Mubasher: The research team of MubasherTrade initiated coverage on Delta Sugar Company with a ‘Hold/High Risk’ recommendation and a price target of EGP 10.57 per share (+8.4%) upside potential).
“Global sugar oversupply has started to narrow notably to reach an equilibrium level in the current marketing year (MY2015/16). With the world sugar market entering into the deficit phase of the sugar production cycle in 2016, helped by environmental changes in the largest producing countries, sugar prices should rebound as producers adjust production to currently-prevailing lower sugar quotations,” said MubasherTrade.
It added that Egypt’s average sugar consumption per capita (2012-2014) reached 42kg versus a global average of 24kg. The local sugar production of 2.1 million tons, in addition to closing stocks of 0.278 million tons, cover around 80% of domestic consumption, leaving a deficit of around 0.6 million tons in MY2015/16. However, Egypt had imported 1.15 million tons, reflecting the competitive pressure of imported sugar on local production. Thus, local manufacturers are lobbying for the application of a 20% anti-dumping fee on imports to support the local sugar production.
Delta Sugar’s 9M 2015 net earnings dropped significantly by 93% YoY to EGP12.5 million. Total revenues fell 23% YoY to EGP746 million on account of lower sales across all segments (sugar -10%, molasses -41%, and fodder -53%). Gross margin narrowed by 15.7pp YoY to 12.2% in 9M 2015 as the cost of production increased 10.5% YoY to EGP4,200/ton. Lower cash proceeds from sales pushed Delta Sugar to draw an overdraft facility of EGP975 million in September 2015, up from EGP129 million in December 2014. However, in October and November 2015, the company sold about 45% of its sugar inventory and repaid EGP200 million to the banks, thus lowering its banking overdraft to EGP775 million.
