Dangote Sugar posted modest 7.1% year-on-year revenue growth to N161.1 billion in fiscal 2019 from N150.4 billion in fiscal 2018. Net profit also grew by 1.8 % year-on-year to N22.4 billion for fiscal year 2019. The fourth quarter was a strong quarter As revenue grew strongly each quarter, it increased by 17.8% to N43.7 billion in the fourth quarter of 2019 from N37.1 billion in the third quarter of 2019. Compared to the fourth quarter of 2018, revenues grew strongly, 33.6% yoy. Net profit also grew sharply yoy, 105.5% to N7.7 billion in the fourth quarter of 2019. Although net profit decreased 9.0% yoy and 16.8% yoy in the first quarter of 2020, revenues grew significantly, 24.9% yoy and 9.9% yoy.
We increased our key forecasts during 2020e-2024e. Volumes recovered after the border closed in August 2019, while the company has been able to implement price increases since the fourth quarter of 2019 in the absence of low-priced smuggled sugar. Despite the anticipated adverse winds, such as the possible opening of borders, the expected stuttering of demand after industrial interruptions and the prohibition of social gatherings and high-cost pressures due to the increase in the import tariff on raw sugar, increases in the VAT and exchange rate concerns, we expect the sector to recover in the third and fourth quarters to maintain growth, albeit at a slower pace.
Following upward revisions of our forecasts, we revised our highest target price to N17.65 / s from N13.87 / s previously. Our new target price implies a 21.3% increase to Monday’s closing price of N14.55 / s, which makes us update our recommendation to a PURCHASE from HOLD previously. Our evaluation combines a combination of DCF analysis and relative evaluation in the 60:40 ratio with the highest weighting in the DCF evaluation.
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