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Debt Securities

Buy, Sell Or Hold: Dangote Sugar Plc

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Akara buyers

Buy Sell Hold

Back in April 2013 I had suggested a buy opportunity for Dangote Sugar. The price was ₦8.3 per share and a price earnings multiple of ₦9.2x. Today the price is ₦11.06 but does is still represent a buy opportunity?

Strengths

  • Consistently posted profits over the years
  • Revenue has grown moderately at a CAGR of about 7%.
  • Controls over 70% of Sugar market
  • Has control over its prices
  • Has been able to control cost of sale
  • Company has no debt yet has over ₦20 billion in cash
  • The industry currently enjoys massive concessions from the government
  • The brand is very well known and is part of the renowned Dangote Group
  • Share price of ₦11 enjoys a 12.3x multiple over trailing EPS.

Weaknesses

  • Margins has been under pressure over the years leading to very poor profitability growth.
  • Industry is dependent on nature to ensure crops yields are fully optimised. Climate change has been discouraging to say the least
  • Infrastructural amenities remain a strain on distribution of products
  • High cost of capacity expansion can result in high depreciation cost
  • Share price has yet to hit the 2009 high of ₦24 peaking only at ₦12.85 since then
  • Price to book ratio appears high at 2.8x. This is probably attributable to its zero debts

Opportunities

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  • A lot has happened over the last six months since the company announced flat revenue growth for it 2012 FY results.
  • The company also continued with its dual strategy of cutting sugar prices and cost of production to boost bottom line. For example revenue rose only 4% in the first quarter of 2013 compared to the same period 2012 yet Pre-tax profits rose 44%.
  • The Federal Government recently approved the National Sugar Master Plan and has raised tariffs for Sugar importation thus giving preference to Manufacturers. Dangote Cement has been in this business for years and is positioned to reap.
  • Tax incentives abound in the industry which suits the company’s expansion plans.
  • The company has also continued to invest in capacity expansion and recently received a 20,000 Hectares of Land donation from Kogi State Government
  • The company announced plans to double its capacity from 1.44million metric tonnes to 2.8million metric tonnes. This will drastically increase its market dominance
  • Share price carries an upside on the back of its ability to continue to increase market share squeeze out cost and increase margins

Threats

  • Sugar supply may be hitting a clog in Nigeria considering that installed capacity is nearing demand
  • Sugar prices may continue to remain cut to fight of competition from backward integration and other supply chain competitors
  • Expansion into other African market will put a strain on cash flow and soon enough margins will dip before it starts to rise again
  • Share price may remain depressed or W shaped in the short to medium term as the company takes its time to reap the benefits of its expansion plans

Buy, Sell or Hold?

The above SWOT analysis indicates a company currently in transition. This always portends a risk but more often that not it presents an upside. The current share price appear high if you are looking to buy on the short term. Based on that one may choose to hold. Since my current portfolio is long term I see no current need to wait for a decision.

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BUY

I instructed my stockbroker to purchase Dangote Sugar Shares on my behalf.

Nairametrics is Nigeria's top business news and financial analysis website. We focus on providing resources that help small businesses and retail investors make better investing decisions. Nairametrics is updated daily by a team of professionals. Post updated as "Nairametrics" are published by our Editorial Board.

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Debt Securities

Nigeria’s treasury bills rate falls to 0.5% per annum

Nigeria’s treasury bills rate was oversubscribed despite falling to 0.5%.

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CBN approves new cheque standard for banks

The latest treasury bills auction by the Central Bank of Nigeria reveals a 91-day bill sold for an interest rate of 0.34% one of the lowest in the history of the auction.

Treasury bills rate has fallen sharply since the central bank switched monetary policy from fighting inflation and attracting foreign portfolio inflows to boosting domestic credit. The CBN has frequently deployed heterodox policies over the years adopting what Nairametrics research has come to characterize as Meffynomics.

In the last action two weeks ago treasury bills stop rates for a 91-day bill was 1%. The latest auction also reveals 182 and 364-day bills have fallen to 0.5 and 0.98% respectively. Despite the drops, subscription rates for the bills more than doubled the actual bills on offer. For example, N84.8 billion subscription as against N49.8 billion for a 91-day bill. Even more shocking was the one year bill with investors staking a whopping N694.9 billion in subscription against N93.9 billion on offer.

What this means: The current rates are the closest we have seen to 0% suggesting that investors are willing to earn next to nothing rather than take risks in a failing economy.

  • Nigeria’s inflation rate is 13.71% and galloping towards stagflation. Nigeria is expected to announce it is formally in a recession in the coming weeks as the National Bureau of Statistics collates its data.
  • Billions have poured into the stock market in recent weeks as investors search for investments with better yields.
  • However, there are limited stocks out there that can guzzle up the hundreds of billions of naira available for investing.

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Companies

NB Plc to raise additional N20 billion from its N100 billion Commercial Paper

Nigerian Breweries has announced the continuation of its N100 billion Commercial Paper (CP) Issuance Programme.

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dividend, Nigerian Breweries reports reduced profits for first three quarters of 2019 , Analysis: Nigeria Breweries, the glory days are gone, Nigerian Breweries to raise additional N20 billion from its N100 billion CP programme

Nigerian Breweries has announced the continuation of its N100 billion Commercial Paper (CP) Issuance Programme in a bid to raise up to N20 billion to support its short term funding needs. The company has launched Series 9 and 10 of the programme for this purpose.

This information was disclosed in a notification signed by the Company’s Secretary, Uaboi G. Agbebaku, and sent to the Nigerian Stock Exchange.

The notification reads;

“[Nigerian Breweries Plc] is pleased to inform the Nigerian Stock Exchange and the investing public of the continuation of its “CP” (Commercial Paper) programme with the launch of Series 9 and 10 of the programme.

“Series 9 of the Commercial Paper programme would be for a tenor of 180 days, while Series 10 would be for 270 days. However, the launch of the CP opens today 23rd October 2020.”

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(READ MORE:Nigerian Breweries stock up by 58% since August )

What you should know

According to data obtained from Financial Market Dealers Quote (FMDQ), Nigerian Breweries has raised up to N90.12 billion since the start of the year.

Deal book 300 x 250
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  • N52.76 billion was raised from Series 6 between February 12 to November 6, 2020.
  • N13.03 billion was raised from Series 7 from April 15 to October 14, 2020.
  • N24.33 billion was raised from Series 8 from April 15 to January 8, 2021.
  • The recent issuance of the Series 9 and 10 CP will bring the total funds raised to N110.12 billion.

Why it matters

  • The CP will help the company navigate through the recent impact of COVID-19 and other trade disruptions.
  • The programme will strengthen the balance sheet of the company, and enable the brewer to execute its plans while delivering value to customers and creating wealth for shareholders,
  • In like manner, the CP programme is expected to provide opportunities for non-equity investors to invest in the company and support its cost management initiatives.

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Debt Securities

Commercial Paper value appreciates by N243 billion YOY, hits N539.8 billion in H1, 2020

Commercial Paper value appreciated by 81.9% to N539.8 billion in 45 issuances as of H1, 2020.

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Commercial Paper value appreciates by N243 billion YOY, hits N539.8 billion in H1, 2020, Financial literacy campaign in Nigeria, Securities and Exchange Commission, National Insurance Commission, Dantata Success & Profitable Company

Commercial Paper value hits N539.8 billion as of June 2020, as the value appreciated by 81.9% from N296.8 billion in 44 issuances as of H1, 2019 to N539.8 billion in 45 issuances as of H1, 2020. This is according to a recent report by PWC titled, “Nigeria Capital Market Update.”

READ: CBN invests over N120 billion on 320,000 farmers across CTG within four years

As regards industry spread, the financial services sector accounted for 32% of the proceeds raised as of H1 2020, followed by the consumer goods sector representing 26% of total proceeds. ICT raised 19% and Industrial goods contributed 18%.

READ: Zenith Bank’s Profit After Tax in H1,2020 rises by 16.8% to N103.8 billion

In terms of yearly appreciation, Commercial Paper value has maintained an upward trend, recording N114 billion as of the end of 2016, N221 billion in 2017, N402 billion in 2018, and N540 billion in H1, 2020.

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What this means

Activities in the Commercial Paper market maintained its upward trajectory as more blue-chip companies continue to access short term funding from a diversified investor base, through the capital market and on favorable terms.

READ: TradeDepot raises $10 million in pre-Series B equity round

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What you should know

Commercial Paper is a commonly used type of unsecured, short-term debt instrument issued by corporations, typically for the financing of payroll, accounts payable and inventories, and meeting other short-term liabilities. Maturities typically last several days and rarely range longer than 270 days.

It is usually issued at a discount from face value and reflects prevailing market interest rates.

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