Dangote Sugar Attracts Attention, Gains 36% Amid Merger Plan
Dangote Sugar Refinery Plc’s market value has increased to about N577 billion on the Nigerian Exchange (NGX) after the company recorded a 36% weekly gain pushed by an increase in stock demand.
Alpha seekers’ attention was shifted to the company shares as the proposed merger plan with NASCON Plc reduced negative feelings about its uninspiring first half of 2023 earnings, depressed by increased net finance costs.
The stock rallied significantly over improved sentiment driven by an expectation that its merger would scale through to support its future earnings and market performance.
A review of the company’s financial statement submitted to the Nigerian Exchange showed that the deal breaker for sugar refiner was exchange rate fluctuation that exposed its earnings FX risks.
In the period, the sugar refiner reported a loss before tax of N31.37 billion compared with a pretax profit of N30.46 billion in the first half of 2022. Its loss after tax was N27.99 billion in H1 2023 as against N20.97 billion after-tax profit in the comparable period in 2022.
Its financial scorecard showed that Dangote Sugar Refinery’s revenue surged by 9.3% year on year to N202.78 billion from N185.46 billion in H1 2022. Its sales costs declined moderately but overhead spiked.
As a result of inflation conditions, the Sugar Refiner saw its operating expenses surge by 22.6% year on year to N6.14 billion from N5 billion in the comparable period. However, other income lines declined.
The company’s higher revenue performance was driven by growth in sales of sugar (50kg), sugar (retails) and molasses. Its unaudited report showed that sugar segment which accounts for 95% of revenue drove the reported growth,
The company’s freight Income declined by 13.2 year on year to N1.19 billion in the period. Meanwhile, revenue waned by 1.6% to N100.56 billion in Q2 2023 from N102.26 billion in Q1 2023 as the realities of inflationary pressures kicked in.
The second quarter result showed the company recorded a loss per share of N3.36 from earnings per share of (EPS) of N0.94 in Q2-2022. For the half year result, the surge company reported a loss per share of N2.30 versus N1.67 earnings per share in the comparable period in 2022.
Analysts said higher net finance costs in the period triggered the loss. Freight income which accounted for 1.2% of Dangote Sugar refinery revenue declined by 50.5% year on year.
Across its geographical footprint, analysts reviewed showed that revenue from Lagos market increased by 20.8% year on year. Sugar sales in South West rose by 113.7% and the Eastern market surged by 3.7% while Northern region sales decreased % year on year.
The company’s net finance costs surged in the quarter, growing by 30.2x the value in the prior quarter, reflecting the effects of the higher exchange rate losses on finance costs following the currency devaluation in June.
For context, Dangote Sugar Plc repriced its assets and liabilities to reflect the higher FX rates, hence the sizeable FX loss balance. Meanwhile, finance income grew by 99.3% year on year. Analysts said the company’s profitability was unavoidably hampered by the effects of the FX liberalization policy in June.
Given the sizeable gap between current FX rates vis-à-vis the level in the prior period, analysts foresee a sustained drag on Dangote Sugar Plc performance in the second half of the year.
Dangote Sugar told the exchange its board of directors resolved to recommend the proposed merger with NASCON Allied Industries Plc and Dangote Rice Limited to shareholders for consideration and approval. The company said the proposed transaction will be an internal restructuring executed through a Scheme of mergers and other applicable rules and regulations.
Dangote told the market about a plan to apply for the Securities and Exchange Commission’s approval of the Scheme, and other requisite approvals. #Dangote Sugar Attracts Attention, Gains 36% Amid Merger Plan Naira Steadies as Banks Issue Update on FX Purchase
