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Dangote Sugar Commits to Backward Integration



Dangote Sugar Refinery Plc
  • Dangote Sugar Commits to Backward Integration

Dangote Sugar Refinery (DRS) is Nigeria’s largest producer of household and commercial sugar with 1.44 million tonnes of refining capacity. The company was spun out of Dangote Industries in 2006 and got listed on the Nigerian Stock Exchange (NSE) about 10 years ago. With its factory at Apapa, Lagos State, DSR currently imports raw sugar from Brazil and refines it into white, Vitamin A fortified sugar suitable for household and industrial uses.

However, the company’s strategy is to become a global force in sugar production, working within Nigeria’s National Sugar Master Plan to end importation and sell more than 1.5 to 2.0 million metric tonnes of locally produced sugar in Nigeria and neighbouring countries.

In order to successfully execute that strategy, the company is making significant investment in its backward integration programme (BIP). Already, the company’s Savannah cane sugar factory located near Numan, in Adamawa State has an installed factory capacity of 50,000 tonnes.

Covering 32,000 hectares in extent, the Savannah estate has considerable opportunity for expansion which is underway.

Last week, the acting Managing Director/Chief Executive Officer of DSR, Abdullahi Sule told the capital market community that the company would be investing about N106 billion in the next six years to achieve BIP and make Nigeria sugar self-sufficiency.

Impressive financial performance

Despite the economic headwinds in 2016, DSR posted impressive results and has consolidated that performance with improved first quarter (Q1) results ended March 31, 2017. Profit before tax stood at N19.61 billion, up from N16.16 billion, while PAT grew to N14.4 billion as against N11.4 billion in 2015. Earnings per share similarly rose from 93 kobo to 120 kobo. The board of directors of the company recommended a dividend of N7.2 billion, which translates into 60 kobo per share.

Its sugar sales volumes was 778,518 metric tonnes(mt) in 2016, compared with 778,000 mt in 2015. The increase in total revenue by 68 per cent over that of the previous year was predominantly driven by increase in price as just about same volume of 778,518 mt and 778,000 mt were achieved in 2016 and 2015 respectively.

Commenting on the results, Sule said: “We are very pleased with the results for the period under review, our revenue grew by 68 per cent and improve sales volume compared to 2015 despite the current macro-economic challenges. Our focus in the current year and for the future remains leveraging our strengths to maximize every opportunity to generate sales, increase our market share and create sustainable value for our stakeholders.”

He added that concerted efforts are being made towards the actualisation of the company’s BIP.

“The implementation strategy has changed and the full focus is now on the expansion of the Savannah Sugar Estate to its full potential, and development of the new site at Tunga in Nasarawa State,” Sule said.

The company explained that group sugar sales volumes was 778,518 metric tonnes(mt) in 2016, compared with 778,000 mt in 2015.

Sule stated that “Achievement of our BIP plan and growing our market share remains our focus, and efforts are geared towards achievement of effective resource optimisation and cost management; drive for greater efficiency especially in supply chain; human capacity building and route to market redefinition. Others are improved security in the north, consolidation of our position as the largest sugar producer in west African, with 1.5 million MT/PA local sugar production, creation of a robust export market, production of ethanol. And surplus power for supply to national grid and animal feeds production.”

Although investors received a dividend of 60 kobo per share for 2016, the Chairman of DSR, Alhaji Aliko Dangote assured shareholders that the company remained committed to the delivery of superior returns to shareholders.

According to him, the company was in a position to pay a higher dividend but it retained some part of its earnings for investment in the company’s BIP.

“Our focus is the actualisation of our backward integration plans, your board will continue with the effective management of resources to achieve this target, sustainable financial future for the company, and in the turn drive sustainable returns to shareholders,” he said.

Improved First Quarter results

For its first quarter (Q1) result ended March 31, 2017, revenue was up by 83 per cent to N59.5 billion from N32.6 billion in 2016 and 71 per cent of Q1budget achieved.

Cost of sales went up 100 per cent, due to increase in gas, gross profit increased 16 per cent to N7.84 billion as against N6.77 billion. Gross profit rose to N7.84 billion, from N6.77 billion.
Profit before tax increased 28 per cent to N7.04 billion, while profit after tax went up to N4.76 billion from N3.34 billion in 2016, indicating a growth of 42.5 per cent.

Analysts’ comments

According to analysts at Cordros Capital, DSR’s revenue and PAT beat their estimates by 16 per cent and eight per cent respectively.

“Annualised, revenue and PAT are above consensus by 30.9 per cent and 1.4 per cent respectively. The revenue growth was driven by the significantly higher average price (121 per cent), which more than compensated for relatively lower sales volume (17 per cent). Management said it sold 174,981 tonnes of sugar during the period, seven per cent more than the 164,129 tonnes achieved in Q4-16, and 13 per cent above our estimate,” they said.

Cordros Capital said the quarter/quarter (q/q) volume growth is consistent with the encouraging demand the management guided to during the 2016FY conference call.

“That said, the management’s reported average selling price of N17,010/50kg bag is above our computed N16,775/bag, and is not consistent with the N1,000/bag reduction (implemented in March) from the N17,000/bag as at end of 2016. Also positively impacting PAT was the significant increase in investment income (N971.4 million vs. N7.1 million in Q1-16), enabled by growing cash generation, and consequent investments in short term money market instruments (N40.3 billion). Management said it earned 11.5 per cent (vs. 7 per cent in Q1-16) average interest on its bank deposits,” they said.

The analysts noted that although gross margin improved from the trough of 7.3 per cent in Q4-16, the 13.2 per cent realized during the period was significantly shy of the 20 per cent guided by management, and lower than their 14.7 per cent estimate.

“Management had cited the purchase of forex at a relatively lower average rate (compared to Q4-2016) and higher output from Savannah where margins are higher, as the potential enablers of margin recovery. Overall, DSR Q1-17 PAT is consistent with our strong growth expectation (22 per cent) for 2017F. We look for lower PAT growth in subsequent quarters as narrowing y/y price differential (with sales volume unlikely to improve significantly from current level) forces revenue growth to taper. We maintain HOLD rating on the stock,” they said.

Similarly, analysts at FBN Quest said the strong sales growth more than offset the negative impact of a gross margin contraction of -758bps y/y to 13.2 per cent and opex growth of 29 per cent, leading to the improvement in profitability.

“PAT was up by 43 per cent due to a comparatively lower effective tax rate of 32.4 per cent compared with 34.7 per cent in the corresponding quarter of 2016. Sugar price increases over the last 12 months were the primary driver behind the sales growth recorded during the quarter as the company pushed through increasing production costs. We estimate that prices were raised by around 75 per cent over the period from c.N7,500/50kg of finished sugar. Higher imported raw sugar (a key raw material) prices were the primary driver behind the gross margin contraction,” they said.

The explained that compared with their forecasts, sales were ahead by 23 per cent, while PBT and PAT were broadly in line.

“A negative surprise on the gross margin line was completely offset by positives on both the opex and other income lines. DSR’s sales and PBT are tracking ahead of consensus’ sales and PBT estimate of N181.

billion and N22.5 billion respectively, as such we expect upward adjustments to consensus 2017E estimates. Looking ahead, DSR’s focus remains its backward integration projects,” FBN Quest said.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and, with over a decade experience in the global financial markets.

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Crude Oil

Oil and Gas Companies in Nigeria



Oil - Investors King

Nigeria is an oil reach nation with several oil and gas companies operating in Africa’s largest economy.  However, only ten oil and gas companies are listed on the Nigerian Exchange Limited (NGX).

Before we discuss in detail each of the listed oil and gas companies in Nigeria. A short background on Africa’s largest economy will help throw more light on the significance of the oil and gas companies or the entire oil sector to the Nigerian economy.

Nigeria is a petrol-dollar economy, which means Africa’s most populous nation, sells crude oil and use its proceed to service the economy. In fact, the Nigerian Naira is backed by crude oil like Canadian Dollar and other commodity-dependent economies.

But because the Central Bank of Nigeria (CBN) pegged the Naira against its global counterparts, the local currency does not reflect succinctly the fluctuation in global oil prices like other crude oil-dependent currencies.

Since global oil prices rebounded with the gradual reopening of economies, the oil and gas companies in Nigeria have also rebounded from the 2020 record low of $15 per barrel. The oil and gas sector has gained 62.76 percent from the year to date, according to the NGX Oil and Gas Index.

The index gauge price movements in 10 listed oil and gas companies in Nigeria.  However, there are several oil and gas companies in Nigeria not listed on the Nigerian Exchange Limited.

Oil and Gas Companies Listed on the Nigerian Exchange Limited (NGX)

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Crude Oil

Oil Prices Extend Gains on Friday After Saudis Dismiss Supply Concerns




Oil prices extended gains on Friday after Prince Abdulaziz bin Salman, Saudi Energy Minister dismissed calls for more crude oil supply on Thursday.

Brent crude oil, against which Nigerian oil is priced, rose to $84.92 per barrel at around 8:31 am Nigerian time. The U.S West Texas Intermediate crude oil also responded positively to the comment, rising to $81.56 per barrel on Friday.

Prince Abdulaziz had stated on Thursday that OPEC plus efforts were enough to protect the oil market from wild price volatility seen in coal and natural gas markets.

“What we see in the oil market today is an incremental (price) increase of 29%, vis-à-vis 500% increases in (natural) gas prices, 300% increases in coal prices, 200% increases in NGLs (natural gas liquids) ….”

He further stated that the Organization of the Petroleum Exporting Countries and allies led by Russia, have done a “remarkable” job acting as “so-called regulator of the oil market,” he said.

“Gas markets, coal markets, other sources of energy need a regulator. This situation is telling us that people need to copy and paste what OPEC+ has done and what it has achieved.”

Prince Abdulaziz explained that OPEC plus will add 400,000 barrels per day in November and do the same in December and subsequent months. The increase will be gradual he said.

“We want to make sure that we reduce those excess capacities that we have developed as a result of COVID,” he said, adding that OPEC+ wanted to do it “in a gradual, phased-in approach”.

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Lack of Investment in Clean Energy Compromising Fight Against Climate Change and Poverty



Renewable Energy - Investors King

New research highlights a chronic lack of finance that will leave billions of people in Sub-Saharan Africa and Asia without electricity or clean cooking by 2030; Urgent action to accelerate investment in clean energy for developing countries is needed from global leaders assembling at COP26 to ensure a just energy transition.

This year’s Energizing Finance research series – developed by Sustainable Energy for All (SEforALL) in partnership with Climate Policy Initiative (CPI) and Dalberg Advisors – shows the world is falling perilously short of the investment required to achieve energy access for all by 2030 for the seventh consecutive year.

In fact, tracked finance for electricity in the 20 countries that make up 80 percent of the world’s population without electricity – the high-impact countries – declined by 27 percent in 2019, the year before the onset of the Covid-19 pandemic. The economic strain caused by Covid-19 is expected to have caused even further reductions in energy access investment in 2020 and 2021.

Energizing Finance: Understanding the Landscape 2021, one of two reports released under the series, finds committed finance for residential electricity access fell to USD 12.9 billion in 2019 (from USD 16.1 billion in 2018) in the 20 countries. This is less than one-third of the USD 41 billion estimated annual investment needed globally to attain universal electricity access from 2019 to 2030.

Meanwhile, there is an abysmal amount of finance for clean cooking. Despite polluting cooking fuels causing millions of premature deaths each year and being the second largest contributor to climate change after carbon dioxide, only USD 133.5 million in finance for clean cooking solutions was tracked in 2019. This is nowhere near the estimated USD 4.5 billion in annual investment required to achieve universal access to clean cooking (accounting only for clean cookstove costs).

These findings have been released just ahead of COP26 in Glasgow, where global leaders will focus on how to spark meaningful progress on fighting climate change. As part of this, they will need to consider how to reduce global emissions from the energy sector while also increasing energy access in developing countries to support their economic development.

“We are at a critical moment in the energy-climate conversation,” said Damilola Ogunbiyi, CEO and Special Representative of the UN Secretary-General for Sustainable Energy for All and Co-Chair of UN-Energy. “What is clear is that the path to net zero can only happen with a just and equitable energy transition that provides access to clean and affordable energy to the 759 million people who have no electricity access and 2.6 billion people who lack access to clean cooking solutions. This requires resources to mitigate climate change and create new opportunities to drive economic development and enable people everywhere to thrive. Energizing Finance provides an evidence base of current energy finance commitments and the finance countries require to meet SDG7 energy targets.”

In 2018, 50 percent of total electricity finance flowed to grid-connected fossil fuels in the high-impact countries compared to 25 percent in 2019. While this is a positive trend for the climate, tracked investment in off-grid and mini-grid technology also declined and represented only 0.9 percent of finance tracked to electricity.

Dr. Barbara Buchner, Global Managing Director at CPI, who partnered with SEforALL on Energizing Finance: Understanding the Landscape 2021, said: “Achieving both the Paris Agreement and universal energy access requires far greater investment in grid-connected renewables and off-grid and mini-grid solutions than what has been tracked in Energizing Finance. These solutions are essential to helping high-impact countries develop their economies without a reliance on fossil fuels.”

To better illuminate the challenges high-impact countries face, the second publication in the series, Energizing Finance: Taking the Pulse 2021, offers a detailed look at the estimated volume and type of finance needed by enterprises and customers to achieve universal energy access for both electricity and clean cooking by 2030 in Mozambique, Ghana and Vietnam. Importantly, it illustrates the energy affordability challenges people face in these countries and the need for financial support for consumers, such as subsidies.

The report finds that providing access to clean fuels and technologies, i.e. modern energy cooking solutions, in Ghana, Mozambique and Vietnam will cost a total of USD 37-48 billion by 2030; 70 percent of which will be for fuels (e.g., LPG, ethanol and electricity). A more achievable scenario would be for all three countries to deliver universal access to improved cookstoves at a total cost of USD 1.05 billion by 2030.

“Ghana, Mozambique and Vietnam each have unique challenges to achieving universal access to electricity and clean cooking,” said Aly-Khan Jamal, Partner at Dalberg Advisors, who partnered with SEforALL on Energizing Finance: Taking the Pulse 2021. “This research digs deep into these national contexts to identify solutions that can make Sustainable Development Goal 7 a reality.”

Providing results-based financing for energy project developers and exploring policies that facilitate demand-side subsidy support and reduce taxes on solar home systems are among several policy recommendations presented for Ghana, Mozambique and Vietnam.

Energizing Finance also advocates for increased innovation in financial instruments to reach the scale of finance needed for universal clean cooking access; for integration of electricity access, cooking access and climate change strategies; and for national governments, bilateral donors, philanthropies, and DFIs to all increase their efforts to mobilize commercial capital to Sub-Saharan African countries.

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