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Friday, March 31, 2023

Dangote Sugar Bucks Economic Slowdown, Emerges Best Consumer Goods Stock

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Dangote Sugar Plc solid performance which has seen it beat its full-year profit target even amid an economic downturn, has earned it buy rating recommendations from analysts at United Capital Limited and Cordros Securities.

Nigeria’s largest producer of the sweetener’s share price closed at N18 as at 2:00 pm in Lagos; and analysts at United Capital have a year-end target price of N26, an upside of 45.20 percent.

Similarly, analysts at Cordros Securities have a year-end target price of N26.36 an upside of 48.50 percent.

Dangote Sugar also has an attractive valuation as it trades at 6.36 times earnings-an entry point for investors who wish to magnify their earnings- which beats the 40 average benchmark according to Cordros Securities.

The company’s shares have risen by 31.60 percent since the start of the year, but lower than the NSE all share index (ASI) 41.17 percent.

The consumer goods giant benefitted from the border closure that spurred demand- as the wings of competitors were clipped- and a spike in the price of sugar.

Analysts are of the view that the recent reopening of the borders will not disrupt the current earnings growth momentum because it will take some time before the decision starts to manifest in the books of the company.

Despite a surge in inflation and foreign exchange illiquidity combined with the coronavirus headwinds, Dangote Sugar’s delivered a better return to shareholders than peer rivals as it continues to consolidate on its excellent distribution and marketing strategies.

The company’s revenue spiked by 36.69 percent to N160.51 billion as at September 2020, that compares with Nestle Nigeria’s (+0.66 percent) uptick at the top line, Unilever Nigeria’s reduction of, (-13.36 percent); Cadbury, (-10.78 percent); Flour Mills Nigeria, (31.12 percent); Nascon Allied, (+4.11 percent), International Breweries, (-1.36 percent).

Dangote Sugar’s top line growth is unprecedented. Net income surged by 81.11 percent to N26.63 billion as at September 2020, while Nestle and Nigerian Breweries recorded a reduction of 13.31 percent and 33.85 percent in revenue respectively. International Breweries and Unilever fell of the cliff.

Analysts at Chapel Hill Denham in a recent note to clients maintained its BUY rating on Dangote Sugar’s stock with 12-month target price raised to N30.81 (previously N16.77), implying a potential total return of 53.5 percent (46.7 percent capital gain).

“We raise our expected Full year (FY) -2020E turnover to N214.44bn (from N183.27bn), due to the better than expected results in 9M-20 results,” said analysts at Chapel Hill Denham

“Also, given the border restriction policy in Nigeria which has locked in c.400,000 MT of prior refined sugar imports, we expect DSR to deliver a robust revenue in Q4-20E,” summed the analysts.

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