backward integration projects, we believe the pressure points from rising costs and FX depreciation will remain sticky in the near term” Naira Suffers Big, CBN Goes Ballistic Against FX Whales
