ssa sugar industry report - july 2012 offering sweet … · 2013-10-16 · ssa sugar industry...

SSA Sugar Industry Report - July 2012

Offering sweet opportunities….

Analysts: Belvas Otieno [email protected] Brian Mugabe [email protected]

Addmore Chakurira [email protected] Nontando Zunga [email protected] Jimmy Mwambazi [email protected]

mailto:[email protected]




Table of Contents

Executive Summary ................................................................................... 2

Relative valuation metrics for SSA sugar companies ........................................... 4

Sugar Industry Background .......................................................................... 5

Dangote Sugar Refinery ............................................................................... 12

ENL Land ................................................................................................ 16

Hippo Valley Estates .................................................................................. 20

Illovo Sugar (Malawi) .................................................................................. 23

Illovo Group ............................................................................................ 27

Mumias Sugar ........................................................................................... 30

Omnicane ............................................................................................... 34

Tongaat Hullet ......................................................................................... 38

Zambia Sugar ........................................................................................... 41

2

Executive Summary

In this, our second SSA sugar report we look at nine sugar companies from different parts of the region,

including South African firms Illovo and Tongaat, which have been included for comparison purposes.

The sugar story in SSA looks promising, given the high economic growth rates in the region which help

to underpin local demand. A number of companies also have special access to the EU sugar market.

Beginning in West Africa, we look at Dangote Sugar which is Nigeria’s largest producer of the

sweetener with c70% market share. Nigeria’s demographics (c160m people) and economic growth rates

north of 5% ensure that demand for the company’s products is sustainable going forward. The major

drawback is that the company does not grow and mill its own sugarcane. Rather, it imports raw sugar

and refines it for sale. This exposes it to volatile global sugar prices and forex risk. Nevertheless, the

company is working on a project via the Savannah Sugar Company to enable it to grow and mill its own

sugarcane. Given an outlook of sustained and growing demand for the company’s products, efforts to

move away from raw sugar importation and attractive valuation metrics (ttm PER: 5.89x and dividend

yield of 7.2%), we have a BUY recommendation on the stock.

In East Africa, we believe that Kenya’s Mumias Sugar is trading at a depressed ttm PER of 4.73x as the

stock is pricing in the threat of the expiry of COMESA safeguards in 2014. The expiry of these

safeguards will allow the importation of sugar from neighbouring countries where production is

cheaper. The company has embarked on a number of diversification efforts but we are skeptical that it

will be able to plug the gap of lost sugar revenues. As a result, we believe that Mumias’ margins are

likely to be squeezed. However, with an attractive dividend yield of 8.2% and given that the COMESA

threat looks to already be in the price, we rate it a HOLD.

The Mauritian sugar industry seems to be in decline due to competing interests for land and is also

under pressure from the economic crisis in its main market; the EU. Consequently, sugar companies are

diversifying into other activities e.g. property development and energy. Omnicane has successfully

diversified into energy production among other areas. It produces this energy from bagasse (a by-

product of sugar production) and coal. In the FY 11 results, the energy segment accounted for 67.24%

of turnover, 76.82% of operating profit and 96.98% of profit before exceptional items. Going forward, it

seems that the company’s prospects will be driven by its other business units, not sugar refining.

However, at a ttm PER of 20.39x, the stock is relatively overvalued. We advise investors to SELL.

Still in Mauritius, we cover ENL Land which seems to be a company in transition, trying to diversify

away from sugar into other activities, mainly property development. This transition period has been

characterised by volatile earnings making the future structure of earnings for the company unclear. We

are in consultation with management over this issue and will be better positioned to issue a

recommendation once management has reverted.

Illovo Malawi is virtually a monopoly in a country with an estimated population of 13m, which is

growing at over 3% per annum; local sugar demand sustainability is more or less guaranteed. The

company ranks amongst the lowest cost sugar producers in the region at approximately USD 215 per

tonne against a regional average of USD 275 per tonne as a result of the benefits of irrigation, low

labour costs and high yields. With its very strong balance sheet, high cash generative abilities and

sound management, Illovo Malawi remains a solid long-term investment. We rate the share a LONG-

TERM BUY.

3

Hippo’s performance is expected to remain strong on the back of growing domestic demand, whilst

preferential markets for Zimbabwe’s sugar, notably the European Union and the United States are also

expected to remain attractive going forward. The USDA estimates local per capita consumption at

24.6kg, with the consumption pattern reportedly influenced by supply rather than price. We forecast

that with improving economic fundamentals and disposable incomes, per capital consumption could

move upwards of 30.0kg. We rate the counter a BUY, and recommend investors take advantage of the

current market weakness on the ZSE.

Zambia Sugar, a subsidiary of Illovo South Africa, presents a confluence of the benefit from its

doubling of capacity from 200,000 tonnes pa to 450,000 tonnes p.a. in 2009, to the cashflow

constraints resulting from financing long-term expansion with short-term debt. Currently the largest

producer of sugar in the country, the company has had perennially declining profitability in the midst

of consistently higher revenue following its peak performance in FY 09 where profits topped ZMK

137.12bn, and bottoming to ZMK 27.91bn in FY 11, owing to significant expansion-related borrowing. FY

12 exhibited a turnaround for the company as operating profits caught up with finance obligations, yet

these remain high. We see significant upside in ZSUG earnings in the long-term as the bottom-line

catches up with the top-line; revenue has grown by a CAGR of 41% between FY 09 and FY 12 whilst net

margins have declined from 25.8% to 8.5% over the same period. However, pending clarity on the

pricing and repayment structure on existing facilities, as well as the company’s strategy to mitigate a

potential dip in E.U sales, we recommend ZSUG as a HOLD.

South African firms Illovo and Tongaat are well diversified operators with operations in a number of

Southern Africa countries. As aforementioned, they’ve been included in the report for comparison

purposes only and hence we have not included an in-house recommendation. Nonetheless, we have

incorporated the ‘i-net Bridge’ consensus on the stocks, which are currently HOLD and BUY,

respectively.

-

4

RELATIVE VALUATION METRICS FOR SSA SUGAR COMPANIES

Company Dangote Hippo Valley Illovo Malawi Illovo S.A Mumias Omnicane Tongaat Hulett Zambia Sugar ENL Land Simple Average

Country Nigeria Zimbabwe Malawi South Africa Kenya Mauritius South Africa Zambia Mauritius

Population (m) 170.1 12.6 16.3 48.8 43.0 1.3 48.8 14.3 1.3

Per capita GDP (USD) 2 600.0 500.0 900.0 11 000.0 1 700.0 15 000.0 11 000.0 1 600.0 15 000.0 6 588.9

Market Cap (USDm) 308.6 193.0 399.1 1 530.8 112.9 164.8 1 593.8 319.2 279.6 544.6

Sales Growth (%)

(Hist) 18.4 27.0 18.3 13.1 1.4 12.2 24.8 20.0 50.3 20.6

(T+1) 20.0 25.0 22.4 n/a (2.9) (1.6) n/a 2.2 n/a 10.8

(T+2) 15.0 20.0 6.6 n/a 5.8 6.6 n/a 1.4 n/a 9.2

PER

(Hist) 7.1 9.2 13.2 21.1 4.8 12.6 15.7 13.2 4.6 11.3

(T+1) 4.2 6.7 10.9 14.7 5.0 24.0 11.4 11.1 n/a 11.0

(T+2) 3.7 5.3 9.2 11.9 5.0 12.4 9.3 9.8 n/a 8.3

EV/EBITDA

(Hist) 4.4 9.1 8.4 9.5 3.3 11.1 8.8 7.7 n/a 7.8

(T+1) 2.3 5.8 6.8 n/a 3.2 12.6 n/a 7.6 n/a 6.4

(T+2) 2.0 4.7 5.9 n/a 3.2 9.4 n/a 7.5 n/a 5.5

Dividend Yield

(Hist) 7.2% 0.0% 5.3% 2.4% 8.2% 3.7% 2.3% 3.8% 1.6% 3.8%

(T+1) 16.7% 0.8% 6.4% 3.4% 8.0% 2.3% 2.9% 4.5% n/a 5.6%

(T+2) 19.1% 0.9% 7.6% 4.2% 8.0% 4.4% 4.1% 5.1% n/a 6.7%

EBITDA margin

(Hist) 9.4% 19.2% 34.2% 17.2% 22.7% 22.3% 18.6% 24.2% n/a 21.0%

(T+1) 15.0% 24.0% 37.7% n/a 23.5% 20.0% n/a 24.1% n/a 24.1%

(T+2) 15.0% 25.0% 40.4% n/a 22.5% 25.0% n/a 24.0% n/a 25.3%

ROaE

(Hist) 17.7% 11.2% 42.7% 9.8% 15.2% 6.7% 13.2% 16.4% 16.0% 16.5%

(T+1) 29.0% 13.7% 42.1% n/a 12.4% 3.3% n/a 18.1% n/a 19.8%

(T+2) 30.4% 15.7% 40.2% n/a 11.5% 6.3% n/a 18.5% n/a 20.4%

Sources: Bloomberg,CIA Factbook, IAS Forecasts and estimates

-

5

A little history lesson……

As narrated by ‘The Cambridge World History of Food’, sugar is the world’s predominant sweetener. It satisfies the human appetite for sweetness and contributes calories to our diet. Sugar is used in cooking, in the preparation of commercially processed foods, and as an additive to drinks; it is also a preservative and fermenting agent. It sweetens without changing the flavour of food and drink. It is cheap to transport, easy to store, and relatively imperishable. These characteristics helped sugar to displace such sweeteners as fruit syrups, honey, and the sap of certain trees. Lack of data makes it difficult to establish when sugar became the principal sweetener in any given part of the world, but in every case this has occurred fairly recently. Illustrative are Europe and North America where it was only after 1700 that sugar was transformed from a luxury product into one of everyday use by even the poor. This took place as Brazil and the new West Indies colonies began producing sugar in such large quantities that the price was significantly reduced. Lower prices led to increased consumption, which, in turn, fuelled demand, with the result that the industry continued to expand in the Americas and later elsewhere in the tropical world. Since the eighteenth century, the rise in the per capita consumption of sugar has been closely associated with industrialisation, increased personal income, the use of processed foods, and the consumption of beverages to which people add sugar, such as tea, coffee, and cocoa. In addition, the relatively recent popularity of soft drinks has also expanded the use of sugar. Annual per capita sugar consumption is now highest in its places of production, such as Brazil, Fiji, and Australia, where it exceeds 50kg. Consumption in Cuba has been exceptionally high, exceeding 80kg per capita around the beginning of the 1990s. Subsequently, consumption has fallen to a still very high 60kg per person. With an annual per capita consumption of between 30kg and 40kg, the countries that were first industrialised in western Europe and North America constitute a second tier of sugar consumers. The poorer countries of the world make up a third group where consumption is low. The figure for China is c11kg, and it is even lower for many countries in tropical Africa. Such a pattern reflects both differences in wealth and the ready availability of sugar to those in the countries of the first group.

In the Western industrialised world, concerns about the effects of sugar on health, as well as the use of alternatives to sugar — such as high-fructose corn syrup and high-intensity, low-calorie sweeteners — have stabilised and, in some countries, lowered the use of sugar. Thus, it would seem that further expansion of the industry depends primarily on the poorer countries following the precedent of the richer ones by increasing consumption as standards of living improve. Secondarily, it depends on the ability of the sugar industry to meet competition from alternative sweeteners. Commercial sugarcane is reproduced vegetatively. Until the late nineteenth century, the commercial varieties were thought to be infertile. Some are, although others set seed under certain climatic and day-length conditions. This discovery has been of basic importance for the breeding of new cane varieties, but commercial sugarcane is still reproduced in the traditional vegetative way. The stems have nodes spaced from 0.15m to 0.25m apart, each of which contains root primordia and buds. A length of stem with at least one node is known variously as a sett, stem-cutting, or seed-piece. When setts are planted, roots develop from the primordia and a stem grows from the bud. Stems tiller at the root so that the bud in each sett produces several stems. The first crop, known as plant cane, matures in 12 to 18 months, depending on the climate and variety of cane. The roots, left in the ground after the harvest, produce further crops known as ratoons. Some varieties produce better ratoons than others. As a perennial plant with a deep root system and with good ground coverage provided by the dense mat of stems and leaves, sugarcane protects the soil from erosion. Given adequate fertiliser and water, it can flourish year after year, and there are parts of the world in which sugarcane has been a cash crop for centuries. The sugarcane industry has now been dependent on cane breeding for a century, and research remains necessary to the success of the industry. Because varieties "fail," reserve varieties must be on hand to replace them. Some of the aims of breeding programs are long-standing: resistance to disease, insects, and animal pests; suitability to different edaphic and climatic conditions; better ratooning; and high sucrose content. In recent years, additional considerations have come to the fore. Canes have to be able to tolerate herbicides, and in some countries they have to meet the needs of mechanical harvesters.

SECTORAL OVERVIEW

-

6

Cultivation and Harvest

Success in cane breeding gave the sugarcane industry a much improved raw material that enables it to meet more easily a basic requirement of survival in a competitive world, which is the sustainable production of cane rich in sucrose in different climatic and soil conditions. Cane breeding has also added flexibility in dealing with the constant of how best to manage the cane fields with a view to the needs of the mill and factory. A long harvest season is preferable to a short one because it permits the economic use of labour and machinery. Fields of cane, therefore, must mature in succession over a period of months. This can be achieved by staggering the planting of the fields and by cultivating a combination of quick-maturing and slow-maturing varieties. Cane ratoons complicate the operation because they mature more quickly than the plant cane.

The harvesting of cane presents another set of problems. The cane must be carefully cut close to the ground (the sucrose content is usually highest at the base of the stems) but without damage to the roots. The leaves and inflorescence should not go to the mill where they will absorb sugar from the cane and so reduce the yield. Manual workers can cut carefully and strip the stems, but the work is arduous and expensive. The mechanisation of harvesting has been made easier by the breeding of varieties that achieve uniform height and stand erect. The machines can cut and top (remove the inflorescence) with little waste.

-

7

Other Products Sugar is the most important product of the sugarcane industry. But there are also others, one being fuel. Because sucrose can be fermented, as well as crystallised, it is turned into an alcohol that substitutes for gasoline in cars. A substantial portion of Brazil’s annual sugarcane crop is used for this purpose. Another use is the creation of fancy molasses (made from clarified, concentrated, very sweet syrup-like juice from which no sucrose has been drawn). This is what is used in cooking, spread on bread and scones, and employed as a topping for pancakes. Fancy molasses was a specialty of Barbados, with North America once the major market, where it sold for less than maple syrup. Barbados still exports fancy molasses, and a similar product is made in several other countries. In addition, there are by-products of the manufacture of sugar. The most important are molasses, alcoholic beverages, bagasse, and filter mud, each of which has several uses. The molasses that spins from the massecuite in the centrifuges of modern factories is known as final or blackstrap molasses. It contains unextractable sucrose, as well as glucose, fructose, water, and minerals, the composition varying according to the climate and soil in which the cane was grown. Relatively little of this type of molasses enters international trade. One local use is for animal feed (either fed directly to the animals or mixed with other foods). Other derivatives of molasses include industrial alcohol, citric acid, and yeast. But perhaps its best-known use is in the manufacture of alcoholic beverages. Rum is the sugar industry’s best-known drink, flavoured and coloured with burnt sugar. But there are numerous other cane liquors, such as the cachaça of Brazil. Moreover, in cane-growing countries, alcohol is now mixed with imported concentrates to make gin and even whisky. "Choice" molasses, the by-product of non-centrifugal sugar, is also distilled for alcoholic beverages.

Bagasse — the dried cane pulp remaining after the juice is extracted — is a fortuitous by-product of sugar manufacturing that finds important uses. In some countries it is a fuel that generates electricity for the national grid. Ongoing research has also pointed the way to other applications, and it is now employed in the production of compressed fibreboard, various types of paper, and plastics. Much of the filter mud, the result of clarification of the cane juice, is returned to the cane fields as a fertiliser. But it is also possible to extract a crude wax from it that can be used in the manufacture of polishes. All of these by-products are major contributors to the profitability of the sugarcane industry.

World Sugar Production (m tonnes)

Source: Illovo Sugar

World Sugar Consumption (m tonnes)


Top Sugar Producers 2010/2011 est. (m tonnes)


-

8

In its May 2012 outlook for sugar, the UN’s Food and Agriculture Organisation, FAO, published the following:

Prices Sugar prices have regained some momentum since the beginning of the year - After declining since July 2011, international sugar prices rose to an average of US 23.5c per pound in January 2012, and further increased to US 24.1c per pound in March. Still, between January 2012 and March 2012, sugar prices averaged 16% below the same period last year. The strength of sugar quotations during the first 3 months of 2012 reflected a combination of factors including risks associated with less favourable prospects for sugar production in Brazil, the world’s largest sugar producer; depreciation of the US dollar; and strong energy prices, which tend to lead to the use of sugarcane as a feedstock for ethanol production at the expense of sugar. Also, the general increase in commodity prices recorded over the same period provided support to sugar quotations.

Production World sugar production to increase in 2011/12 - With most of the 2011/12 sugarcane and sugar beet crops already harvested in the main producing areas, FAO’s current estimate for world sugar production in 2011/12 stands at 173m tonnes, relatively unchanged from the November 2011 forecast, but 4.6% larger than in 2010/11. Downward revisions in output, mainly in Brazil, Mexico and the United States, were largely offset by upward revisions in the EU, the Russian Federation and Pakistan. Developing countries are forecast to harvest 131m tonnes, 1.2% more than in 2010/11, led by increases in India and Pakistan, while output in developed countries is anticipated to expand by 17% to 42m tonnes, led by the Russian Federation and the EU. A 2011/12 production surplus over consumption is now estimated to reach about 5m tonnes. As a result, world sugar stocks are likely to benefit, but still remain below their 10-year average level. Preliminary forecasts for the 2012/13 season indicate the possibility of another large production surplus, as sugar crop areas expand on the back of attractive sugar returns.

In South America, production is anticipated to decline by about 5% in 2011/12, mostly reflecting a fall in Brazil. The decrease in output is attributed to generally unfavourable growing and harvesting conditions, but also to a reduction in the rate of new plantings. Sugarcane fields are generally renewed every 5 years in Brazil to maintain high yields. However, reported financial difficulties faced by millers and cane growers have slowed the rate of field renewals. Estimates indicate total sugarcane production will drop by 10% from the previous season, with an estimated 49% of the total sugarcane harvest allocated for the production of sugar. This is up from 46% in 2010/11, mainly because the processing of cane into sugar yields higher margins than those realised from converting cane into ethanol. Sugar production is expected to expand in Colombia, the second largest producer in the region, and to remain relatively unchanged in Argentina, where frost hampered cane production.

World Sugar Market at a Glance

Source: FAO

World Sugar Production

Source: FAO

-

9

In Central America, preliminary forecasts indicate production in Mexico will decline from 2010/11, but high sugar prices could encourage producers to expand areas for the next season. In Guatemala, higher than expected sugarcane yields should boost production, while a series of policy measures, including higher cane prices, are set to boost output in Cuba.

In Africa, sugar production is projected to rise due to largely favourable weather conditions. Ethiopia, Mozambique and Sudan are set to harvest greater crops y-o-y, while a slight growth is expected in Egypt. In South Africa, the effects of the 2010 drought impacted cane yields and output will remain unchanged.

In Asia, sugar output is expected to rise over the 2011/12 marketing season, driven by strong growth in India. Record sugarcane prices in 2009 encouraged farmers in the country to plant additional area to sugarcane and boost input use. India’s sugar market deals with a longstanding situation in which its sugar production is cyclical – it has 2–3 years of surplus followed by 2–3 years of deficit. In recent years, the cycle has been more pronounced, with larger swings in production and trade. These cycles result from a disconnect between administered cane prices and market-driven sugar prices, which leads to an accumulation of arrears by mills. In a move to address this issue, the government has introduced corrective measures, such as changing the release mechanism of non-levy quota from a monthly to a quarterly basis. 2011/12 sugar output in Thailand, the world’s second largest sugar exporter, will be slightly higher than the all-time high recorded the previous season, with better than expected yields due to favourable weather conditions. Despite an expansion in area, a decrease in production is expected in China as a result of heavy rains in Guangxi, China’s largest sugar producing region, and drought in Yunnan, its second largest producing province. Financial assistance as well as the subsidised inputs sugar mills provided to farmers were major contributing factors to boost plantings. In Pakistan, estimates for sugar production in 2011/12 point to an increase, following last’s year favourable monsoon rains. Output in 2011/12 is set to increase in Indonesia, Vietnam and Japan, and to remain stagnant in Turkey.

In Europe, the latest estimates for the EU indicate strong gains in sugar production, largely due to an expansion in beet area and improvements in yields at both farm and mill levels. Production under quota remains set at 14m tonnes, hence leaving 4m tonnes of out-of-quota sugar production. Similarly, propelled by a significant surge in the beet area, sugar output is expected to expand in the Russian Federation, in contrast with last year when severe drought negatively impacted crop development. Gains are also anticipated in Ukraine, helped by favourable weather. In Australia, sugar production is set to rise by 5%, spurred by high domestic prices over the past three years which led to a sharp increase in sugarcane area. In the rest of the world, production in the U.S. is forecast to surpass slightly its 2010/11 level, with falling beet sugar production

expected to be offset by expanding cane sugar output.

World Sugar Surplus/Deficit

Source: FAO

Sugar Production by Major Producing Countries

Source: FAO

Stocks Held by the Five Major Sugar Exporters & Stock-to-Disappearance Ratio

Source: FAO

-

10

Utilisation World sugar consumption to return to long term trend - According to the latest FAO estimates, global sugar consumption is anticipated to reach 167.4m tonnes in 2011/12, which is 3.7m tonnes, or 2.2% more than in 2010/11. Increased supply availability and lower prices are expected to support larger sugar intake than in the previous season. In 2009/10 and 2010/11, high domestic sugar prices curtailed demand in virtually all regions. In China, for example, they prompted several food producers to substitute starch sweeteners for sugar. Elsewhere, governments implemented measures to curb sugar price inflation. These steps included sugar stock releases (China, India), retail price controls and cuts in import tariffs (Pakistan, Bangladesh). Under current prospects, world per capita sugar consumption will remain steady at 23.8 kg in 2011/12. Aggregate sugar utilisation in developing countries is set to expand by 2.4m tonnes to 118m tonnes, or 70.4% of global consumption. In the generally more mature markets of developed countries, consumption is to increase by 1.3m tonnes. However, a slowdown of global economic growth in 2012 could undermine prospects for demand expansion, as manufacturing and food preparation sectors, which account for the bulk of aggregate sugar consumption, are particularly sensitive to income changes.

Trade World trade to contract as import demand weakens - FAO estimates of world sugar imports for 2011/12 (October/September) stand at 49m tonnes, 5% less than in the previous season. This reflects an expected decline in imports by major traditional importing countries, where large crops are set to depress purchases. Propelled by rising population and per capita income, Asia’s import growth is likely to remain steady. Purchases by China are expected to augment, sustained by strong domestic demand and the need to replenish state reserves, after large quantities were released in 2010/11 to contain domestic sugar prices. Shipments into Indonesia are also expected to increase – in part to fulfil recent expansions in its refining capacity. In Europe, shipments to the EU are forecast to fall due to higher domestic production. Since the launching of various reforms to the sugar sub-sector in 2006, the EU has turned from being a net sugar exporter to one of the world’s largest net sugar importers. Deliveries to the Russian Federation, once the world’s largest importer of sugar, are expected to fall significantly as a result of large domestic availabilities. In the rest of the world, purchases by the United States are forecast to remain similar to the previous season, including 1.4m tonnes shipped under TRQ. Additional imports may be needed in the course of the season to rebuild reserves. Total imports by countries in Africa are expected to decline, as improving domestic supplies displace imports. World trade is expected to decline in 2011/12, reflecting lower output in Brazil, the world’s largest exporter, and large production in traditional importing countries. In

addition, the need to rebuild stocks may restrain exports. Brazil is now expected to ship about 23m tonnes, down 15.8% from 2010/2011, due to lower supply availability, with the Russian Federation its main destination market. On the other hand, sales from Thailand, the world’s second largest sugar exporter, are expected to expand, spurred by adequate supply from both production and stocks. The bulk of the sugar will be shipped to neighbouring countries, including Malaysia and the Republic of Korea. Exports from Australia, the world’s third largest supplier, are likely to rise from their 2010/11 levels, sustained by greater domestic production. Deliveries by South Africa are expected to decrease and remain below the long-term trend. The bulk of the shipments will be supplied to the Southern Africa Customs Union (SACU) market. Exports by Guatemala are foreseen to be sustained by greater availabilities and competitive pricing. Sugar has become the biggest foreign exchange earner for Guatemala, with large investment being deployed to boost the export of refined sugar. Similarly, sales by Cuba are set to increase due to greater supply availability, while in Mexico, exports are seen to fall because of lower production. However, high domestic sugar prices could stimulate greater use of high fructose corn syrup (HFCS) which, in turn, can free up additional sugar for export. Domestic Retail Sugar Prices 2010/11 est.


Cost Competitiveness Enhanced by Natural Factors e.g. location

Source: LMC International; Worldwide survey of sugar and HFCS Production Costs; 2010 Report

-

11

The SSA Sugar Sector Africa only grows about 6.5% of world production, while having c11% of the world’s consumption. The largest sugar cane areas of SSA are in South Africa, Mozambique and Cameroon; whereas, South Africa is the leading producer followed by Sudan, Kenya and Swaziland. If one looks at worldwide yields, 6 SSA countries are among the top 8 countries: Peru yields are highest (125.5 t/ha) followed by Colombia, Egypt, Senegal, Malawi, Sudan, Ethiopia, Zambia and Tanzania. However, in the global context, SSA ranks only 21st in production extent. In SSA, most countries process sugar cane into other products. A few exceptions are in Ghana (92% of the sugar cane production), Cameroon (30%), and DRC and Kenya (about 20% each) where humans directly consume the crop as food. Overall, Africa remains a net importer of sugar, with the bulk of the imports emanating from Brazil. South Africa is the biggest producer on the continent, coming in highest at number 16 on a world scale, reflecting that from a production perspective Africa remains a small player. On an-ex factory cost basis, however, Africa is very competitive, with 5 of the top 10 lowest cost producers being from the continent. Speaking at a Royal African Society breakfast, George Weston, the CE of ABF (Illovo parent), noted that the potential for the African sugar industry is prima facie, “enormous”. Given the local production/demand imbalance, he stated that there is a ready market for sugar on the continent for anyone who produces it, although selling to the West Coast is more of a problem due to its relative proximity to Brazil; prices are usually high, and under the EBA agreement with the EU, most African countries have privileged access to the historically high priced European market. Yet despite this potential, he believes very few players have successfully undertaken wholesale expansion projects in the sector. The main reasons for this include the fact that to create and run a sugar operation anywhere that is efficient is difficult and extremely expensive and Africa is no exception, as one first has to develop the agriculture as well as the factory. Efficient cane farming in the region has to be irrigated and large scale. Cane factories are very big, very engineering intensive and very expensive if they are to be cost competitive, and although Southern African has lots of land, there is surprisingly little with abundant reliable spare water in close proximity. The absence of clear land ownership also makes access to land more difficult for large corporates, the engineering complexity of the factories requires skills which are in short supply while the cost of new capacity, (adding 200,000 tonnes of extra capacity in Zambia cost ABF/Illovo well over GBP 150.0m, for example) means not many companies operating in Africa are going to have the sort of money to meet such capital intensity. While the environment for sugar production could thus be better, it seems existing players are likely to continue to dominate the space given the challenges articulated above. The supply deficit will mean demand should remain strong in the medium term for African producers on the consumption side, while the ethanol/energy potential could well see demand sustained into the long term. Overall then, the fundamentals for the sector, we believe, are positive.

Sugar Cane Harvested Area (ha)

Sugar Industry Diversifying into Fuel and Power – A Brief Overview of the State of such Projects in Sub-Saharan Africa by Frost and Sullivan There are many underlying reasons why the sugar industry in SSA is diversifying into fuel and electrical power. Fuel from sugarcane is generated through the production of bio-ethanol, while power generation emanates from burning sugarcane residues, otherwise called bagasse. To date, there are a number of such projects underway in countries such as Sierra Leone, Angola, and the aborted Illovo investment, into expanding its sugarcane production in Mali, Malawi and Tanzania. For example, in Angola, the sugar and bio-ethanol project is a JV between Sonangol (state oil company), Damer and the Brazilian firm, Odebrecht. The project aims to cover a land size of 4,000 ha under sugarcane cultivation initially. And the expected project capacity will translate to 30m litres of ethanol, 250 metric tonnes of sugar and an estimated 160,000 megawatt-hours. The total initial investment for the project is estimated at USD 250m. In Sierra Leone, a similar project is being initiated by Addax and Oryx Group (Makeni Ethanol and Power project). The investment value for the project is USD 340m and the project should come on stream by the end of 2013. The Makeni Ethanol and Power project will have 10,000 ha of land irrigated and mechanised. The project is expected to produce 1m tonnes of sugarcane per annum, 93,000 MT of ethanol and generate power of 15 MW for the national grid. In terms of project funding, Makeni Ethanol and Power project will be funded by entities such as South Africa’s Industrial Development Corporation (IDC), the African Development Fund (AfDB), Swedfund and Emerging Africa Infrastructure Fund, while the Angolan project financing will be sourced initially from the Angola Forment Bank (AFB) and Bank Espirito Santo (BESA), including the Brazilian's state development bank (BNDES). EU countries have passed a law that will come into effect by 2020, which compels companies producing and marketing fuel to mix refined crude oil with at least 10% of bio-ethanol, in a bid to mitigate the effect Green house gas emission on the environment. Consequently, most of the bio-ethanol produced through these projects is earmarked for the EU market. In this context, it is important to emphasise that Africa has an estimated 60% of the total available arable land globally. In addition, its climate is perfect for sugarcane cultivation, especially under tropical or semi-tropical climatic conditions in places such as West, Central, East and part of Southern Africa. Frost and Sullivan concludes that investments for projects aimed at producing ethanol from sugarcane for fuel consumption, especially as the current price of fossil oil makes such projects economically very profitable, will most likely

increase in Africa in the medium to long term period.

Source: HarvestChoice

12

Dangote Sugar Refinery PLC, DSR, commenced business in March 2000 as the sugar division of Dangote Industries Limited. The sugar-refining factory at Apapa port was commissioned in 2001 with an initial installed capacity to process 600,000 MT of raw sugar per annum. The refinery has since undergone two expansions increasing the production capacity to about 1.44 million MT per annum, making it the largest sugar refinery in sub Saharan Africa and second largest in the world. Nigerian market offers huge potential

With a population of c160m, GDP growth rate of 7.7% in 2011 and an IMF growth rate forecast above 6% for 2012, the Nigerian market is ideal for an FMCG company like DSR. Demand for the company’s products is likely to remain high from both industrial and domestic consumers as diposable incomes rise. The company currently has a market share of c70% and doesn’t seem to have any immediate significant competitive threats.

Margins under threat from volatile raw sugar prices Dangote Sugar’s achilles heel is that it doesn’t have its own established milling operations, rather it refines imported raw sugar. Apart from being more costly, this exposes the company to volatile global raw sugar prices and forex risk. As a result, the company’s gross margins are captive to the volatility of global raw sugar prices. To take care of this problem, the company is working on an integrated project under Savannah Sugar Company that comprises of sugar cane farming and sugar milling. It currently has a capacity of only 50,000 Mtpa and plans to increase this to 1 million tonnes per annum by 2015.

Valuation Using a DCF valuation, we value Dangote Sugar at NGN 5.16, indicating an upside of 23.4% from its current price of NGN 4.18. At a ttm PER of 5.9x, it trades at a discount to the average PER of c13.7x for Nigeria’s food and beverage sector and the average PER of c11.3x for SSA sugar sector. It also has an attractive dividend yield of 7.2%.Consequently we have a BUY recommendation on the stock.

EQUITY RESEARCH

NIGERIA

JULY 2012

SUGAR

Strengths Weaknesses

Market share of c70% Reliance on raw sugar imports leads to

High demand for products due to Nigeria's high exposure to volatile global sugar prices,

population and robust GDP growth rate lower gross margins and forex risk.

High dividend yield

Strong parent company in Dangote Industries

Opportunities Threats

Expansion to regional and other markets Entry of competitors

Cane growing and sugar milling at Savannah Sugar Production overcapacity

should lead to fatter gross margins. 0

0.2

0.4

0.6

0.8

1

1.2

1.4

10-M

ay-1

1

24-M

ay-1

1

7-Jun

-11

21-Ju

n-11

5-Jul-1

1

19-Ju

l-11

2-A

ug-1

1

16-A

ug-11

30-A

ug-11

13-Se

p-1

1

27-Se

p-1

1

11-O

ct-11

25-O

ct-11

8-N

ov-1

1

22-N

ov-11

6-D

ec-1

1

20-D

ec-11

3-Jan

-12

17-Ja

n-12

31-Ja

n-12

14-F

eb-1

2

28-F

eb-1

2

13-M

ar-12

27-M

ar-12

10-A

pr-1

2

24-A

pr-1

2

8-M

ay-12

Dangote Sugar Price vs NSE ASI

Dangote Sugar NSE ASI

Recommendation BUY

Bloomberg Code DANGSUGA:NL

Current Price (NGN) 4.2

Target Price (NGN) 5.2

Upside (%) 23.4

Liquidity

Market Cap (NGN m) 50 160

Market Cap (USD m) 309

Shares (m) 12 000.0

Free Float (%) 32.3

Ave. daily vol ('000) 4 037.7

Price Performance

Price, 12 months ago 5.0

Change (%) -16.4


Change (%) -69.3

Financials (NGN m) 31 Dec FY2011 2012F 2013F

Turnover 106 510 127 812 146 984

EBITDA 10 016 19 172 22 048

Net Finance Income (0.35) - -

Attributable Earnings 7 112 11 979 13 713

EPS (NGN) 0.59 1.00 1.14

DPS (NGN) 0.30 0.70 0.80

NAV/Share (NGN) 3.29 3.59 3.93

Ratios Current 2012F 2013F

RoaA (%) 16.1 24.4 25.6

RoaE (%) 17.7 29.0 30.4

EBITDA Margin (%) 9.4 15.0 15.0

Earnings Yield (%) 14.2 23.9 27.3

Dividend Yield (%) 7.2 16.7 19.1

PE (x) 7.1 4.2 3.7

PBV (x) 1.3 1.2 1.1

EV/EBITDA (x) 4.4 2.3 2.0

13

In FY 11, turnover rose by 18.48% y-o-y to NGN 106.51bn with sugar sales amounting to NGN 106.21bn. However, the rise in cost of sales was much higher at 28.95% to NGN 92.78bn from the previous year’s NGN 71.95bn due to a surge in global raw sugar prices. Subsequently, gross profit declined to NGN 13.73bn from 2010’s NGN 18.10bn, with gross margins shrinking to 12.89% from 20.11%. Administrative expenses were up a marginal 7.64% to NGN 3.72bn. Other income at NGN 538.48m was about a third of the previous year’s figure. Interest and similar charges came in at NGN 347,000, a significant decline from NGN 1.95m that was recorded in FY 10. PBT slumped by 34.64% to NGN 10.55bn while PAT also fell to NGN 7.11bn from the previous year’s NGN 11.28bn. In the same vein, the net income margin almost halved to 6.68% from 12.54% in FY 10. Both basic and diluted EPS contracted by 37.23% y-o-y to NGN 0.59. A dividend per share of 30 kobo was proposed, giving a total dividend for the year of NGN 3.6bn representing a yield of 7.50%. Net cash provided by operating activities came in at NGN 9.10bn in comparison to a negative figure of NGN 5.47bn at end of FY 10. This was mainly due to the tax payment made in FY 11 more than halving to NGN 5.02bn. Net cashflow from investing activities was negative at NGN 2.05bn in contrast to an inflow of NGN 836.04m in FY 10. This was as a result of a quadrupling in purchase of fixed assets as the company increased capacity. Net cash outflow from financing activities decreased to NGN 7.20bn from the previous period’s NGN 12.00bn due to a reduction in the company’s dividend payout. Cash and bank balances modestly declined to NGN 6.10bn from NGN 6.24bn as at the end of FY 10. On the balance sheet, assets grew by 13.0% y-o-y to NGN 52.60bn. The current ratio slightly deteriorated to 2.02x from 2.42x at the end of FY 10. The company has no gearing at all. In Q1 12, revenue rose by 24.09% y-o-y to NGN 26.73bn. Cost of sales rose at a slower rate of 16.87% to NGN 21.39bn due to relatively lower global sugar prices. Consequently, gross profit rose to NGN 5.34bn from NGN 3.24bn in Q1 11 with gross margins rising to 19.97% from the previous period’s 15.03%. Administrative expenses declined by a modest 1.97% y-o-y to NGN 1.34bn. Net finance costs came in at NGN 107.38m compared to NGN 155.48m in Q1 11. PBT and PAT doubled to NGN 4.12bn and NGN 2.80bn respectively (PBT: NGN 2.05bn and PAT: NGN 1.39bn in Q1 11). Cash and Bank balances increased to NGN 10.64bn from NGN 6.10bn as at FY 11. Working capital also improved to

NGN 29.59bn from NGN 26.40bn at the end of FY 11.

FY 11 & Q1 12 Financial & Operational Review

0.00

20.00

40.00

60.00

80.00

100.00

120.00

2006 2007 2008 2009 2010 2011

Turnover (NGN 'bn)

Source: DSR

0

20

40

60

80

100

120

140

160

180

200

2006 2007 2008 2009 2010 2011

EPS (kobo)

Source: DSR

68%

32%

Shareholding structure

Dangote Industries Limited Others

Source: DSR

14

As aforementioned, Nigeria’s economic prospects are exciting. With a population of c160m, the economy grew at 7.7% in 2011 and is forecasted by the IMF to grow above 6% in 2012. As the economy grows, disposable incomes are expected to rise hence creating a sustainable and growing demand for DSR’s products from both industrial and domestic consumers. According to the USDA, Nigeria’s combined refinery capacity is 2.3m tonnes per year, way above annual consumption of 1.45m tonnes. BUA sugar refinery came onstream in October 2008 and other players are also interested in entering the market. This overcapacity and potential increased competition is likely to erode any pricing power that DSR has, although the pressure may be reduced by increased exports to neighbouring countries. Thus far competition has had little effect on Dangote Sugar’s topline and we expect the company to be able to compete effectively going forward. The main weakness in Dangote Sugar’s model and the Nigeria sugar industry in general is the dependence on imported raw sugar. Firstly, refining of imported raw sugar is a lower margin business in comparison to an operation where an entity controls the growing, milling and refining processes. More significantly, importing of raw sugar exposes Dangote Sugar to the volatility of global sugar prices as well as the exchange rate risk on the USD/NGN. This is clearly seen in the volatile gross margins the company has experienced with for example FY 11 gross profit plunging despite an increase in revenues. The company does not hedge. Rather encouragingly, company shareholders unanimously gave their approval to the board to acquire Savannah Sugar Company during the most recent AGM in May 2012. This project involves cultivating of 18,000ha of sugarcane which will also be milled. It is projected that the project will produce 1m tonnes of white sugar by 2015 and increase the land under cultivation to 100,000ha. We believe the success of this project will go a long way towards eliminating volatility in Dangote Sugar’s input prices as well as improve margins. Dangote Industries Limited (DIL) has been quoted as stating that it would like to divest from its non-core operations i.e. other operations other than Dangote Cement. Given the recent corporate action involving Dangote Flour, it is possible that DIL’s 68% controlling stake in Dangote Sugar may be sold to an ideal suitor.

Outlook

Using a DCF valuation we arrive at a target price of NGN 5.06, representing an upside of 23.4%. At a PER of 5.9x, DSR is trading at a discount to the average PER of c13.7x for the Food and Beverage sector at the NSE. This also compares well to the average PER of its SSA peers at c11.3x. The company also has an attractive dividend yield of 7.2%. We believe that Dangote Sugar offers investors exposure to Nigeria’s attractive FMCG sector. Addressing the currently prevailing cost inefficiencies should also result in further upside. BUY Operating locations

Source: DSR

Valuation and Recommendation

15

FINANCIAL SUMMARY

NGN Millions 2007 2008 2009 2010 2011 2012 E 2013 E

Revenues 80 649 80 671 82 396 89 980 106 510 127 812 146 984

Y-o-Y % 0.0% 2.1% 9.2% 18.4% 20.0% 15.0%

Gross Profit 33 462 30 881 20 760 18 098 13 733 25 562 29 397

Y-o-Y % -7.7% -32.8% -12.8% -24.1% 86.1% 15.0%

EBITDA 30 262 28 218 17 401 16 171 10 016 19 172 22 048

Y-o-Y % -6.8% -38.3% -7.1% -38.1% 91.4% 15.0%

EBIT/Operating Profit, exlc exceptionals 30 662 27 297 15 843 14 696 10 554 17 617 20 166

Y-o-Y % -11.0% -42.0% -7.2% -28.2% 66.9% 14.5%

Attributable Net Income/Profit After Tax 21 479 21 871 13 186 11 282 7 112 11 979 13 713

Y-o-Y % 1.8% -39.7% -14.4% -37.0% 68.4% 14.5%

Per Share data

Attributable Diluted EPS 2.15 1.82 1.10 0.94 0.59 1.00 1.14

Y-o-Y % -15.2% -39.7% -14.4% -37.0% 68.4% 14.5%

Dividend Per share (DPS) 1.70 1.20 1.00 0.60 0.30 0.70 0.80

Y-o-Y % -29.4% -16.7% -40.0% -50.0% 132.9% 14.5%

NAV/Basic Share 2.60 2.72 3.47 3.41 3.29 3.59 3.93

Y-o-Y % 4.8% 27.5% -1.7% -3.4% 9.1% 9.5%

Margin Performance

2007 2008 2009 2010 2011 2012 E 2013 E

Gross Margin 41.5% 38.3% 25.2% 20.1% 12.9% 20.0% 20.0%

EBITDA margin % 37.5% 35.0% 21.1% 18.0% 9.4% 15.0% 15.0%

EBIT margin% 38.0% 33.8% 19.2% 16.3% 9.9% 13.8% 13.7%

Net Income Margin % 26.6% 27.1% 16.0% 12.5% 6.7% 9.4% 9.3%

Ratios

ROaA 75.3% 50.4% 23.4% 21.0% 16.1% 24.4% 25.6%

ROaE 78.2% 74.7% 35.5% 27.3% 17.7% 29.0% 30.4%

Earning yield on current price 51.4% 43.6% 26.3% 22.5% 14.2% 23.9% 27.3%

Dividend yield current price 40.7% 28.7% 23.9% 14.4% 7.2% 16.7% 19.1%

16

ENL Land Ltd, formerly known as The Savannah Sugar Estates Company Ltd, is ENL's executive arm in the agricultural sector. Following its amalgamation with sister company Mon Désert Alma Ltd in December 2009, it now manages some 16,000 acres of land situated in the southern and central parts of Mauritius. Most of the land under it's supervision is dedicated to sugar cane cultivation. The company currently produces an average of 385,000 tonnes of sugar cane which are sent to integrated sugar and electricity producing facilities in the South and to the East for the production of sugar. The company has also diversified into other agricultural activities as well as property development. Volatile earnings as the company restructures

ENL Land is currently involved in a restructuring process following the amalgamation of Savannah Sugar and Mon Désert Alma in 2009. It is also diversifying into property development and other agricultural activities. As these processes unfold, the company’s earnings have been volatile with a number of once off items appearing below the operating line. We expect future earnings to be more visible as the company settles into a strategy that it will follow going forward.

Diversification efforts seem to be bearing fruit The company has indicated that cane and sugar production is declining on the island. Consequently, it is diversifying into other agricultural products and property development. These efforts seem to be bearing fruit with property business contributing 16.35% to turnover for the 9M 12 results. In the same set of results, property and investment (mainly ENL investment) accounted for 30.35% and 65.87% of PAT respectively.

Valuation ENL land seems to be a company in transition as it diversifies from sugar into other businesses, mainly property development. As a result, the structure of future earnings is unclear and we are currently awaiting clarity from management on how the company will metamorphosise going forward, whereupon we will be in a position to issue a recommendation.

EQUITY RESEARCH

MAURITIUS

JULY 2012

SUGAR


Diversification should help hedge against volatile Volatile earnings.

sugar earnings. Declining trend in cane and sugar production in

Mechanised operations. Mauritius.

Low gearing. No formal dividend policy.

Low operating margins.


Ownership of lots of land that can be developed in Saftey net of preferential trade agreements with EU

the future. not guaranteed.

Adverse weather conditions. 0.5

0.6

0.7

0.8

0.9

1

1.1

1.2

1.3

1.4

1.5

10-Ju

n-11

24-Ju

n-11

8-Jul-1

1

22-Ju

l-11

5-A

ug-1

1

19-A

ug-11

2-Sep

-11

16-Se

p-1

1

30-Se

p-1

1

14-O

ct-11

28-O

ct-11

11-N

ov-11

25-N

ov-11

9-D

ec-1

1

23-D

ec-11

6-Jan

-12

20-Ja

n-12

3-Fe

b-12

17-F

eb-1

2

2-M

ar-12

16-M

ar-12

30-M

ar-12

13-A

pr-1

2

27-A

pr-1

2

11-M

ay-1

2

25-M

ay-1

2

8-Jun

-12

ENL Land vs Semdex (Rebased)

ENL Land Semdex

Recommendation NOT RATED

Bloomberg Code SAVA:MP

Current Price (MUR) 39.4

Target Price (MUR) n/a

Upside (%) n/a

Liquidity

Market Cap (MUR m) 8 295


Shares (m) 210.5

Free Float (%) 30.4

Ave. daily vol ('000) 120.6

Price Performance


Change (%) -11.5


Change (%) -6.2

Financials (MUR m) 30 Jun Current

Turnover 729

EBIT/Operating Profit (30)

Net Finance Income (63)

Attributable Earnings 1 803

EPS (MUR) 8.56

DPS (MUR) 0.62

NAV/Share (MUR) 62.46

Ratios

RoaA (%) (0.2)

RoaE (%) 16.0

EBIT Margin (%) (4.1)

Valuation Ratios Current

Earnings Yield (%) 21.7

Dividend Yield (%) 1.6

PE (x) 4.6

PBV (x) 0.6

17

In FY 11, revenues leapt by 50.34% y-o-y to MUR 728.65m, with sugar sales rising by 84.07% to MUR 392.75m. The company produced c28,510 tonnes of sugar compared to 29,658 tonnes in the year 2010. Operating expenses rose at a lower rate of 41.92% y-o-y to MUR 811.40m. The company recorded a narrower operating loss of MUR 29.66m compared to 2010’s MUR 162.61m. This was mainly due to a positive movement in consumable biological assets of MUR 53.09m compared to a negative movement of MUR 76.23m in 2010. Finance costs improved from a negative MUR 87.71m to a negative MUR 62.62m. PBT came in at MUR 1.88bn, compared to a loss of MUR 44.12m in 2010. This was however skewed by the MUR 1.84bn fair value gain in investment properties. Excluding the revaluation the company would still have bounced back to profitability but to a more modest figure of MUR 35.0m. . PAT of MUR 1.83bn was recorded, up from a loss of MUR 49.51m in the previous year. Net cash generated from operations rose six fold y-o-y to MUR 59.21m. Net cash used in investing activities increased from an outflow of MUR 387.06m to an inflow of MUR 132.17m mainly as a result of a significant leap in net proceeds on sale of land. Net cash generated from financing activities more than halved to MUR 229.89m. Consequently, cash and cash equivalents improved to a positive figure of MUR 172.41m from the previous year’s negative figure of MUR 242.88m. On the balance sheet, borrowings more than halved y-o-y to MUR 687.76m with the debt-to-equity ratio also declining to 5.19% from 16.46% at the end of FY 10. The current ratio improved to 0.65x from 0.41x at the end of FY 10. In the nine months to March 2012, turnover went up by 19.40% y-o-y to MUR 759.08m. The company swung back to an operating profit of MUR 35.76m from an operating loss of MUR 36.77m in 9M 11. This translated to an operating margin of 4.71%. However, PBT came in lower at MUR 563.66m compared to 2011’s MUR 1.80bn as a result of the fair value gain of investment properties as aforementioned. PAT at MUR 598.28m was a third of the corresponding period’s figure. On the cashflow statement, net cashflows from operating activities recorded an inflow of MUR 43.97m, in contrast to an outflow of MUR 71.49m in 9M 11. However, net cash used in investing activities saw an outflow of MUR 626.83m in comparison to an inflow of MUR 188.93m in the corresponding period. Net inflows from financing activities increased by 6.40% y-o-y to MUR 255.04m. Closing cash and cash equivalents as at 31 March, 2012 stood at a negative figure of MUR 155.02m from a positive

figure of MUR 111.02m at the comparative period.

FY 11 & 9M 12 Financial & Operational Review

27.5

28

28.5

29

29.5

30

30.5

31

340

345

350

355

360

365

370

375

380

385

390

2007 2008 2009 2010 2011

Cane harvested and sugar produced ('000 tonnes)

Cane Harvested (LHS) Sugar Produced (RHS)

-200

-150

-100

-50

0

50

100

150

0

100

200

300

400

500

600

700

800

900

1000

2007 2008 2009 2010 2011

Revenue and EBIT (MUR m)

Revenue (LHS) EBIT/Operating Profit (RHS)

77%

12%

4%

7%

Land usage

Land under Cane Cultivation Other Agricultural Production

Property Development Others (Roads, Rivers, Buildings and Yards)

Source: Company Reports

18

ENL Land seems to be a company in transition as its mainstay, sugar production, comes under a number of threats. The company has stated that there is a declining trend in cane and sugar production in Mauritius. This transition period has been characterised by volatile earnings with the company recording a number of once off items below its operating line. In reaction to these threats, the company is diversifying into other activities with one of the expected benefits being a more predictable earnings stream. Firstly, cattle, deer, chicken, food crops, ornamental shrubs, trees and tropical flowers now form a part of ENL Land's production mix. The company is also a major exporter of cut flowers,

mainly anthuriums. Secondly, the company has also

ventured into property development, carving out small portions of its estates for the construction of malls, high end residential estates, integrated resorts and office facilities. ENL Land also owns a 28.35% stake in ENL Investment, an investment company which holds a wide range of investments in key sectors of the Mauritian economy such as tourism, commerce, agro-industry and finance. It holds sizeable shareholdings in some of the major groups in Mauritius, namely the Food and Allied Group, the Rogers Group, New Mauritius Hotels, as well as smaller stakes in a number of local companies. The diversification efforts seem to be bearing fruit with property accounting for 16.35% of revenue in the results for 9M to March 2012. In the same set of results, property and investment (mainly ENL Investment) contributed 30.35% and 65.87% to PAT, respectively. We expect more clarity on ENL Land’s future prospects as it beds down its various projects.

Outlook

As aforementioned, ENL Land is currently in the process of diversifying its earnings stream from sugar with a focus on property development among others. This transition period has been characterised by volatile earnings making the future structure of earnings for the company unclear. We are in consultation with management over this issue and will be better positioned to issue a recommendation once

management has reverted.

60%

6%

34%


ENL Limited ENL Investment Limited Others

4500

4600

4700

4800

4900

5000

5100

5200

5300

5400

2007 2008 2009 2010 2011

Area under cane cultivation (Ha)



19

FINANCIAL SUMMARY

MUR Millions 2007 2008 2009 2010 2011

Revenues 940 914 848 485 729

Y-o-Y % -2.82% -7.15% -42.86% 50.34%

EBIT/Operating Profit, exlc exceptionals 122 71 59 -163 -30

Y-o-Y % -41.73% -16.91% -376.84% 81.84%

Attributable Net Income/Profit After Tax -73 -152 327 -41 1803

Y-o-Y % -106.88% 315.77% -112.46% 4517.67%

Per Share data

Attributable Diluted EPS -11.85 -23.04 49.71 -0.19 8.56

Y-o-Y % -94.47% 315.77% -100.39% 4517.16%

Dividend Per share (DPS) 19.00 15.00 9.33 10.00 0.62

Y-o-Y % -21.05% -37.80% 7.18% -93.80%

NAV/Basic Share 622.79 630.04 1374.88 44.74 62.46

Y-o-Y % 1.16% 118.22% -96.75% 39.61%

Margin Performance

2007 2008 2009 2010 2011

EBIT margin% 12.96% 7.77% 6.95% -33.69% -4.07%

Net Income Margin % -7.80% -16.61% 38.60% -8.42% 247.42%

Ratios

ROaA 2.38% 1.12% 0.66% -1.41% -0.21%

ROaE -2.76% -3.79% 4.96% -0.44% 15.98%

Earning yield on current price -30.15% -58.63% 126.49% -0.49% 21.79%

Dividend yield current price 48.35% 38.17% 23.74% 25.45% 1.58%

20

EQUITY RESEARCH

ZIMBABWE

JULY 2012

SUGAR

The USDA estimates that Zimbabwe’s sugar output in

2012/13 will increase by 16% to 430,000mt from

372,000mt in the 2011/12 season on the back of an

expected 6% increase in the area harvested to

37,500ha, improvement in sugarcane yields and

enhanced efficiencies, following significant

investments. Hippo Valley, a significant player in the

country’s sugar industry, is poised to contribute

significantly to this increase as it recently undertook

several initiatives to boost production.

Performance on a recovery path

Despite a slump in its 2009/10 performance, the group is

on an upward trend once again. Total sugar production

has gone up from 87,750 tonnes for the 2009/10 season

to 130,647 tonnes for the 2010/11 season at a yield of

83.5 tonnes per ha. Following the refurbishment carried

out in 2011, the mill is now crushing 400 tonnes of cane

per hour, up from 272 tonnes in 2008, 313 tonnes in

2009/10 and 361 tonnes per hour in 2010/11.

Domestic consumption on the rise

Domestic demand is also increasing, with the USDA

estimating that total local sugar consumption in the

2011/12 season reached 280,000mt and is forecast to

remain firm at 285,000mt in the 2012/13 marketing

season. Per capita consumption is estimated at 24.6kg,

and the consumption pattern is reportedly influenced by

supply rather than price, implying that it could be higher

if more sugar was produced for the local market.

Steady performer. In valuing Hippo, we used a DCF

valuation, and derived a target price of USD 1.28

implying 20% upside. Hippo is a steady performer and an

improving economic situation should spur further growth.

We recommend investors BUY.

STRENGTHS WEAKNESSES

European Union support of the local sugar

industry

Dependent on favourable weather

patterns

High sugar recoveries

Susceptible to commodities price

movement

Historically a low cost producer Low quality sugar production

A return to pricing based on fundamentals Power disruptions

OPPORTUNITIES THREATS

Successful relaunch of outgrower scheme

will boost prod

The land scenario still remains a

contentious issue

Improved quality of sugar to fetch higher

prices Slow economic growth

Increase in sugar production Low disposable incomes

Increased production of by-products

Lack of adequate liquidity in the

market

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

2/19/2009 2/19/2010 2/19/2011 2/19/2012

Hippo vs ZSE Industrial Index

Middle Price Industrial

Recommendation BUY

Bloomberg Code HIPPO:ZH

Current Price (USD) 1.0

Target Price (USD) 1.4

Upside (%) 41.8

Liquidity

Market Cap (USD 000) 193,021

Shares (mn) 193,021

Free Float (%) 17.7


Price Performance


Change (%) -23.1


Change (%) 5.3

Financials (USD 000) 31 Mar FY2012 2013F 2014F

Turnover 128,915 161,144 193,373

EBITDA 24,695 38,675 48,343

Net Finance Income (5,999) - -

Attributable Earnings 20,946 28,971 36,266

EPS (USD) 0.11 0.15 0.19

DPS (USD) - 0.01 0.01

NAV/Share (USD) 1.02 1.17 1.23

Ratios Current 2013F 2014F

RoaA (%) 10.0 9.8 11.4

RoaE (%) 11.2 13.7 15.7

EBITDA Margin (%) 19.2 24.0 25.0

Earnings Yield (%) - - -

Dividend Yield (%) - 0.8 0.9

PE (x) 9.2 6.7 5.3

PBV (x) 1.1 1.0 0.9

EV/EBITDA (x) 9.1 5.8 4.7

21

FY 2012 RESULTS OVERVIEW

Sterling performance for the year

FY 2012 revenue grew by 46% to USD 128.9m whilst operating profit

growth was even more impressive, jumping 166% to USD 32.4m as

the operating profit margin almost doubled (up 82% to 25.1%). The

interest cover ratio improved from 3.3x to 5.4x. The PBT margin

was also firmer, up 92% at 22% whilst bottomline growth of xx% to

USD 20.9m was still laudable despite the higher deferred tax level of

USD 6.9m against USD 559,000 for FY 2011.

Strong cashflow generation

The balance sheet remains strong as total assets moved up 8% to USD

336.4m whilst the gearing ratio declined from 25.5% to 21.9% and

the current ratio moved to 1.5x from 1.2x. The total debt to

operating profit ratio moved down significantly from 3.5x to 1.4x.

Net debt at end of March 2012 was USD 32.8m lower than the prior

period’s USD 37.6m

OPERATIONAL REVIEW

Revenue growth supported by an increase in sugar production and

positive gains on raw sugar exports to the European Union. The

industry’s domestic market sales for the year totaled 247,000 tonnes

(FY 2011: 184,000 tonnes), while prices were largely in line with

prices in the region. 125,000 tonnes of raw sugar were exported to

the European Union under preferential market arrangements at

favourable prices. Hippo’s contribution to the industry’s total

production increased by 30% to 170,000 tonnes (FY 2011: 131,000

tonnes) against the industry’s total production of 372,000 tonnes (FY

2011: 333,000 tonnes).

Cane re-establishment program on course

The group has an on-going cane re-establishment program (3,263ha

were ploughed and replanted in the year under review), which is

aimed at correctly positioning the crop for a full return to optimal

yields over the next three years. A recovery rate of 83.48% was

achieved in the recent milling season against 83.13% in the previous

season. Cane to sugar ratio was adversely impacted by the longer

2011/12 milling season (8.15x from 7.72x in the prior period).

OUTLOOK

Sugar production expected to increase

Management expects 2012/13 production to increase to between

210,000 and 240,000 tonnes, while industry sugar production is

expected to increase to between 450,000 and 500,000 tonnes. Yields

are expected to improve from the increased area replanted and

anticipated crushing of cane in Chisumbanje. Local demand for sugar

remains firm, whilst preferential markets for Zimbabwe’s sugar,

notably the European Union and the United States, are also

expected to remain attractive in the year ahead.

The company continues to provide inputs and extension services to

third party cane growers so as to enhance cane production and

deliveries to the mill. Sugar production is expected to improve and

the company aims to restore production levels to the installed

capacity of 300 000 tonnes. Longer-term, the completion of the

Tokwe Mukosi dam will result in increased production of sugarcane,

raw & refined sugar, and maximise beneficiation to by-products.

Source: IES; Company

99.1

94.8

99.1

92.0

93.0

94.0

95.0

96.0

97.0

98.0

99.0

100.0

-

20,000

40,000

60,000

80,000

100,000

120,000

140,000

2008 2009/10 2010/11

Hippo Performance

Total sugar production for the season (tonnes)

Molasses production (tonnes)

Average pol-all sugars

2008 2009/10 2010/11

Yield per ha of company cane (tonnes) 99.5 91.5 83.5

Tonnes ERC per ha month (co. cane) 1.0 0.7 0.6

Average ERC % cane 12.3 11.8 12.1

Tonnes ERC in cane milled 107,676 103,119 121,692

Mill Performance 2008 2009/10 2010/11

Season started 2/4/2008 7/5/2009 16/06/10

Season completed 26/12/08 22/12/09 27/12/10

Number of crushing days 269 229 194

Throughput-tonnes canes per hr 272 313 361

Extraction (%) 93.83 92.84 95.47

Boiling house recovery (%) 77.97 72.99 87.18

Overall recovery (%) 73.16 67.76 83.18




Q4 2011Shareholding - 30/12/11

Shareholder # of Shares % of Total

1 Triangle Sugar Corporation Limited 97,124,027.0 50.3%

2 Old Mutual Life Assurance Co. Zim Ltd 29,346,252.0 15.2%

3 Tate and Lyle Holland BV 19,314,480.0 10.0%

4 NSSA 5,014,301.0 2.6%

5 Old Mutual Zimbabwe Limited 4,099,796.0 2.1%

6 Stanbic Nominees (Pvt) Ltd 3,918,031.0 2.0%

7 Barclays Zimbabwe Nominees (Pvt) Ltd 3,471,081.0 1.8%

8 Datvest Nominees (Pvt) Ltd 1,660,616.0 0.9%

9 Barclays Zimbabwe Nominees (Pvt) Ltd- NNR 1,320,107.0 0.7%

10 Mining Industry Pension Fund 1,229,510.0 0.6%

22

VALUATION and RECOMMENDATION

In valuing Hippo we used a DCF valuation, and derived a target price of USD 1.28 implying 20% upside. Hippo is a steady

performer and an improving economic situation should spur further growth. We rate the counter a definite BUY.

Key Financials

USD Thousands 2010 2011 2012 2013 E 2014 E 2015 E 2016 E 2017 E 2018 E

Revenues 100,108 101,532 128,915 161,144 193,373 217,544 250,176 287,702 330,857

Y-o-Y % NA 1.4% 27.0% 25.0% 20.0% 12.5% 15.0% 15.0% 15.0%

Gross Profit 32,252 41,268 54,144 64,458 77,349 84,842 95,067 109,327 125,726

Y-o-Y % NA 28.0% 31.2% 19.0% 20.0% 9.7% 12.1% 15.0% 15.0%

EBITDA 18,411 13,130 24,695 38,675 48,343 56,561 63,795 73,364 86,023

Y-o-Y % NA -28.7% 88.1% 56.6% 25.0% 17.0% 12.8% 15.0% 17.3%

EBIT/OP, exlc exceptionals 18,397 12,175 32,388 34,237 42,633 50,663 57,681 67,002 86,023

Y-o-Y % NA -33.8% 166.0% 5.7% 24.5% 18.8% 13.9% 16.2% 28.4%

Attributable Net Income/PAT 23,646 8,794 20,946 28,971 36,266 43,378 49,768 58,175 74,813

Y-o-Y % NA -62.8% 138.2% 38.3% 25.2% 19.6% 14.7% 16.9% 28.6%

Per Share data

Attributable Diluted EPS 0.12 0.05 0.11 0.15 0.19 0.22 0.26 0.30 0.39

Y-o-Y % NA -62.8% 138.2% 38.3% 25.2% 19.6% 14.7% 16.9% 28.6%

Dividend Per share (DPS) - - - 0.01 0.01 0.01 0.01 0.02 0.02

Y-o-Y % NA NA NA NA 25.2% 19.6% 14.7% 16.9% 28.6%

NAV/Basic Share 0.87 0.91 1.02 1.17 1.23 1.30 1.37 1.46 1.58

Y-o-Y % NA 5.4% 11.7% 14.7% 4.8% 5.5% 6.0% 6.6% 7.9%

Margin Performance

2010 2011 2012 2013 E 2014 E 2015 E 2016 E 2017 E 2018 E

Gross Margin 32.2% 40.6% 42.0% 40.0% 40.0% 39.0% 38.0% 38.0% 38.0%

EBITDA margin % 18.4% 12.9% 19.2% 24.0% 25.0% 26.0% 25.5% 25.5% 26.0%

EBIT margin% 18.4% 12.0% 25.1% 21.2% 22.0% 23.3% 23.1% 23.3% 26.0%

Net Income Margin % 23.6% 8.7% 16.2% 18.0% 18.8% 19.9% 19.9% 20.2% 22.6%

Ratios

ROaA 7.3% 4.2% 10.0% 9.8% 11.4% 12.6% 13.2% 13.9% 16.2%

ROaE 15.2% 5.1% 11.2% 13.7% 15.7% 17.8% 19.3% 21.3% 25.5%

Earning yield on current price 12.3% 4.6% 10.9% 15.0% 18.8% 22.5% 25.8% 30.1% 38.8%

Dividend yield current price 0.0% 0.0% 0.0% 0.8% 0.9% 1.1% 1.3% 1.5% 1.9%

23

The company grows sugar cane on 20,406ha of arable land and cane production normally totals in the region of 2.1m tonnes per annum at an average yield of 109 tonnes per hectare. Illovo is the sole sugar producer running two mills with an annual capacity of about 300,000 tonnes of cane, producing an average of 290,000t of raw sugar during a year of normal rainfall. In addition to sugar, the mill produces molasses, which is a by-product of the process. In our view, Illovo as a blue-chip bell weather stock, will continue to be a safe haven for MSE investors.

A commodity play with high dependence on weather patterns Illovo’s performance is highly dependent on the availability of water. However, due to sufficient rainfall during the last rain period, the cane crop for 2012/13 is assured of adequate water supplies.

Exchange rate risks The risks for Illovo include exchange rate risk, as costs are in Malawian Kwacha and the South African Rand, whilst some of the receipts are in USD and Euros, thus the firming of the former will tend to limit profitability. Pricing in Malawi is divorced from international pricing, which means the company loses if there is an improvement in international sugar prices due to shortage of sugar as some of it is diverted to the production of ethanol.

Valuation is attractive Malawi’s local market fundamentals for sugar are robust, with an estimated population of 13m which is growing at over 3% per annum, local sugar demand sustainability is more or less guaranteed. With its very strong balance sheet, high cash generative abilities and sound management, Illovo Malawi remains a solid long-term investment. We rate the share L/T Buy.

EQUITY RESEARCH

MALAWI

JULY 2012

SUGAR

BLOOMBERG: ILLOVO:MW LT BUY

Current price (MWK) 150.0

Current price (USc) 0.6

Target price (MWK) 185.0

Target price (USc) 0.7

Upside/Downside (%) 23.3

Liquidity

Market Cap (US$m) 4.3

Shares (m) 713.4

Free float (%) 13.9

Ave. monthly vol ('000) 20.0

Share price performance

6 Months (%) 15.4

Relative change (%)* 18.3

12 Months (%) 36.7

Relative change (%)* 38.1

*Relative to MSE Domestic Index

Financials (MWKm) - FY 31 Mar F2012 2013F 2014F

Turnover 36,450.0 44,607.7 47,559.7

EBITDA 12,484.0 15,478.9 17,787.3

Attributable earnings 8,080.0 9,852.3 11,585.9

EPS (MWK) 11.3 13.8 16.2

DPS (MWK) 8.0 9.7 11.4

NAV/share (MWK) 28.9 36.7 44.1

Valuation Ratios

EBITDA margin (%) 34.2 37.7 40.4

Gearing (%) na na -2.5

RoaA (%) 32.4 34.5 36.2

RoaE (%) 42.7 42.1 40.2

PBV (x) 5.2 4.1 3.4

PER (x) 13.2 10.9 9.2


EV/EBITDA (x) 8.4 6.8 5.9

EV/Production (US$) 1,461.9 1,382.6 1,323.1

0.5

0.6

0.7

0.8

0.9

1

1.1

1.2

1.3

1.4

1.5

26-M

ay-1

1

9-Ju

n-1

1

23-Ju

n-1

1

7-Ju

l-11

21-Ju

l-11

4-A

ug-1

1

18-A

ug-11

1-Se

p-1

1

15-Se

p-1

1

29-Se

p-1

1

13-O

ct-11

27-O

ct-11

10-N

ov-11

24-N

ov-11

8-D

ec-1

1

22-D

ec-11

5-Ja

n-1

2

19-Ja

n-1

2

2-Fe

b-12

16-F

eb-1

2

1-M

ar-12

15-M

ar-1

2

29-M

ar-1

2

12-A

pr-1

2

26-A

pr-1

2

10-M

ay-1

2

24-M

ay-1

2

7-Ju

n-1

2

21-Ju

n-1

2

Illovo Malawi vs MSE All Share Index

Illovo Malawi MASI


Monopoly on the local market Lower local selling prices

Strong management team

Defensive food business

Strong cash generation & brand

Low cost producer


Increasing local disposable incomes Declining margins

Increasing population Exchange rate risks

Drought

24

Modest set of results Illovo released a modest set of results as sugar production grew 3% to 286,000 tonnes y-o-y. Its two estates experienced contrasting weather conditions as Ncalo experienced below average rainfall whilst Dwangwa rainfall was above average. Cane yields and sucrose content declined at Ncalo, which accounts for 64% of the total area under cane hence the depressed sugar volume growth. Sugar revenue grew 21.0% to MWK 19.5bn to make a 53.6% contribution to total revenue (FY 2011 52.4%). Export revenue grew 45% and export realisations averaged approximately USD 727.5 per tonne. Domestic sugar volumes accounted for 60% of sales volume whilst 80,000 tonnes were sold to Europe and USA and 35,000 tonnes into the highly priced Zimbabwean market. The forex shortages also resulted in uncontrolled exports of sugar by sugar traders. Local realisations were approximately USD 837.8 per tonne and domestic volumes declined by 4.0%.

Margins widened on cost containment Operating margins expanded to 33.0% from 31.6% resulting in operating profits growing ahead of turnover growth at 23.6%. The margin expansion was due to cost containment; nonetheless fuel and other farming and plant maintenance costs grew significantly due to soaring inflation and forex shortages. Although official inflation was quoted at 8.1% for the period, independent measures had it running at over 15%. Forex shortages resulted in accumulated foreign obligations Net finance costs reduced by 28.0% to MWK 408.0m, largely a result of the accumulation of local currency deposits at the expense of accumulated foreign obligations due to the foreign exchange shortages. All this translated to a 26.9% increase in PBT to MWK 11.7bn. The tax rate was maintained at 30%, translating to headline earnings of MKW 8.0bn for eps of MWK 11.3. A final dividend of MWK 4.7 was declared bring the total for the year to MWK 7.95. The dividend implies a cover of 1.4x and an attractive yield of 5.3%. Pristine balance sheet The balance sheet remained pristine with strong cash flows and EBITDA/OCF of 125%, implying capex can be funded from operating cash flow. Net cash from operations increased 17.7% to MWK 10.0bn.

FY 2012 Financial & Operational Review

240

250

260

270

280

290

300

310

1.9

2.0

2.1

2.2

2.3

2.4

2.5

2007 2008 2009 2010 2011 2012

'000 tonnesm tonnes

Cane Processed (m) LHS Sugar produced ( '000t) RHS

Cane processed and sugar produced

Source: IAS & company

0.0

2.0

4.0

6.0

8.0

10.0

12.0

0

10,000

20,000

30,000

40,000

50,000

2007 2008 2009 2010 2011 2012

EPS (MWK)Turnover (MWKm)

Turnover (MWKm) RHS EPS (MWK) LHS

Turnover and eps

Source: IAS & company

25

Outlook

Low cost producer llovo ranks amongst the lowest cost sugar producers in the region at approximately USD 215 per tonne against a regional average of USD 275 per tonne a result of the benefits of irrigation, low labour costs and high yields. Within the Illovo Group, Malawi has the highest EBIT margin at approximately 37%. Due to the mill’s high level of fixed costs, Illovo reaps the most benefit from it, if the company increases its sugar production. We expect sugar production will increase by 5.7% to 302,000 tonnes in FY 2012 on higher sucrose content. Normal weather conditions anticipated Illovo is somewhat insulated from drought due to irrigation. A normal season is expected in Malawi in 2012/13. Yields are expected to improve on last year. The cane/sugar ratio should also improve, due to improved efficiencies that should emanate from several productivity strategies being implemented by management. Additionally, Illovo’s low cost base will limit the downside effect of the EU reduction in sugar prices. Exchange rate risk The Malawi kwacha was devalued by approximately 50% on 7 May 2012 to approximately MWK 250: USD 1. Illovo effected a 23% local price increase to recover the impact of cost inflation. A further price increase is likely in July 2012. Approximately 80% of Illovo Malawi’s inputs are forex based with 60% of these in ZAR and 20% in USD. We expect Illovo to maintain margins at c35%. Most of the company’s cost base was already dollarised especially fuel as this was paid for at market rates. Nonetheless, there might be pressure from wages.


The attraction in Illovo is that the company has an extensive distribution and marketing network throughout Malawi and is thus able to take advantage of the higher prices of sugar locally to enhance earnings. Domestically, the prices range around USD 426/t compared to USD 349/t for the region. Our DCF ascribes a fair value of MWK 185 per share. LT Buy.

Source: Illovo

26

FINANCIAL SUMMARY

K Millions 2007 2008 2009 2010 2011 2012 2013 E 2014 E

Revenues 19,638 21,173 26,090 28,643 30,809 36,450 44,608 47,560

Y-o-Y % 7.8% 23.2% 9.8% 7.6% 18.3% 22.4% 6.6%

Gross Profit 10,269 10,591 13,448 14,717 13,631 16,954 21,412 24,018

Y-o-Y % 3.1% 27.0% 9.4% -7.4% 24.4% 26.3% 12.2%

EBITDA 7,449 8,227 10,157 11,469 10,132 12,484 16,817 19,214

Y-o-Y % 10.4% 23.5% 12.9% -11.7% 23.2% 34.7% 14.3%

EBIT/Operating Profit, exlc exceptionals 7,222 7,945 9,740 10,915 9,736 12,034 14,869 17,072

Y-o-Y % 10.0% 22.6% 12.1% -10.8% 23.6% 23.6% 14.8%

Attributable Net Income/Profit After Tax 4,866 5,025 6,353 7,116 6,425 8,080 9,852 11,586

Y-o-Y % 3.3% 26.4% 12.0% -9.7% 25.8% 21.9% 17.6%

Per Share data

Attributable Diluted EPS 6.82 7.04 8.90 9.97 9.01 11.33 13.81 16.24

Y-o-Y % 3.3% 26.4% 12.0% -9.7% 25.8% 21.9% 17.6%

Dividend Per share (DPS) 4.75 5.05 5.40 6.72 6.30 7.95 9.67 11.37

Y-o-Y % 6.3% 6.9% 24.4% -6.3% 26.2% 21.6% 17.6%

NAV/Basic Share - 15.32 18.82 22.08 24.08 28.92 36.75 44.06

Y-o-Y % NA 22.9% 17.3% 9.1% 20.1% 27.1% 19.9%

Margin Performance

2007 2008 2009 2010 2011 2012 2013 E 2014 E

Gross Margin 52.3% 50.0% 51.5% 51.4% 44.2% 46.5% 48.0% 50.5%

EBITDA margin % 37.9% 38.9% 38.9% 40.0% 32.9% 34.2% 37.7% 40.4%

EBIT margin% 36.8% 37.5% 37.3% 38.1% 31.6% 33.0% 33.3% 35.9%

Net Income Margin % 24.8% 23.7% 24.4% 24.8% 20.9% 22.2% 22.1% 24.4%

Ratios

ROaA #DIV/0! 72.0% 40.1% 38.9% 31.0% 32.4% 34.7% 36.7%

ROaE #DIV/0! 92.0% 52.2% 48.8% 39.0% 42.7% 42.1% 40.2%

Earning yield on current price 4.5% 4.7% 5.9% 6.6% 6.0% 7.6% 9.2% 10.8%

Dividend yield current price 3.2% 3.4% 3.6% 4.5% 4.2% 5.3% 6.4% 7.6%

27

Illovo is Africa’s largest sugar producer and has extensive agricultural and manufacturing assets in six Southern African countries, producing more than 6m tonnes of cane and with a milling capacity of 2m tonnes of sugar per annum. The group produces raw and refined sugar for local, regional, European Union (EU), USA and world markets. It is listed on the Johannesburg Stock Exchange and is a subsidiary of Associated British Foods plc which

holds 51.5% of the issued share capital.

Regional diversification paying dividends Illovo Sugar is present in five other Southern African countries beside its home country of South Africa. This has helped the company diversify its revenue sources into the fast growing economies of SSA where there is a sugar deficit. An example of the fruits of this diversification is that its Malawi business was the largest contributor to operating profit in FY 2012, with a contribution of c39%.

Efficient and low cost producer One of the primary objectives of the company is for it to be amongst the most efficient and lowest-cost producers in the world. With regard to this, Illovo controls the whole sugar production process, right from cane growing to output of the final product. This helps the company to be competitive in the various markets in which it operates.

Valuation At a trailing PER of 21.21x, Illovo is trading at a premium to local peer, Tongaat (PER of 15.20x) and the SSA average PER of 11.3x. The stock is currently rated as a HOLD on I-net consensus. While liquidity is low, it would seem exposure to Illovo is relatively cheaper via its listed African subsidiaries.

EQUITY RESEARCH

SOUTH AFRICA

JULY 2012

SUGAR

0.5

0.6

0.7

0.8

0.9

1

1.1

1.2

1.3

1.4

1.5

10-M

ay-1

1

24-M

ay-1

1

7-Jun

-11

21-Ju

n-11

5-Jul-1

1

19-Ju

l-11

2-A

ug-1

1

16-A

ug-11

30-A

ug-11

13-Se

p-1

1

27-Se

p-1

1

11-O

ct-11

25-O

ct-11

8-N

ov-1

1

22-N

ov-11

6-D

ec-1

1

20-D

ec-11

3-Jan

-12

17-Ja

n-12

31-Ja

n-12

14-F

eb-1

2

28-F

eb-1

2

13-M

ar-12

27-M

ar-12

10-A

pr-1

2

24-A

pr-1

2

8-M

ay-12

Illovo Sugar vs JSE-All Share Index

Illovo JSE All Share


Bloomberg Code ILV:SJ

Current Price (ZAR) 28.1

Target Price (ZAR) n/a

Upside (%) n/a

Liquidity

Market Cap (ZAR bn) 12.21

Market Cap (USD m) 1 530.80

Shares (m) 460.78

Free Float (%) 24.8

Ave. daily vol ('000) 213.55

Price Performance


Change (%) 4.66%


Change (%) 9.64%

Financials (ZAR m) 31 Mar Current

Turnover 9 173

EBIT 1 349

Net income before exceptional items 606

EPS (ZAR) 1.33

Ratios

RoaA (%) 5.71

RoaE (%) 9.75

EBIT Margin (%) 14.70%




PE (x) 21.21

28

In the full year ending March 2012, revenues rose by 13.14% y-o-y to ZAR 9.17bn, with sugar production accounting for 68.79%. Both cane and sugar production slightly contracted to 1.5m and 6.2m tonnes, respectively from the comparative period’s 1.6m and 6.3m tonnes. Cost of sales rose at a slower pace of 6.78% to ZAR 5.67bn. Consequently, gross profit leapt by 25.36% to ZAR 3.51bn with gross margin improving to 38.22% from 34.47% in FY 11. Operating expenses rose slower than gross profit, up 22.03% to ZAR 2.16bn compared to the previous period’s ZAR 1.77bn. Hence, operating profit jumped by 31.04% to ZAR 1.35bn with operating margin rising to 14.70% from 2011’s 12.70%. Net finance costs more than doubled to ZAR 244.6m due to a more than tenfold increase in interest paid on long-term borrowings. This caused profit before taxation and non-trading items to rise at a slower rate of 18.38% to ZAR 1.11bn. The company recorded an impairment of ZAR 173.5m as it pulled out of an investment in Mali due to political instability. As a result, PBT dipped to ZAR 951.2m from ZAR 962.5m in FY 11. PAT declined by a bigger magnitude of 15.06% to ZAR 606.4m, as the effective tax rate also increased to 30.3% from the comparative’s period 26.6%. Net income margin fell to 6.61% from the previous period’s 8.81%. Diluted EPS also dropped by 18.80% to ZAR 0.96. On the balance sheet, total asset growth of 8.54% y-o-y to ZAR 6.90bn was recorded. The current ratio improved to 1.87x from 1.18x as at end of FY 11 while the debt-to equity ratio rose to 29.83% from 19.57% as at the end of the previous financial year. Net cash inflows from operating activities slumped to ZAR 346.4m from FY 11’s ZAR 583.5m as cash generated from operations shrank by 17.39% to ZAR 1.06bn and as aforementioned, net financing costs more than doubled. Net cash outflow from investing activities more than halved to ZAR 508.7m as capex significantly declined to ZAR 198.0m from the comparative period’s ZAR 1.26bn. Net cash inflows from financing activities more than trebled to ZAR 817.1m due to ZAR 1.36bn of long-term borrowings as opposed to a ZAR 366.9m repayment of long-term borrowings in the previous financial year. As a result, cash and cash equivalents almost doubled to a positive figure of ZAR 1.39bn from the previous year’s ZAR 717.8m.


17%

8%

24%

12%

35%

4%

Sugar Production (tons '000)

Malawi Tanzania Zambia Swaziland South Africa Mozambique

65%

12%

18%

5%

Group Sugar Markets (%)

Domestic Regional EU and US Preferential World


0

1

2

3

4

5

6

7

8

9

10

0

50

100

150

200

250

2007 2008 2009 2010 2011 2012

Revenue and EPS

Revenue (ZAR'bn)-RHS EPS (ZAR c)-LHS

29

FINANCIAL SUMMARY

ZAR Millions 2007 2008 2009 2010 2011 2012

Revenues 6 264 6 794 8 602 8 468 8 108 9 173

Y-o-Y % 8.47% 26.61% -1.56% -4.25% 13.14%

EBIT/Operating Profit, exlc exceptionals 1 034 1 065 1 386 1 499 1 029 1 349

Y-o-Y % 2.92% 30.22% 8.11% -31.32% 31.04%

Attributable Net Income/Profit After Tax 517 600 739 662 546 443

Y-o-Y % 16.13% 23.22% -10.43% -17.49% -18.88%

Per Share data (ZAR c)

Attributable Diluted EPS 149.5 171.7 210.9 161.4 118.8 96.4

Y-o-Y % 14.85% 22.83% -23.47% -26.39% -18.86%

Dividend Per share (DPS) 75 85.5 106 86 56 66

Y-o-Y % 14.00% 23.98% -18.87% -34.88% 17.86%

Margin Performance & Ratios

2007 2008 2009 2010 2011 2012

EBIT margin% 16.50% 15.70% 16.10% 17.70% 12.70% 14.70%

ROaA 21.30% 18.60% 17.10% 16.80% 11.10% 5.71%

ROaE 32.00% 29.90% 28.60% 14.80% 10.10% 9.75%

OUTLOOK

Management expects increased sugar production for the 2012/2013 season from a more normal season in South Africa and further increases elsewhere in the group. There will be a focus on lowering costs while exchange rate volatility is expected to impact export earnings and the conversion of foreign subsidiary profits into ZAR. The company will also work on reducing its debt which should lower financing costs going forward. Finally, management believes that it has gone through a phase of investing so as to increase capacity and will now focus on harnessing the benefits of these

investments. Nevertheless, opportunities for future growth are continually being evaluated.

30

In 1967, the Government of Kenya commissioned Booker Agriculture and Technical Services to do a feasibility study on the viability of growing sugarcane in Mumias and then initiate a pilot project. Upon accepting the findings, on 1 July, 1971 the government incorporated Mumias Sugar Company as the body to implement the project. The company is currently Kenya’s largest sugar manufacturer with an annual capacity of 236,000 MT as at end of FY 11 and c60% market share.

Expiry of COMESA safeguards poses a threat

A COMESA agreement that allows Kenya to limit the amount of sugar imports from other COMESA countries is set to expire in 2014. Since sugar producers from neighbouring countries are more cost effective than Mumias, it is expected that these imports will lead to a drop in local sugar prices hence putting Mumias’ margins under pressure.

Diversification efforts not likely to plug sugar revenue gap In preparation for the looming competition from sugar imports, the company has embarked on a number of revenue diversification efforts. These include electricity generation, water bottling and ethanol production among others. As at H1 12 results, electricity sales, which are currently the only other active revenue source, contributed only c2% of revenues. In a recent interview, the company’s new CEO said that he expects the water bottling and ethanol businesses to contribute c5% and c10%, respectively to revenue. We therefore don’t expect these other businesses to be able to compensate for the revenue that will probably be lost from sugar sales.

Valuation Using a DCF valuation, we value Mumias at KES 5.46, indicating a downside of 12.2%. Although it currently trades at a depressed PER of 4.8x, we believe it is as a result of the market being uncertain of the company’s future. The stock also has an attractive dividend yield of 8.2%. Consequently we have a HOLD recommendation on the stock.

EQUITY RESEARCH

KENYA

JULY 2012

SUGAR

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

1.1

1.2

11-A

pr-1

1

25-A

pr-1

1

9-M

ay-1

1

23-M

ay-1

1

6-J

un-1

1

20-J

un-1

1

4-J

ul-1

1

18-J

ul-1

1

1-A

ug-1

1

15-A

ug-1

1

29-A

ug-1

1

12-S

ep-1

1

26-S

ep-1

1

10-O

ct-1

1

24-O

ct-1

1

7-N

ov-1

1

21-N

ov-1

1

5-D

ec-1

1

19-D

ec-1

1

2-J

an-1

2

16-J

an-1

2

30-J

an-1

2

13-F

eb-1

2

27-F

eb-1

2

12-M

ar-1

2

26-M

ar-1

2

9-A

pr-1

2

Mumias Share Price vs NSE-20 (Rebased)

Mumias NSE-20


Market leader in Kenya Cane cultivation is rain dependent

Diversification should help hedge against Longer cane growing cycles

volatile sugar earnings Overdependence on outgrowers for cane supply

Branded sugar leads to consumer loyalty

High dividend yield

Low gearing


Sale of carbon credits Expiry of Comesa safeguards

Regional diversification due to EAC intergration Cane poaching by competitors

Sugar demand in Kenya currently outstrips supply

Recommendation HOLD

Bloomberg Code MSUG:KN

Current Price (KES) 6.1

Target Price (KES) 5.4

Upside (%) (12.2)

Liquidity

Market Cap (KES m) 9 333


Shares (m) 1 530.0

Free Float (%) 72.6


Price Performance


Change (%) -20.3


Change (%) 9.9

Financials (KES m) 30 Jun Current 2012F 2013F

Turnover 15 789 15 333 16 217

EBITDA 3 581 3 603 3 649

Net Finance Income (151) 31 38

Attributable Earnings 1 933 1 868 1 857

EPS (KES) 1.26 1.22 1.21

DPS (KES) 0.50 0.49 0.49

NAV/Share (KES) 9.46 10.19 10.92

Ratios

RoaA (%) 13.5 11.1 10.5

RoaE (%) 15.2 12.4 11.5

EBITDA Margin (%) 22.7 23.5 22.5

Valuation Ratios Current 2012F 2013F

Earnings Yield (%) 20.7 20.0 19.9


PE (x) 4.8 5.0 5.0

PBV (x) 0.6 0.6 0.6

EV/EBITDA (x) 3.3 3.2 3.2

31

In FY 11, revenues were up a marginal 1.42% y-o-y to KES 15.79bn with sugar sales contributing KES 15.19bn to this total. The company produced a total of 235,812 tonnes of sugar compared to 235,792 tonnes in the year 2010. Cost of sales slightly fell to KES 10.34bn from the previous year’s KES 10.68bn. Consequently, gross profit rose by 11.51% to KES 5.45bn with gross margin improving to 34.50% from 31.38%. Operating expenses also came in a tad lower at KES 2.76bn compared to the previous period’s KES 2.82bn. Net finance costs came in at a negative KES 150.70m, a decline from a positive figure of KES 35.34m in 2010. PBT leapt by 21.41% to KES 2.65bn while PAT improved by 22.95% to KES 1.93bn. Net income margin was also up to 12.2% from the 10.1% in FY 10. Basic and diluted EPS went up by 22.33% to KES 1.26. Net cash generated from operations fell by 23.44% y-o-y to an inflow of KES 2.30bn mainly as a result of a 17.04% decline in cash generated from operations. Net cash used in investing activities increased from an outflow of KES 322.69m to an outflow KES 2.61bn, mainly as a result of a significant leap in additions to PPE. Net cash used in financing activities declined to an outflow of KES 377.50m from an outflow of KES 938.20m in FY 2010. As a result, cash and cash equivalents halved to KES 656.44m from the previous year’s KES 1.35bn. Total assets grew to KES 23.18bn as at the end of FY 11 from the comparative period’s KES 18.33bn. The company’s debt-to-equity ratio declined to 20.76% from 23.00% as at the end of FY 10. The current ratio improved to 2.2x from 2.0x as at the end of the previous financial year. In the six months to December 2011, revenue at KES 6.92bn was 5.42% lower than the KES 7.32bn achieved over the same period in 2010. Sugar produced plunged by 43.24% to 64,435 tonnes as a result of a challenge in sourcing cane due to declining yields, cane poaching and adverse weather conditions. This decline was offset by the soaring price of sugar. Cost of sales slightly declined to KES 4.67bn from KES 4.78bn in H1 11. Gross profit also fell by 11.24% to KES 2.26bn with gross margins contracting to 32.59% from the previous period’s 34.72%. The company’s cost reduction initiatives over the period seemed to bear fruit as operating expenses came in 9.29% lower at KES 1.27bn, despite the tougher economic conditions with inflation soaring to c20% and the local currency depreciating to an all-time low. Net finance costs also improved to a positive figure of KES 156.59m from a negative position of KES 12.23m. As a result, PBT inched up to KES 1.24bn from KES 1.18bn, while net income increased by a modest 4.53% to KES 866.67m. In the same vein, net income margin improved to 12.52% from 11.33%.

FY 11 & H1 12 Financial & Operational Review

0

50

100

150

200

250

300

1950

2000

2050

2100

2150

2200

2250

2300

2350

2400

2450

2007 2008 2009 2010 2011

Cane processed and sugar produced ('000 tonnes)

Cane Processed (LHS) Sugar Produced (RHS)

Source: Company reports

0

0.2

0.4

0.6

0.8

1

1.2

1.4

0

2

4

6

8

10

12

14

16

18

2007 2008 2009 2010 2011

Turnover and EPS

Turnover (KES bn)-LHS EPS (KES)-RHS


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2007 2008 2009 2010 2011

Area under cane (Ha)

Nucleus estate Outgrowers


32

On the cashflow statement, net cash generated from operating activities at KES 231.85m was less than a third of the corresponding period’s KES 757.68m. In contrast, net cash used in investing activities almost trebled to an outflow of KES 2.02bn as the company invests in projects meant to reduce its dependence on sugar. From financing activities, there was a net inflow of KES 469.67m in comparison to an outflow of KES 539.19m in 2010.

As aforementioned, the looming expiry of COMESA safeguards on Kenya’s sugar industry poses a serious threat to Mumias’ fortunes. From the review of FY 11 and H1 12 results, it is clear that sugar sales are the bread and butter of the business. The main reason why the company is less cost efficient than its peers in neighbouring countries is because it is heavily dependent on outgrowers for its cane supply. Out of the 67,800ha under cane cultivation, 64,800ha is under outgrowers. Reliance on smallholders brings about greater variability in input use and field preparation. As a result, the company faces the challenge of ensuring a consistent supply of good quality cane. At times, it also suffers from cane poaching by its competitors. The costs of harvesting and transporting the cane to the factory are also higher. In an attempt to address this problem, the company has expressed interest in a joint venture with the Tana and Athi River Development Authority (TARDA) to develop a parcel of land for a sugar factory with a capacity to crush 6,000 tonnes of cane per day. Of significance is that this venture will be supplied by a nucleus estate, giving the company control of the cane growing process. The sugar cane will also be grown under irrigation instead of the rain fed system currently in place in its main factory in Western Kenya. Unfortunately, this project is only expected to come to life in the long-term as it is still at the capital raising stage. The company has also embarked on a number of diversification projects. It has an electrical co-generation plant which supplies power to the national grid. In March 2012, it commissioned a water bottling plant and its ethanol distillery is about to begin operations. As much as we laud the company’s diversification efforts, we’re sceptical that they will be able to compensate for the possible decline in sugar revenues once the COMESA safeguards expire. Electricity sales currently contribute c2% of revenue while the water bottling industry in Kenya is highly competitive and hence we don’t expect the company to make much headway. Contrastingly, we believe that the ethanol plant is promising as the ethanol can be blended with fuel, a product in high demand. However, we wait to see the impact it will have on the company’s top line, but still think that sugar will remain

the main revenue contributor for the foreseeable future.

Outlook

Relative cost of sugar production for selected

COMESA and EAC countries (2009)

Source: Kenya Sugar Board

Using a DCF valuation we arrive at a target price of KES 5.46, representing downside of 12.2%. Mumias trades at a ttm PER of 4.7x relative to its peer average of c11.3x mainly as a result of the market being uncertain of the company’s future earnings. Margins are likely to contract once the COMESA safeguards expire. However, the company pays an attractive dividend with a yield of 8.2% and we believe that the downside risk is low as the COMESA issue has already been priced in. Furthermore, the contribution from the diversification efforts especially ethanol may positively surprise. We therefore give a HOLD recommendation on the stock.


33

FINANCIAL SUMMARY

KES Millions 2006 2007 2008 2009 2010 2011 2012 E 2013 E

Revenues 11 515 10 318 11 954 11 750 15 568 15 789 15 333 16 217

Y-o-Y % -10.4% 15.9% -1.7% 32.5% 1.42% -2.89% 5.77%

Gross Profit 4 082 3 588 4 266 3 323 4 885 5 447 5 213 5 676

Y-o-Y % -12.1% 18.9% -22.1% 47.0% 11.5% -4.3% 8.9%

EBITDA 2 336 2 364 2 220 1 641 2 972 3 581 3 603 3 649

Y-o-Y % 1.2% -6.1% -26.1% 81.1% 20.5% 0.6% 1.3%

EBIT/Operating Profit, exlc exceptionals 2 059 1 880 1 666 1 084 2 145 2 797 2 638 2 615

Y-o-Y % -8.6% -11.4% -34.9% 97.8% 30.4% -5.7% -0.9%

Attributable Net Income/Profit After Tax 1 527 1 394 1 214 1 610 1 572 1 933 1 868 1 857

Y-o-Y % -8.7% -12.9% 32.6% -2.3% 22.9% -3.4% -0.6%

Per Share data


Y-o-Y % -69.6% -12.9% 32.6% -2.3% 22.9% -3.4% -0.6%


Y-o-Y % -50.0% -20.0% 0.0% 0.0% 25.0% -2.3% -0.6%

NAV/Basic Share 15.12 5.45 5.91 6.56 7.19 9.46 10.19 10.92

Y-o-Y % -63.9% 8.4% 11.0% 9.6% 31.6% 7.7% 7.1%

Margin Performance

2006 2007 2008 2009 2010 2011 2012 E 2013 E

Gross Margin 35.4% 34.8% 35.7% 28.3% 31.4% 34.5% 34.0% 35.0%

EBITDA margin % 20.3% 22.9% 18.6% 14.0% 19.1% 22.7% 23.5% 22.5%

EBIT margin% 17.9% 18.2% 13.9% 9.2% 13.8% 17.7% 17.2% 16.1%


Ratios

ROaA 17.3% 15.8% 12.8% 6.9% 12.0% 13.5% 11.1% 10.5%

ROaE 19.8% 17.4% 14.0% 16.9% 14.9% 15.2% 12.4% 11.5%



Omnicane was launched in July 2009 through a strategic re-branding of Mon-Trésor-Mon-Désert Ltd, a long established sugar cane group in Mauritius whose origins can be traced back to the 1850s. Its agricultural activities are centred in the South of Mauritius. The company’s main activities include the production of refined sugar and the generation of energy from bagasse and coal.

Uncertain future for sugar industry The outlook of cane and sugar production in Mauritius is unclear as the industry comes under a number of threats. Firstly, there is a declining trend in cane and sugar production as the area under cane recedes for various reasons, mainly associated with development. The economic crisis in the EU also poses a threat as more than 90% of Mauritius’ sugar is imported to the monetary union.

Energy leading diversification efforts In reaction to the above mentioned threat, Omnicane embarked on product and regional diversification. Its main success has been the energy segment which generates electricity from bagasse and coal. In the FY 11 results, this segment accounted for 67.24% of turnover, 76.82% of operating profit and 96.98% of profit before exceptional items. The company is involved in other agricultural production e.g. potatoes and is also looking at going into ethanol production & property development. In terms of regional diversification, Omnicane is involved in a sugar project in Kenya and is at an advanced stage of discussion for a hydro-electric project in Rwanda.

Valuation Using a DCF valuation, we arrive at an intrinsic value of MUR 72.20, which represents a marginal downside of 2.4% to the current price of MUR 74.00. At a ttm PER of 20.39x, relative to an SSA average of 11.3x , we believe

the stock is fully valued. SELL.

EQUITY RESEARCH

MAURITIUS

JULY 2012

SUGAR


Product diversification helps hedge against any volatitilty in Declining trend in cane and sugar production in

sugar earnings. Mauritius.

High gearing.


Regional diversification e.g. Kenya, Rwanda e.t.c. Safety net of preferential trade agreements with EU

Property development. not guaranteed.

Ethanol production. Adverse weather conditions.

0.5

0.6

0.7

0.8

0.9

1

1.1

1.2

1.3

1.4

1.5

15-Ju

n-11

29-Ju

n-11

13-Ju

l-11

27-Ju

l-11

10-A

ug-11

24-A

ug-11

7-Sep

-11

21-Se

p-1

1

5-O

ct-11

19-O

ct-11

2-N

ov-1

1

16-N

ov-11

30-N

ov-11

14-D

ec-11

28-D

ec-11

11-Ja

n-12

25-Ja

n-12

8-Fe

b-12

22-F

eb-1

2

7-M

ar-12

21-M

ar-12

4-A

pr-12

18-A

pr-1

2

2-M

ay-12

16-M

ay-1

2

30-M

ay-1

2

13-Ju

n-12

Omnicane vs Semdex (Rebased)

Omnicane Semdex

Recommendation SELL

Bloomberg Code MTMD:SEM

Current Price (MUR) 74.0

Target Price (MUR) 72.2

Upside (%) (2.4)

Liquidity

Market Cap (MUR m) 4 959


Shares (mn) 67.0

Free Float (%) 19.6


Price Performance


Change (%) 2.1


Change (%) 4.2

Financials (MUR mn) 31 Dec Current 2012F 2013F

Turnover 3 913 3 849 4 102

EBITDA 874 770 1 026

Net Finance Income (586) (550) (540)

Attributable Earnings 393 207 400

EPS (MUR) 5.86 3.08 5.97

DPS (MUR) 2.75 1.70 3.28

NAV/Share (MUR) 103.27 104.50 106.89

Ratios

RoaA (%) 5.8 2.5 3.6

RoaE (%) 6.7 3.3 6.3

EBITDA Margin (%) 22.3 20.0 25.0

Valuation Ratios Current 2012F 2013F

Earnings Yield (%) 7.9 4.2 8.1


PE (x) 12.6 24.0 12.4

PBV (x) 0.7 0.7 0.7

EV/EBITDA (x) 11.1 12.6 9.4

In FY 11, revenues rose by 12.72% y-o-y to MUR 3.91bn. Sugar sales rose by 21.74% to MUR 1.28bn while turnover from the energy segment rose at a lower rate of 8.79% to MUR 2.63bn. Operating profit leapt by 42.01% y-o-y to MUR 873.57m driven by a recovery in the sugar segment. The unit’s operating profit recovered to MUR 202.46m from an operating loss of MUR 117.94m in 2010. In contrast, the energy segment’s contribution contracted by 8.45% to MUR 671.11m due to higher maintenance costs. Operating profit margin improved to 22.33% from 17.72% recorded in the previous corresponding period. Finance costs marginally increased to MUR 585.58m from MUR 580.88m in FY 2010. Profit before exceptional items quadrupled to MUR 305.66m while PBT came in at MUR 577.19m, an increase from MUR 448.87m in 2010. PAT was up 54.64% y-o-y to MUR 488.79m. Net profit margin increased to 12.49% from FY 10’s 9.11%. EPS improved by 57.95% y-o-y to MUR 5.86 with a dividend per share of MUR 2.75 being declared, up from MUR 2.50 in the previous year. Net cash flow from operating activities more than halved to MUR 254.51m. Net cash used in investing activities was an outflow of MUR 94.30m compared to an inflow of MUR 112.19m in 2010. Net cash used in financing activities came in at MUR 878.63m in comparison to FY 2010’s inflow of MUR 27.82m. As a result, cash and cash equivalents as at the end of FY 11 was a negative figure of MUR 1.07bn compared to a negative figure of MUR 389.08m at the end of the previous financial year. In Q1 12, turnover fell by MUR 33.54m y-o-y to MUR 799.71m as a result of a lower production of refined sugar due to the commissioning of a new silo at the refinery. Sugar revenue at MUR 24.16m was less than a third of the MUR 82.23m recorded in Q1 11. In contrast, turnover from the energy segment inched up by 3.27% to MUR 775.55m. Consequently, operating profit plunged to MUR 28.22m from the corresponding period’s MUR 87.52m. The sugar segment’s operating loss doubled to MUR 134.31m while the energy segment’s operating profit improved by 6.40% y-o-y to MUR 162.54m. Operating margin shrank to 3.53% in comparison to 10.50% in Q1 11. Finance costs were more or less unchanged at MUR 130.86m in comparison to Q1 11’s MUR 131.18m. The loss before exceptional items more than doubled to MUR 101.30m while PBT swung to a loss of MUR 92.30m from a profit of MUR 66.54m a year earlier. This was mainly as a result of a sharp decline in profit from exceptional items to MUR 9.0m from MUR 112.59m in Q1 11. The company recorded a net loss of MUR 125.80m, a deterioration from

a PAT of MUR 42.70m recorded in Q1 11.

FY 11 & Q1 12 Financial & Operational Review Cash inflow from operating activities was MUR 174.43m compared to an outflow of MUR 82.48m in Q1 11. Cash flow used in investing activities came in at MUR 274.40m in contrast to an outflow of MUR 31.35m in the previous year’s corresponding period. Cash flow used in financing activities rose more than 8x to MUR 256.12m. As a result cash and cash equivalents at the end of Q1 12 stood at MUR 1.43bn.

0

1

2

3

4

5

6

7

0

500

1000

1500

2000

2500

3000

3500

4000

4500

2007 2008 2009 2010 2011

Revenue and EPS

Revenue (MURbn)- LHS EPS (MUR)- RHS


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Turnover Operating profit Profit before exceptionalitems

Segment Information (FY 11)

Sugar Energy


As aforementioned, the future of sugar production in Mauritius is under threat due to a number of factors. Firstly, there is pressure on land availability due to competing interests such as property development. This has led to a decline in the area under cane. The EU is the main market for Omnicane’s sugar with more than 90% of the refined product being exported. Consequently, the economic crisis in the Eurozone poses a threat to future earnings. In reaction to the above mentioned threats, the company has successfully diversified into energy generation from bagasse and coal. Omnicane Thermal Energy Operations Limited is one of the largest coal/bagasse cogeneration plants in the world and is equipped with two units of 44.5 MW each. The fact that the energy segment is now the company’s most important economic driver is clear in the FY 11 results, in which it accounted for 67.24% of turnover, 76.82% of operating profit and 96.98% of profit before exceptional items. The company is also making further progress in product and regional diversification. Omnicane is involved in the production of other agricultural products, mainly potatoes. It is also involved in stone crushing for aggregates for the building industry through Sud Concassage Ltée. The company is also moving into ethanol production having acquired the Alcodis ethanol plant in May 2012 which is expected to begin operations in July 2013 after refurbishment. On the regional front, the company expects to reach financial close for a 20% stake for a sugar project in Kenya around June 2012. A hydro-electrical project in Rwanda is also at an advanced

stage of discussion.

We are of the view that Omnicane has made great strides to cushion itself from the expected decline in sugar earnings. The company’s future seems to be secure with sugar looking set to be a smaller contributor to turnover and profits.

Outlook

We believe that the company is managing the

declining trend in sugar production well through a

number of diversification efforts. Using a DCF

valuation we value Omnicane at MUR 72.47, indicating

downside of 2.4% from its current price of MUR 74.00.

However, at a trailing PER of 20.39x we consider the

stock to be fully valued. SELL.

70%

10%

20%


Omnicane Holdings Ltd National Pensions Fund Others



FINANCIAL SUMMARY

MUR Millions 2007 2008 2009 2010 2011 2012 E 2013 E

Revenues 468 450 3 190 3 488 3 913 3 849 4 102

Y-o-Y % -3.7% 608.5% 9.3% 12.2% -1.6% 6.6%

EBITDA 77 108 1 107 1 081 874 770 1 026

Y-o-Y % 40.5% 920.6% -2.4% -19.2% -11.9% 33.2%

EBIT/Operating Profit, exlc exceptionals 50 39 697 615 874 425 656

Y-o-Y % -22.7% 1700.3% -11.8% 42.0% -51.4% 54.4%

Attributable Net Income/Profit After Tax 201 284 258 249 393 207 400

Y-o-Y % 41.2% -9.0% -3.7% 57.9% -47.4% 93.7%

Per Share data

Attributable Diluted EPS 3.00 4.24 3.86 3.71 5.86 3.08 5.97

Y-o-Y % 41.2% -9.0% -3.7% 57.9% -47.4% 93.7%

Dividend Per share (DPS) 2.50 2.00 2.00 2.50 2.75 1.70 3.28

Y-o-Y % -20.0% 0.0% 25.0% 10.0% -38.3% 93.7%

NAV/Basic Share 89.59 98.47 97.53 93.47 103.27 104.50 106.89

Y-o-Y % 9.9% -1.0% -4.2% 10.5% 1.2% 2.3%

Margin Performance

2007 2008 2009 2010 2011 2012 E 2013 E

EBITDA margin % 16.5% 24.1% 34.7% 31.0% 22.3% 20.0% 25.0%

EBIT margin% 10.7% 8.6% 21.9% 17.6% 22.3% 11.0% 16.0%

Net Income Margin % 43.0% 63.1% 8.1% 7.1% 10.0% 5.4% 9.8%

Ratios

ROaA 0.9% 0.4% 4.7% 4.1% 5.8% 2.5% 3.6%

ROaE 5.4% 4.5% 3.9% 3.9% 6.0% 3.0% 5.6%

Earning yield on current price 4.1% 5.8% 5.3% 5.1% 8.0% 4.2% 8.2%

Dividend yield current price 3.4% 2.7% 2.7% 3.4% 3.8% 2.3% 4.5%

38

Tongaat Hulett is an agricultural and agri-processing business which includes integrated components of land management and property development. Through its sugar and starch operations, Tongaat Hulett produces a range of refined carbohydrate products from sugar cane and maize. It has a primary listing on the JSE, which dates back to 1952, and a secondary listing on the LSE, which dates back to 1939. It has a presence in 6 SADC countries, South Africa, Botswana, Namibia, Swaziland,

Mozambique and Zimbabwe.

Regional diversification bearing fruits With a presence in six SADC countries, Tongaat-Hullet is well positioned to benefit from strong sugar demand in almost the whole of Southern Africa. The company also exports sugar to the EU. As evident from the company’s FY 12 results, the contribution of operations outside South Africa is significant, accounting for c32.0% of revenue and c53.54% of profit from operations.

Diversified revenue lines Apart from sugar, Tongaat-Hullet also derives revenues from its starch operations and land conversion & development (the company owns significant parcels of developed and undeveloped prime land in Kwa-Zulu Natal province in South Africa). These two divisions contributed c24.39% to revenue and c28.81% to operating profit in FY 12. The company is also looking to embark on production of electricity and ethanol from sugarcane by-products.

Valuation Tongaat-Hullet is currently trading at a trailing PER of 15.2x, which is a discount to its immediate peer, Illovo (21.21x) but at a premium to the average PER of its SSA peers of 11.3x .It is rated as a BUY on i-net consensus.

EQUITY RESEARCH

SOUTH AFRICA

JULY 2012

SUGAR

0.5

0.6

0.7

0.8

0.9

1

1.1

1.2

1.3

1.4

1.5

15-Ju

n-11

29-Ju

n-11

13-Ju

l-11

27-Ju

l-11

10-A

ug-11

24-A

ug-11

7-Sep

-11

21-Se

p-1

1

5-O

ct-11

19-O

ct-11

2-N

ov-1

1

16-N

ov-11

30-N

ov-11

14-D

ec-11

28-D

ec-11

11-Ja

n-12

25-Ja

n-12

8-Fe

b-12

22-F

eb-1

2

7-M

ar-12

21-M

ar-12

4-A

pr-12

18-A

pr-1

2

2-M

ay-12

16-M

ay-1

2

30-M

ay-1

2

13-Ju

n-12

Tongaat vs JSE All Share Index

Tongaat JSE ALSI


Bloomberg Code TON:SJ

Current Price (ZAR) 128.6

Target Price (ZAR)

Upside (%)

Liquidity

Market Cap (ZAR bn) 12.93

Market Cap (USD m) 1 593.80

Shares (m) 105.14

Free Float (%) 46.08

Ave. daily vol ('000) 121.24

Price Performance


Change (%) 41.79%

Price, 6 months ago 101

Change (%) 27.33%

Financials (ZAR m) 31 Mar Current

Turnover 12 081

EBIT 1 878

Net income before exceptional items 1 021

EPS (ZAR) 8.39

Ratios

RoaA (%) 6.33

RoaE (%) 15.19

EBIT Margin (%) 15.55




PE (x) 15.2

39

In the financial year ending March 2012, revenues rose by 24.79% y-o-y to ZAR 12.08bn with sugar sales contributing c75.61% to this total while the rest came from starch operations and land conversion & development. The company produced a total of 1.15m tonnes of sugar compared to 1.01m tonnes in the period 2010/2011. Operating profit rose slower than revenue, advancing by 16.94% to ZAR 1.88bn. Consequently, operating margin fell to 15.55% from the 16.59% that was recorded in FY 11. Net finance costs came in at a negative ZAR 507m, a deterioration from the previous financial year’s negative ZAR 472m. PBT leapt by 21.20% to ZAR 1.37bn while PAT went up at a lower rate of 17.22% to ZAR 1.02bn due to a higher effective tax rate. Net income margin shrank to 8.45% from 9.00% in FY 11. Basic and diluted EPS rose to ZAR 8.37 and ZAR 8.18, respectively from FY 11’s ZAR 7.86 and ZAR 7.64. Dividend per share came in at ZAR 2.90, a yield of 2.36%. Cash flow from operations more than trebled to ZAR 731m. Net cash used in investing activities decreased from an outflow of ZAR 839m to an outflow of ZAR 736m. Net cash flow from financing activities at ZAR 179m was less than a quarter of the previous financial year’s ZAR 800m due to borrowings raised more than halving to ZAR 516m in FY 12. As a result, the net increase in cash and cash equivalents decreased to ZAR 174m from ZAR 229m in FY 11. Cash and cash equivalents increased to ZAR 592m from ZAR 350m at the end of FY 11.

Management plan to continue its drive to increase available cane for mills so as to fully utilize capacity. This will also help in pushing down unit costs. Sugar production is expected to increase by between 12% and 25% in the 2012/13 season. The group’s earnings remain sensitive to exchange rates which impact particularly export realisations and conversion of profits from Zimbabwe and Mozambique into rand. Going forward, the company plans to further diversify into electricity generation and ethanol production. It continues to interface with government authorities towards establishing appropriate regulations for these two ventures.

Outlook


0

2

4

6

8

10

12

14

0

100

200

300

400

500

600

700

800

900

2008 2009 2010 2011 2012

Revenue and EPS

Revenue (ZAR'bn)-RHS EPS (ZAR c)-LHS

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

0

500

1000

1500

2000

2500

3000

3500

4000

Zimbabwe Swaziland Mozambique South Africa Downstreamvalue added

activities

Revenue and operating margins of sugar segment by geographical regions

Revenue (ZARm) - LHS Operating profit margins - RHS


40

FINANCIAL SUMMARY

ZAR Millions 2008 2009 2010 2011 2012

Revenues 6 395 7 106 8 909 9 681 12 081

Y-o-Y % 11.12% 25.37% 8.67% 24.79%

EBIT/Operating Profit, exlc exceptionals 838 1 132 1 353 1 338 1 921

Y-o-Y % 35.08% 19.51% -1.09% 43.57%

Attributable Net Income/Profit After Tax 61 583 858 806 1 021

Y-o-Y % 855.74% 47.17% -6.06% 26.67%

Per Share data (ZAR c)

Attributable Diluted EPS 58.1 565.6 661.2 760.5 838.9

Y-o-Y % 873.49% 16.90% 15.02% 10.31%

Dividend Per share (DPS) 310 310 275 250 290

Y-o-Y % 0.00% -11.29% -9.09% 16.00%

Margin Performance & Ratios

2008 2009 2010 2011 2012

EBIT margin% 13.10% 15.90% 15.20% 13.80% 15.55%

ROaE 1.90% 18.50% 19.50% 14.50% 15.19%

41

ZAMBIA SUGAR Plc, (“ZSUG”), is a subsidiary of Illovo Sugar South Africa, listed on the Johannesburg Stock Exchange. The core business of the company is growing sugar cane and its conversion to table and industrial sugar for the domestic and export market. It has an area of approximately 16,896ha under cane production, and has a processing capacity of 450,000 tonnes of sugar per

annum.

The Funding Situation. ZSUGs FY 12 abridged results indicate that the company continues to be highly levered, though as per ZSUGs projections, operational profits in FY 12 have grown sufficiently to counteract the significant finance costs incurred. In April 2011, ZSUG refinanced its existing facilities with a ZMK 605bn 5-year syndicated loan, a positive move. However, we will be looking for more clarity around the structure and pricing of the refinancing loan. ZSUG’s Debt-to Equity ratio declined from 157% in FY 11 to 143% in FY 12.

The Operational Situation. Despite the throwback of

significant debt obligations, the company increased headline profits four-fold to ZMK 125.3bn in FY 12. Revenue grew by 20% to ZMK 1.48tn whilst gross margins improved from 44.1% to 47.8%. Operating margins improved significantly by 6.6 percentage points to 20.7%, with operating earnings surging from ZMK 174.0bn to ZMK 306.6bn. Finance expenses increased by 22% to ZMK 155.5bn, and the effective tax rate declined to 14.1% of pre-tax earnings, amounting to ZMK 21.3bn. Net earnings increased from ZMK 28bn in FY 11 to ZMK 125bn in FY 12.

Valuation. Based on our estimated DCF valuation, our

target price for ZSUG is ZMK 303, indicating an upside of 19.5%. We maintain that based on the domestic and regional trends, whilst cognisant of the threat of lower European demand, ZSUG presents significant upside potential once leverage levels are normalised. We await the complete March 2012 annual report to assess the specific terms and pricing of the refinancing loan, as well as management’s view of European demand in the short-term. Short-term HOLD.

EQUITY RESEARCH

ZAMBIA

JULY 2012

SUGAR

Recommendation HOLD

Bloomberg ZMSG:ZL

Current price (ZMK)

Target price (ZMK)

Upside/Downside

12 month High/Low (ZMK)

Liquidity

Market Cap (ZMKm)

Shares (m)

Free Float (%)

Ave Monthly volume (m) 4.9

Share Price Performance

Price, 12 months ago (%) 210.00

Change (%) 24.8

Price, 6 months ago (%) 270.00

Change (%) (3.0)

Financials (ZMK bn) 31 Mar 2012 2013F 2014F

Turnover 1,480 1,512 1,533

Operating Profit (EBIT) 307 304 306

Net Finance Costs (155) (120) (99)

Attributable earnings 125 150 169

EPS (ZMK) 19.80 23.70 26.68

DPS (ZMK) 9.90 11.85 13.34

NAV/Share (ZMK) 125.37 137.22 150.56

Ratios

ROaA (%) 14.2 13.8 14.0

ROaE (%) 16.4 18.1 18.5

Operating Margin (%) 20.7 20.1 20.0

Valuation Ratios

Earnings Yield (%) 7.6 9.0 10.2


PE (x) 13.2 11.1 9.8

PBV (x) 2.1 1.9 1.7

EV/EBITDA (x) 7.7 7.6 7.5

1,658,834

6,331

18%

ZMK 312.00 / ZMK 195.00

262.00

313.00

19.5%


Largest domestic sugar producer Reliance on exports double-edged sword

Group support Cane supply susceptible to weather conditions

Access to export markets Exports susceptible to the strength of the ZMK

Scale economies


Bio-energy / Bio-fuel industry Lower demand from Europe

Cashflow improvement from debt restructure Kwacha appreciation

Domestic and regional growth High interest rate climate

Adverse weather conditions

Demand for higher wages versus cost-control

SWOT ANALYSIS

80

90

100

110

120

130

140

150

160

Jun-

11

Jul-

11

Aug-

11

Sep-

11

Oct

-11

Nov

-11

Dec

-11

Jan-

12

Feb-

12

Mar

-12

Apr-

12

May

-12

Jun-

12

Zambia Sugar vs LUSE ALSI

ZSUG LuSE Index

42

ZSUG made somewhat of a comeback in FY 12, returning to levels of profitability last achieved in FY 2008/9. On the production side, sugar output declined by 2.9% from 385,000 tonnes to 374,000 tonnes y-o-y. According to ZSUG, this was due to a significant increase in the crush rate, which necessitated the crushing of younger cane, and sub-optimal weather conditions. Altogether, the result was a lower cane yield, and an increase in the Cane-Sugar ratio from 8.05x to 8.29x y-o-y. However, all 3.1m tonnes of cane delivered was milled, with 61% or 1.9m tonnes supplied by the ZSUG estate, whilst

outgrowers accounted for 39% or 1.15m tonnes.

Domestic volumes edged-up by 1.4% from 143,000 tonnes to 145,000 tonnes in FY 12, and whilst ZSUG did not disclose foreign sales figures, based on overall output we estimate that these declined by between 10% and 15% to circa 200,000 tonnes. Nonetheless, improved pricing (at least partly due to a relatively weak Kwacha) over the period culminated in a 20% increase in revenue from ZMK 1.23bn to ZMK 1.45bn. We estimate that gross profits

grew by 30% y-o-y from ZMK 543.6bn to ZMK 708.0bn.

A lid on operational costs, according to ZSUG, added to the ripple effect with operating profits accelerating by 76% from ZMK 173.9bn to ZMK 306.6bn y-o-y, and operating margins commensurately improved from 14.1% to 20.7% y-o-y. The operational success was dampened by a 22% increase in finance costs from ZMK 127.2bn to ZMK

155.5bn y-o-y, the highest on record.

Taxes amounted to ZMK 21.3bn, with an effective tax rate of 14%. The reduced taxes where as a result of a reduction in the Corporate Tax rate for agricultural companies from 15% to 10% per the 2012 National Budget. To sum it all up, the significantly improved operational profits of ZMK 306.6bn were sufficient to cover the significantly higher finance costs at ZMK 155.5bn, which combined with the lower tax rate of 10%, led to a 4-fold increase in net profits from K 30.7bn to K 128.0bn y-o-y. EPS was ZMK 19.80, whilst dividends declared / proposed for the year amounted to ZMK 9.90 per share, representing a 50% payout. ROaE improved from 3.8% in FY 11 to 15.9% in FY 12, still far below the 5-year average

of 32%.

Our outlook for ZSUG remains positive in the long-term, as the company continues to be the largest domestic supplier of sugar, and will continue to take advantage of regional and international export opportunities. We view the structure and pricing of the debt, weak demand from Europe, and operational cost pressures as the cardinal

items to watch over the coming year.

Debt Structure. In FY 11, the primary risk factor for ZSUG was its liquidity, owing to significant debt on its books whose maturity did not extend beyond 2014. However, in April 2011, ZSUG refinanced this debt with a

5-year syndicated loan worth ZMK 605bn (USD 128m) and

Outlook


0%

5%

10%

15%

20%

25%

30%

0

200

400

600

800

1,000

1,200

1,400

1,600

2009 2010 2011 2012E 2013E

ZMK

Bill

ion

s

Total Revenue EBITDA EBITDA Margin (%)

0

50

100

150

200

250

300

350

400

450

0

200

400

600

800

1,000

1,200

2009 2010 2011 2012E 2013E

'00

0 T

on

ne

s

ZMK

Bill

ion

s

Sugar Revenue Cane Revenue Sugar Sales Volume

0%

50%

100%

150%

200%

250%

300%

0

200

400

600

800

1,000

1,200

1,400

2009 2010 2011 2012E

ZMK

Bill

ion

s

Total Debt Total equity Total Debt to Equity Ratio

43

though not ideal, this was a positive step. Debt-servicing will continue to create a strain on near-term cashflows, and will ease off when debt levels normalise to pre-expansion levels. However, though revenues and operational earnings are expected to improve, we will be looking out for the pricing and repayment terms of the old and new loans once the March 2012 numbers are made available, in order to better assess the medium-term liquidity position of ZSUG. The World, the EU and the Kwacha. The current uncertainty surrounding the global market, in large part owing to concerns on the stability and indebtedness of Greece and other European countries, poses a threat to ZSUGs export revenue. Exports to the EU account for the greater portion of export revenue earned by ZSUG, and export revenue in recent years has accounted for approximately 50% of overall revenue. The increased economic uncertainty in the EU, as well as slower growth projections, will likely put pressure on demand from the EU. In addition, the FAO / OECD, in their FAO-OECD 2011 – 2020 Agricultural Outlook, project that global sugar prices will decline in 2013 owing to continued stock build-up and excess supply. On the positive end, the continued weakness of the Kwacha provides some cushioning. Operational Expenses. On 12th June 2012, 3,000 ZSUG employees went on strike, demanded a 35% wage increment. The strike lasted 4 days, and settlement was for a salary increment of 12% and 15% for seasonal and permanent staff respectively. Aside from the loss in production, which ZSUG estimates to be 2,000 tonnes of production for each day (8,000 for the duration of the strike) which we estimate to be valued at between ZMK 20.0bn and ZMK 25.0bn, the surfacing of the strikes exposes the difficulty inherent in the company’s cost-control strategy. We expect that operational expenses will increase owing to increased remuneration expenses.

Appling a Discounted Free-Cashflow valuation, our target price for ZSUG is ZMK 303, representing an upside of 19.5%. It’s PER of 13.2x and forward-PE of 11.1x is more in line with the historical SSA average of 11.3x. With the company’s refinancing of part of its FY 11 loans with a 5-year loan, a critical determinant of its medium-term liquidity is the aggregate principal repayment structure, and whether operating cashflows will continue to grow sufficiently to meet these obligations. Pending more colour around the structure of the debt, as well as management’s strategy and expectations around a possible dip in demand from Europe, we recommend

ZSUG as a short-term HOLD.


0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

0

50

100

150

200

250

300

350

400

450

2009 2010 2011 2012E 2013E

ZMK

Mill

ion

s

Ton

ne

s

Sugar Sales Volume Average Sale Price

0%

5%

10%

15%

20%

25%

30%

35%

40%

2009 2010 2011 2012E 2013E

ROaA ROaE

0%

10%

20%

30%

40%

50%

60%

2009 2010 2011 2012E 2013E

Gross Margin EBIT margin% Net Income Margin %

44

FINANCIAL SUMMARY

Key Financials

ZMK Billions 2007 2008 2009 2010 2011 2012 E 2013 E 2014 E

Revenues 570 585 532 908 1,232 1,480 1,512 1,533

Y-o-Y % NA 2.7% -9.0% 70.5% 35.7% 20.1% 2.2% 1.4%

Gross Profit 281 255 269 444 544 708 720 726

Y-o-Y % NA -9.1% 5.6% 64.7% 22.6% 30.3% 1.6% 0.8%

EBITDA 145 80 102 222 227 358 365 367

Y-o-Y % NA -44.6% 27.3% 117.0% 2.3% 57.5% 2.0% 0.7%

EBIT/Operating Profit 133 70 78 159 174 307 304 306

Y-o-Y % NA -47.8% 12.1% 103.7% 9.4% 76.2% -0.9% 0.6%

Attributable Net Income 101 128 137 96 28 125 150 169

Y-o-Y % NA 26.3% 7.3% -29.9% -71.0% 349.1% 19.7% 12.6%

Per Share data


Y-o-Y % NA 26.3% 7.8% -37.4% -72.0% 345.2% 19.7% 12.6%


Y-o-Y % NA 14.6% -15.4% -40.5% -52.7% 178.9% 19.7% 12.6%

NAV/Basic Share 56.43 64.96 79.94 122.45 115.99 125.37 137.22 150.56

Y-o-Y % NA 15.1% 23.1% 53.2% -5.3% 8.1% 9.5% 9.7%

Margin Performance

Gross Margin 49.2% 43.6% 50.6% 48.8% 44.1% 47.8% 47.6% 47.3%

EBITDA margin % 25.4% 13.7% 19.2% 24.4% 18.4% 24.2% 24.1% 24.0%

EBIT margin% 23.4% 11.9% 14.7% 17.5% 14.1% 20.7% 20.1% 20.0%


Ratios

ROaA 50.6% 9.3% 5.8% 8.4% 8.3% 14.2% 13.8% 14.0%

ROaE 65.5% 38.8% 34.9% 16.5% 3.8% 16.4% 18.1% 18.5%



Imara Africa Securities (A division of Imara SP Reid) Imara House Block 3, 257 Oxford Road, Illovo Johannesburg 2146 South Africa Tel: +27 11 550 6200 Fax: +27 11 550 6295

Imara Securities Angola SCVM Limitada Rua Rainha Ginga 74, 13th Floor, Luanda Angola Tel: +244 222 372 029 +244 222 372 036 Fax: +244 222 332 340

Capital Securities Ground Floor Plot 64511 Showgrounds Gaborone Botswana Tel: +267 318 8886 Fax: +267 318 8887 Members of the Botswana Stock Exchange

Imara Edwards Securities (Pvt.) Ltd. Tendeseka Office Park 1st Floor Block 2 Samora Machel Avenue Harare Zimbabwe Tel: +263 4 790590 Fax: +263 4 791435 4 Fanum House Cnr. Leopold Takawira/Josiah Tongogara Street Bulawayo Zimbabwe Tel: +263 9 74554 Fax: +263 9 66024 Members of the Zimbabwe Stock Exchange

Imara S.P. Reid (Pty) Ltd Imara House 257 Oxford Road Illovo 2146 P.O. Box 969 Johannesburg 2000 South Africa Tel: +27 11 550 6200 Fax: +27 11 550 6295 Members of the JSE Limited

Stockbrokers Malawi Ltd Able House Cnr. Hanover Avenue/ Chilembwe Road Blantyre Malawi Tel: +265 182 2803 Members of the Malawi Stock Exchange

Namibia Equity Brokers (Pty) Ltd 1st Floor City Centre Building, West Wing Levinson Arcade Windhoek Namibia Tel: +264 61 246 666 Fax: +264 61 256 789 Members of the Namibia Stock Exchange

Stockbrokers Zambia Ltd 2nd Floor, Design House P O Box 38956 Lusaka Zambia Tel: +260 122 7303 Fax: +260 122 1055 Members of the Lusaka Stock Exchange

This research report is not an offer to sell or the solicitation of an offer to buy or subscribe for any securities. The securities referred to in this report may not be eligible for sale in some jurisdictions. The information contained in this report has been compiled by Imara S.P. Reid (Pty) Ltd, (“Imara”) from sources that it believes to be reliable, but no representation or warranty is made or guarantee given by Imara or any other person as to its accuracy or completeness. All opinions and estimates expressed in this report are (unless otherwise indicated) entirely those of Imara as of the date of this report only and are subject to change without notice. Neither Imara nor any other member of the Imara group of companies including their respective associated companies (together “Group Companies”), nor any other person, accepts any liability whatsoever for any loss howsoever arising from any use of this report or its contents or otherwise arising in connection therewith. Each recipient of this report shall be solely responsible for making its own independent investigation of the business, financial condition and prospects of companies referred to in this report. Group Companies and their respective affiliates, officers, directors and employees, including persons involved in the preparation or issuance of this report may, from time to time (i) have positions in, and buy or sell, the securities of companies referred to in this report (or in related investments); (ii) have a consulting, investment banking or broking relationship with a company referred to in this report; and (iii) to the extent permitted under applicable law, have acted upon or used the information contained or referred to in this report including effecting transactions for their own account in an investment (or related investment) in respect of any company referred to in this report, prior to or immediately following its publication. This report may not have been distributed to all recipients at the same time. This report is issued only for the information of and may only be distributed to professional investors (or, in the case of the United States, major US institutional investors as defined in Rule 15a-6 of the US Securities Exchange Act of 1934) and dealers in securities and must not be copied, published or reproduced or redistributed (in whole or in part) by any recipient for any purpose. © Imara S.P. Reid (Pty) Ltd.

ssa sugar industry report - july 2012 offering sweet … · 2013-10-16 · ssa sugar industry...

Documents