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With a very low debt, price to earnings, a strong balance sheet, and record profit growth, Dangote Sugar refinery Plc seems to be one stock value investors must love.
Value hedge fund managers that have made money for their clients will be adding this firm to their portfolio as they seek a higher return and minimise risk.
The largest producer of the building materials has an attractive valuation (which is ideal entry for investors) as its forward price to earnings (P/E) ratio of 6.35 times is the lowest in the consumer goods industry.
Its Peer rivals such as Nestle Nigeria, Unilever Nigeria, Cadbury, Nascon, BUA Foods, and Guinness Nigeria, have price to earnings multiples of 17.49, 15.75, 23.72, 8.63, 11.51, and 14.11.
It is worth noting that where the value is to be found is in Dangote Sugar’s growth.
For instance, in the past six years, revenue has grown from N204.42 billion to N403.24 billion for full-year 2022, and it is expected to continue growing because of the essentiality of the product that the company produces. Over the same period, net profit jumped from IN 2017 N21.97 billion to N54.72 in 2022.
What is more, Dangote Sugar recorded the second fastest profit in the industry as its net income surged by 148.25 percent to N54.72 billion as at December 2022.
And that compares with a bottom line (profit) growth of Unilever, 75.78 percent; Cadbury, 110.38 percent; Vitafoam, -1.68 percent; Nestle Nigeria, 22.30 percent; Flour Mills, -41.3; Nigeria Breweries, 4.06 percent; Guinness Nigeria, 54.37 percent; Nascon Allied Industries, 84.09 percent, and BUA Foods, 29.57 percent.
These figures are relatively irrelevant compared to how much value Dangote Sugar’s management has created on the balance sheet over the same period. Specifically, between 2017 and year-end 2022, the company’s book value per share has exploded from N7.63 to N14.13. Over the same period of time, total equity or ordinary shareholders’ funds rose from N92.73 billion in December 2017 to N171.22 billion in 2021.
Since the start of the year, Dangote Sugar’s shares have gained 9.66 percent, outperforming the NGXASI index’s 8.31 percent.
Taking a cursory look at the financial statement of Dangote Sugar shows it has a gearing ratio of 0.45 percent, giving the business room to expand through bolt-on acquisitions and reinvestment of cash flows into stock buybacks. This is where the value lies.
A hedge fund manager who wants to magnify the earnings of his clients must invest in stocks that has steady growth in all metric in the last years; and Dangote Sugar should be a hot cake as the management of the company have been able to create wealth for the owners of the business even amid a tough and unpredictable macroeconomic environment.