Dangote Sugar Refinery (“the Group”) reported a 20% decline in volume sales for FY 2023, reflecting the macro-economic headwinds confronting the business landscape. These includes FX illiquidity, cash crunch in the early part of the year, and reduced consumer purchasing power due to high inflationary pressures. Compounding these obstacles, global raw sugar prices surged to levels not seen since 2011, averaging $0.24 per pound in 2023 (2022: $0.19 per pound). Furthermore, on the back of the harmonisation of the foreign exchange market, the Naira depreciated sharply. Consequently, the Group incurred substantial FX losses on her FX denominated liabilities.

Consistent with the trend observed in FY 2023, the Group reported another net loss in Q1 2024 which was driven by FX losses and elevated input and operating costs. Sustained pricing strategy saw revenue grow by 20% year-on-year to N122.73 billion (Q1 2023: N102.23 billion). However, the combined impact of elevated sugar costs, Naira depreciation, and increased overheads due to high inflation saw the cost of goods grow by 49% to N113.98 billion (Q1 2023: N76.47 billion). As a result, gross margin worsened by 1800 basis points to 7% (Q1 2023: 25%), as the Group could not effectively pass the elevated input cost to consumers.


Our previous valuation factored in the anticipated synergy for the Group following the merger. However, following the suspension of the proposed merger, we downgrade our fair value for the stock to N38.22 (previous: N52.87) using a blend of discounted cash flow (DCF), discounted dividend (DDM), residual income (RIM), and enterprise valuation (EV/EBITDA) methodologies. We believe the stock is overvalued at the current price of N47.00, hence, we recommend a SELL.

Please follow the link “Dangote Sugar Refinery FY 2023 & Q1 2024 – From Sweet Peaks to Deferred Expectations” to view the whole report.                                                                                                                                                                          

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