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Import substitution, devaluation spur revenue growth for Dangote Sugar

The company said it sold higher sugar volumes in the quarter compared to the previous quarter.

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Nigeria’s largest sugar manufacturer, Dangote Sugar reported a year on year revenue growth of 31.7% in the second quarter of 2020. The revenue growth was spurred by government policies on border closure and exchange rate devaluation, even though it conversely increased cost and reduced margins.

Key Highlights – 2020 Q2

  • The sugar giant reported revenues for the 3 months ending June 2020 closed at N55.5 billion compared to N42.2 billion in the same quarter in 2019.
  • Second-quarter revenue growth also topped Q1 revenue of N47.6 billion despite the severe impact of the COVID-19 pandemic.
  • Pre-tax profits also grew to N7.5 billion, 19%yoy in the same period
  • Profit margin – 9.37% (2020 Q1: 13.4%, 2019 Q2: 9.4%)
  • Sales (tonnes) – 189,724 vs 158,818  +19.5

READ ALSO: Flourmills posts impressive Q3, sustains recovery in 2020 financial year

Reason for the revenue boost

A review of the results reveals the company continued to receive a sales boost from increased demand from customers within Nigeria. This was also largely due to the positive impact of the border closure and import substitution policy of the government. In an earnings press release seen by Nairametrics, the company explains that it sold higher sugar volumes in the quarter compared to the previous quarter.

“We had a strong performance in the 2nd quarter of 2020 with the delivery of 382,917 tonnes, which translated to a 13.6% growth over the same period in 2019.” 

Despite the COVID-19 lockdown, logistic bottleneck, and traffic gridlock, Dangote Sugar produced 182,692 tonnes of sugar in the second quarter of the year compared to 160,917 same periods in 2019. Though it was still lower than the 192,584 produced in the first quarter of 2020.

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READ MORE: Dangote Sugar Refinery in Tunga to produce 450,000 MT

Effect of government policies

The company has benefitted immensely from government policy on border closure and import substitution. Both policies mean local manufacturers like Dangote Sugar can meet the demand of local purchasers who rely on sugar as input for other finished goods. The devaluation also appears to have helped boost revenues due to price adjustments.

Revenue growth of 28.5% forged ahead of volume growth due to pricing benefits on the back of rise in FX rate. The 1st half of the year performance reflects our drive for topline growth, despite the continued grid gridlock in Apapa; in addition to rising inflation and the deplorable state of roads to our key markets nationwide.

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Its two major customers are Nigerian Bottling Company and Seven-Up Bottling company limited, combining to purchase about 10% of its sales. The two companies buy industrial non-fortified sugar from Dangote Sugar Plc. Its non-fortified sugar makes up 35% of sales. Half of its sales are made in Lagos, while another 38% is in the North.

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Whilst, government policies did help, Dangote Sugar also suffered from cost spikes due to the devaluation and forex shortages.

“The Company’s performance during the period under review was impacted by COVID-19 pandemic which caused disruption to the global economy, availability of foreign exchange, oil prices, consumer demands, and social interactions. This led to the enormous FX shortage in Nigeria, and the huge backlog of FX demands, due to the constricted ability by the CBN to meet FX demands.”

READ MORE: Airtel Africa’s profit up 12.9%, customer base reaches 111.5 million

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Dangote Sugar currently implements a backward integration programme and targeting to produce target to produce 550,000MT of refined sugar by 2020.

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Cryptocurrency

Why Bitcoin still looks like a bargain

With prices exceeding $18,000 for the first time since 2017, BTC looks poised to break its previous all-time high.

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Bitcoin on high demand, hits 2-year high, trading $17,000

As stakeholders, players, and crypto wannabes ponder if increasing their stakes on Bitcoin, the world’s most popular crypto seems ideal now, despite the fact that it’s trading near a record high, Nairametrics decided to weigh in on some key fundamentals showing Bitcoin looks like a bargain.

With prices exceeding $18,000 for the first time since 2017, BTC looks poised to break its previous all-time high. More investors are holding bitcoin for wealth preservation.

READ: Bitcoin on high demand, hits 2-year high, trading $17,000

A recent report from Glassnode, revealed plummeting Bitcoin exchange balances support the narrative that investors intend to hold their flagship crypto more than ever before, taking into consideration that with the prevailing demand in play, and limited supply of Bitcoin, the price would most definitely go north.

READ: Nigerians pay heavy price as laptop scarcity bites harder

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Bitcoin liquidity continues its downward trajectory, buttressing that the macro bitcoin is becoming scarce for open sale.

It is also important to note that Bitcoin has a circulating supply of 19 million coins and a max supply of 21 million coins, meaning there are about 2million left to be mined.

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READ: How Crypto can curb Nigeria’s high unemployment rate

Taking into account that about 4 million Bitcoins have been lost forever as a result of BTCs owners dying, and their next of kin not having access to such cryptos, it is fair to say there are only about 15million BTC presently in circulation to cater for over 7 billion people fighting to have a stake in Bitcoins, meaning that as BTC becomes scarce and more popular, it becomes a matter of time that the crypto asset valuation will hit the roof.

READ: Ripple hits a big bang, gains 30%

Bottom line

It’s vital to consider the bias saying that as global financial regulators begin to implement their regulatory framework on cryptos, it could become a matter of months for global banks and multinationals to increase their buying pressures on BTC. Thereby, pushing the price beyond the reach of an average investor.

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Market Views

Tesla up 500% in 2020, near $500 billion market value

The tech powerhouse is now less than $6 billion short of approaching the $500 billion market value.

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Tesla up 500% in 2020, near $500 billion market value, Survey unveils Elon Musk as the most inspirational leader in tech 

Tesla, the electric car automaker, has gained 500% in 2020 and has become by far the world’s most valuable automaker in the world, despite it producing far less than Volkswagen, Toyota, or General Motors.

The tech powerhouse is now less than $6 billion short of approaching the $500 billion market value, and extending its surge since reports struck Wall Street on Tesla making its S&P 500 debut on December 21, forcing index funds to buy billions of dollars of its share.

READ: U.S stock futures trade flat, Apple regains $2 trillion market value

Unsurprisingly, it became global investors’ choice amid its recent price action rising by 6% – showing a gain of over 6%. Tesla Inc. extended its rally at the most recent trading session ahead of its December debut in the S&P 500 (SPX), as it is now worth a market value of $494 billion.

READ: Nigeria spends N1.08 trillion to import used cars and motorbikes in one year 

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Its market capitalization is higher than the Gross Domestic Product (GDP) of any African country, Nigeria – $448.1billion, South Africa – $351.4billion, Egypt – $303.2billion, Algeria – $169.98billion, Morocco – $118.7billion, Ethiopia – $96.12billion, Kenya – $95.5 billion, Angola – $94.6 billion, Ghana – $66.9 billion, Tanzania – $63.2 billion.

READ: Dangote Cement, Nigerian Breweries drop, investors lose N46 billion

What you should know

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Now worth $494 billion, Tesla will increase the concentration of heavyweight companies within the S&P 500. It will be the 7th most valuable company within the index, just behind Berkshire Hathaway and ahead of Visa Inc., according to Refinitiv data.

READ: Crypto: UniSwap gives each owner over $2,000

  • About a fifth of the car company’s shares is owned by its Chief Executive, Elon Musk and other insiders.
  • The S&P 500 is weighted by the number of companies’ stocks available on the stock market.
  • The car company’s influence within the benchmark will be slightly reduced, putting it in 8 positions, just behind Johnson & Johnson, with an equivalent of about 1% of the S&P 500 index.

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Market Views

Bank stocks remain a buy amid uncertainty prevailing Nigeria’s economy

The All-Share Index and Market Capitalization depreciated by 2.57% to close the week at 34,136.82 and N17.838 trillion respectively.

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Investors flee Nigerian Stocks as FDI and FPI dips

Nigerian Stocks ended the previous week cumulatively on a bearish note.

What we know: The All-Share Index and Market Capitalization depreciated by 2.57% to close the week at 34,136.82 and N17.838 trillion respectively.

In the previous week, Nigerian Stocks had its bullish run halted arbitrarily on the bias that stock traders and investors intensified their profit, taking into account the significant amount of weak earnings recorded by Nigerian Banks.

It was unsurprising to see four Nigerian banks in the top 10 losers chart for the week, as investors fretted on such performance on the basis that Nigeria’s banking industry remains the most vibrant after Agriculture, Energy in Africa’s largest economy.

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That said, In the coming week stock traders are expected to be very cautious amid recent macros showing Africa’s largest economy has dipped into a recession in Q3 as oil production dropped to a four-year low.

Abdul-Rasheed Oshoma Momoh, Head of Capital Market in TRW Stockbrokers Ltd, in a phone chat interview with Nairametrics, said Nigerian markets are presently playing out like a ping pong ball the momentum has slowed down for now.

More of consolidation now as investors buy into good stocks that have a light at the end of the tunnel. (Zenith Bank, UBA, GTBank, First Bank, Access Bank) taking into consideration he doesn’t see any new highs now till 2021.

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Bottom- line: Profit taking is expected to remain at least in the near term, taking into consideration Nigeria is officially in a recession, meaning a lot needs to be done to get Africa’s biggest economy on its foot, as such development could trigger more profit-taking in spite of the positive trend playing relatively at Africa’s best-performing equity market.

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