Despite improving revenue prospects, as seen in the 45.8% YoY increase in H1'24 sales, Dangote Sugar Refinery Plc (DANGSUGAR) is likely to report losses for the second consecutive year in FY'24. Our cautious view on the ticker is hinged on the following:
1) Sustained margin contraction despite improved sales
2) Elevated FX losses spurred by the impact of the 41.6% YTD Naira depreciation on the company's FCY liabilities. However, we note that the company's FCY liabilities have moderated from FY'23 levels
3) Increased borrowings to finance backward-integration programme (BIP) within an elevated interest rate environment
Given the above considerations, we adjusted our model and arrived at a new 12-month Target Price (TP) of N39.66 (vs 38.30 previously) and an unchanged HOLD recommendation on the counter.
