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Below is an analysis of Dangote Sugar by Meristem Securities. A copy of the analysis is also attached. Analysis of other companies can also be found on Meristem’s site.

UPDATES ON DANGOTE SUGAR REFINERY PLC

EXECUTIVE SUMMARY AND INVESTMENT RATIONALE
Dangote Sugar Refinery Plc is a market leader in the Nigerian Sugar industry with operations spanning over 7 years. The company imports and refines raw sugar using an in-house developed technology to refine and package fortified and unfortified Vitamin A white sugar. Dangote Sugar has an installed capacity of 1.44million metric tons of a world class facility designed by Tate & Lyle (the largest sugar refiner in Europe), for the production of refined sugar in Nigeria.

The company currently operates at near 75 per cent of its installed capacity and controls about 70 per cent of the Nigerian sugar market (by sales revenue). Concerted strategic efforts are being made to grow revenue base by expansion to North and West African regions. This strategic move will expectedly enhance optimization of installed capacity and subsequently increase current production frontier by about 79 per cent in the next couple of years to 2.5M metric tons p.a.

Dangote Sugar has recorded impressive performance in the last 3 quarters of 2007 with an average growth of 75.9 per cent and 35.1 per cent in profit before tax (PBT) and profit after tax (PAT), despite the consistent dip in sales revenue by an average of 4 per cent during the same period. Current trend in performance suggests the need for the company to grow its industrial clientele base as well as its retail domestic market in order to sustain and possibly surpass its market share.

Our forecasts for the year ended December 31, 2007 put sales revenue and PAT at N84.80bn and N24.04bn. This implies a earnings per share of N2.40 for the FYE December 31, 2007 and assuming a payout ratio of 70 per cent, we project a cumulative dividend per share of N1.68k. This suggests that the management can still cough out a final dividend of 48k/Share.

Key risk attached to our analysis and valuation is the new major competitor, BUA Group of companies, the owners of BUA Sugar Refinery with an installed capacity of about 720,000 metric tons p.a, which is scheduled to commence operations by April 2007. Similarly, Dangote Sugar is also highly exposed to changes in regulations ranging from protectionist policy of prohibitive tariff on imports to NAFDAC’s regulation on Vitamin A fortification.

Our valuation suggests that the stock trades at a fair price. However, we only anticipate a strong rally provided the management declares a generous scrip issue in addition to the final dividend.

Dangote Sugar

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An article by Meshack Idehen of the Saturday Punch on why stock documents get lost.
Most times, investors buy shares without share certificates to show for their investments for many years. At other times, their dividend warrants never get to them.There could also be problems of investment swaps, where the name of an investor does not tally with his addresses and vice versa. At other times, it could be outright misspelling of names.

But the registrars who handle the documentation of these stocks in terms of verifications and certification usually blame shareholders for most of their woes.Speaking in defence of their practice, some of the registrars, while admitting the genuineness of shareholders’ problems, believe that most of the issues are blown out of proportion.

An executive at Zenith Registrars in Lagos, who spoke on the condition of anonymity, attributed registrars’ apparent inefficiency in handling these documentations to the volume of work involved.She said, ”Most of the complaints and allegations by shareholders and investors concerning the issues you have raised are true to some extent.

”We are confronted with these issues almost on a daily basis. However, I must confess to you that they are not our own making. Although there are valid claims of missing or lost share certificates and other investment documentations, these are not intentional actions by registrars of quoted companies.”And when you consider the huge number of names, addresses and issues of logistics that registrars have to deal with, then the situation would be more understandable.”

She defended further, ”Sometimes, there are situations where you have as many as 800,000 shareholding issues to deal with. Certainly, you cannot rule out human or other errors that could occur with managing such a huge number.”

Arguing along the same line, the Manager, Communication and Public Information, City Registrars, a subsidiary of Wema Group, Mr. Azzez Adeosun, said that registrars were doing their best.He said, “At City Registrar, we are very concerned about our shareholders and investors. We do not toy with their shares and investments certification.”

In his opinion, misspelling of names and addresses was not peculiar to registrars alone, as these could happen in any other establishment.As far as he was concerned, ”Some of these people (shareholders) are actually part of the problems. Some of them will move or change addresses and residences without informing us about their new addresses.

”Some get married and change the names with which they are known. Locating them with their former names or addresses becomes a big problem, as there is actually no way to reach them unless they come forward.” Accordingly, he advised, ”Let all shareholders and investors carry their registrars along as far as the change of their names and residential addresses are concerned. This would make locating them easy when there is a need to do so.”

Besides the shareholders, some of the registrars also blamed courier companies that are used to deliver the documents. But a visit to one of the courier companies in Lagos, Prudent Parcels Services Limited, was an eye-opener. For instance, First Bank Nigeria Plc uses this courier company to distribute its share certificates and other documents.

The room on the second floor of No 35 Lewis Street, Lagos, where their operations are carried out, was completely disorganised. Letters and documents, including share certificates to shareholders and investors strewed the room and there was apparently no regard for the security of those documents.In the course of moving the letters from one point to another, many of them end up not being delivered at all.

In the face of these problems, Zenith Registrars advised, ”A shareholder or investor who is having a problem with his shares documentation can take several steps to put things right. ”In the case of a wrongly spelt or wrongly written names, a shareholder can through a sworn declaration or affidavit in court, affirm his nomenclature, which can be forwarded to the registrar. It is an acceptable procedure.

”In the case of missing or lost certificates, the same procedure can also be applied. However, it is also very important that the shareholder presents a valid and constant address, where he could be reached in the event that a new certificate is issued after due diligence is conducted.”

On its part, City Registrars urged shareholders ”to remain calm and seek proper channels through which the issues can be resolved. They can choose to channel their complaints through their stockbrokers, who are experts in such matters, or seek the assistance of the Security and Exchange Commission.”In cases of wrongly written names, it is wise to secure an affidavit from the court, using the name you want to appear on the certificate in the affidavit that you will present to the registrars.”

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Attached is the latest stock recommendations from BGL securities. Their top recommendations are BankPHB, UBA, UAC Properties and Guiness. They provide some analysis of these stocks - forecast EPS, forward PE, divident yield and target price.

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