Delta Sugar - Prime Holding.

Delta Sugar
FY13 Update
Target Price
Market Price
Recommendation
Upside Potential
Investment Grade
LE13.47
LE12.85
Hold
4.8%
Income
Share Data
Report Date
March 16, 2014
Sector
Food & Beverage
Company Traded Market
EGX
Report Reason
FY13 Update
Stock Currency
EGP
Exchange Rate
LE6.99/US$
Market Cap (LE mn)
1,822
Outstanding Shares (mn)
142.20
Par Value/Share (LE)
5.00
Price Low – High (LE)
(52Wk.)
10.50 - 13.49
Avg. Daily Volume (000)
Delta Sugar posted a 56% y-o-y growth in top line to LE1,530 million in
FY13 up from LE982 million in FY12. The company achieved sugar sales volume of
317k tons against 173k tons a year earlier; benefiting from the 101k tons accumulated inventory at the end of FY12. However, the company faced intense competition
from imported sugar as average international sugar price slipped 17% y-o-y in FY13,
in addition to terminating anti-dumping fees on sugar imports. Hence, Delta Sugar
had to offer lower sugar selling prices of LE3,900/ton versus LE4,155/ton in FY12.
Molasses and fodder prices surged by 7% and 54% respectively.
COGS soared 72% y-o-y to LE1,255 million, indicating a COGS/Revenue
ratio of 82% as opposed to 74% in FY12. This is due to 9% increase in average
beet price to LE401/ton, 36% y-o-y wages hike, as well as inventory changes. S,G&A
rose 24% y-o-y to LE19 million. Therefore, EBITDA mounted to LE256 million, up 9%
y-o-y, however EBITDA margin fell to 17% against 24% in FY12.
Below EBITDA, investment income significantly tumbled to LE19 million against LE60
million due to lower payout ratio from Al-Fayyoum and dividend withholding from
Nubaria. Finally, bottom-line reached LE189 million in FY13, 19% down from
LE235 million in FY12. Delta Sugar proposed cash dividend of LE1.0/share; representing a dividend yield of 7.8%.
49.32
Shareholders
Sugar Integrated Industries
55.73%
Endowments Authority
8.09%
Misr Insurance
6.96%
Kima
6.46%
Going forward, the competition from imported sugar is to continue in FY14 with international sugar prices expected to further decline by 5% y-o-y. Local sugar
producers, including Delta Sugar, will have to set their prices below the imported that
is expected to reach LE3,915/ton (expected FX rate LE7.1/US$ in FY14).
National Investment Bank
6.28%
Upsides to Valuation:
Misr Life Insurance
6.03%
1.
Annual supply shortage of around 1 million tons in the local market
Free Float
7.06%
2.
Any further depreciation of the EGP acts as a hedge against international price
Title
Ahmed El Hindawy, CFA
Downsides to Valuation:
Team Head
1.
Declining sugar price in the international markets
+202 3300 5719
2.
Rising beet price
[email protected]
In FY14, Delta Sugar is expected to achieve LE1,365 million of revenues, with
11% y-o-y decline on the back of both lower prices and normal volumes, with the
company starting FY14 with a sugar inventory of 21.7k tons down from 101.4k tons
at the beginning of FY13.
Nada Saad Zaghloul
Title
Junior Analyst
+202 3300 5718
Utilizing a risk free rate of 11.2% and a market risk premium of 8.15%, the valuation model yields LE13.47/share, representing 4.8% upside potential over current market price. Therefore, we issue a “Hold” recommendation on the stock.
[email protected]
Stock Performance Chart
(LE/share)
Figures in LE million unless
stated otherwise
FY12a
FY16f
278
19.4%
216
190
1.33
301
20.2%
227
199
1.40
0.00
0
Prime Research
Mar-14
100
236
17.3%
183
161
1.13
Jan-14
200
3.00
256
16.7%
189
166
1.17
Feb-14
300
6.00
236
24.0%
235
206
1.45
Dec-13
9.00
EBITDA
EBITDA Margin (%)
Net Income
Net Attr. Income
EPS (LE)
Oct-13
400
Nov-13
12.00
Sep-13
1,491
Jul-13
1,432
Aug-13
1,365
Jun-13
-10.8%
Apr-13
55.8%
May-13
-28.9%
Mar-13
Revenues Growth (%)
Last Price (LE/Share)
DPS (LE)
Dividend Yield (%)
P/E (x)
1,530
FY15f
500
EPS Growth (%)
982
FY14f
15.00
Volume (000)
Revenues
FY13a
-40.6%
-19.4%
1.25
9.7%
8.86
1.00
7.8%
11.00
-3.0%
4.9%
17.7%
4.1%
5.2%
1.00
1.18
1.24
7.8%
9.1%
9.6%
11.34
9.64
9.16
Source: Company Financials & Prime Estimates
1
Delta Sugar
Egypt
FY13 Update
March 16, 2014
International Sugar Prices
International Sugar Prices
below their historical levels
in the foreseen future
International sugar prices have been facing pressure since FY12. A downward trend that started with
19% and 17% annual decline in FY12 and FY13 respectively, and is expected to continue by 5% y-o-y
plunge to US$382/ton in FY14. Starting FY15, prices will start to slightly recover reaching US$450/ton
by FY18; a price which is still lower than FY11’s peak of US$600/ton and FY12’s US$485/ton. Said
decline in international prices is mainly due to a global production surplus.
600
500
400
FY18f
FY17f
FY16f
FY15f
FY14f
FY13e
FY12a
FY11a
200
FY10a
300
US$/Ton
Source: Bloomberg & Prime Estimates
Intense Competition
Adjustments to international
sugar in the local market
With the international sugar prices below their historical levels, local sugar producers, including Delta
Sugar, are to face strong competition for sugar importers. However, the exchange rate is to partially
compensate for the international prices. In order for the international sugar to compete in the Egyptian market, it is adjusted for some variables; summarized in the following table.
Estimating Local Selling Price
Average Int'l Raw Sugar Prices/ton (US$)
FY12a
484.69
Import Duties
2%
Freight Cost (US$)
Exchange Rate LE/USD
55
6.05
FY13a*
402.86
17%, 2%
55
6.87
FY14e
382.28
2%
55
7.10
FY15f
407.85
2%
55
7.15
FY16f
433.20
2%
55
7.10
Price/ton (LE)
3,324
3,411
3,159
3,368
3,528
Refining Cost (LE)
Local Transport (LE)
Importer's Margin
Local Selling Price (LE)**
300
100
10%
4,096
300
100
10%
4,192
300
100
10%
3,915
300
100
10%
4,144
300
100
10%
4,321
Source: Bloomberg & Prime Estimates
*Calculated based on the average of 1H and 2H FY13’
**The fixed estimates for Freight Costs, Refining Costs, and Local Transport are based on a conservative approach
Local sugar producers set
their prices at discount to
imported sugar
Prime Research
Overall, local sugar producers have to set their selling prices with discount to imported sugar in order
to meet the competition and market their products. The table shows that in FY14, imported sugar
prices are to further decline by 7% to LE3,915; which is going to affect local sugar prices as well, and
hence the company’s revenues.
2
Delta Sugar
Egypt
FY13 Update
FINANCIAL SUMMARY
(Figures in LE mn))
Income Statement
Revenues
Revenues Growth
COGS
S,G & A
EBITDA
EBITDA Margin
Depreciation & Amortization
Provisions
EBIT
Interest Income
Investment Income
Interest Expense
Non-Operating Income
NPBT
Income Tax
Effective Tax Rate
NPAT
Extraordinary Items
Net Profit
Non-Appropriation Items
Net Attributable Income
March 16, 2014
FY12a
982
FY13a
1,530
730
16
236
-28.9%
55.8%
FY14e
1,365
-10.8%
FY15f
1,432
FY16f
1,491
1,254
20
256
1,112
17
236
1,136
18
278
1,171
19
301
4.9%
4.1%
24.0%
16.7%
17.3%
19.4%
20.2%
32
204
12
60
7
5
274
45
34
222
9
19
21
5
234
49
37
199
8
34
13
5
232
49
38
240
7
35
15
5
273
57
48
254
7
36
15
5
287
60
16.6%
21.0%
21.0%
21.0%
21.0%
228
7
235
28
206
185
4
189
23
166
183
183
22
161
216
216
26
190
227
227
28
199
NAI Growth
ROS
-40.6%
21.0%
-19.4%
10.9%
-3.0%
11.8%
17.7%
13.2%
5.2%
13.4%
Balance Sheet
Cash & Marketable Securities
Net Trade Receivables
Inventory
Other Current Asset
Total Current Asset
Net Fixed Assets
Other Assets
Total Assets
FY12a
232
43
513
149
937
442
292
1,671
FY13a
164
3
220
105
492
472
417
1,381
FY14e
131
27
164
111
433
470
533
1,436
FY15f
122
28
171
117
438
701
309
1,448
FY16f
119
29
178
121
447
672
311
1,429
Short Term Debt & CPLTD
Accounts Payable
Other Current Liabilities
Total Current Liabilities
Provisions
Other Liabilities
Total Shareholders' Equity
Total Liabilities & Shareholders' Equity
18
6
378
403
24
42
1,203
1,671
29
132
160
6
42
1,173
1,381
15
196
212
6
42
1,177
1,436
16
185
201
6
42
1,199
1,448
17
142
159
6
42
1,223
1,429
Free Cash Flow Statement
NOPLAT
Non-Cash Items
Gross Cash Flow
Gross Investments
Non -Operating Cash Flow
Free Cash Flow
FY12a
160
32
192
205
10
(2)
FY13a
171
34
205
(15)
7
228
FY14e
150
37
186
71
4
119
FY15f
182
38
220
70
4
154
FY16f
192
48
240
75
4
169
(12)
(59)
(278)
6
(18)
9
178
28
144
(2)
(8)
(18)
(16)
16
18
18
142
23
54
228
(8)
(33)
(31)
10
142
22
15
119
(7)
(34)
(10)
12
167
26
154
(7)
(36)
(4)
12
176
28
169
Financing Flow
Interest Income After-Tax
Investment Income After-Tax
Increase in Excess Cash & M. Sec.
After-Tax Interest Expense
Decrease in Debt & Bonds
Provisions Used
Dividends Paid
Non-Appropriation Items
Shareholders Equity
Total Financing Flow
Source: Company Financials & Prime Estimates
Prime Research
3
Delta Sugar
Egypt
FY13 Update
March 16, 2014
Stock Recommendation Guidelines
Recommendation
Target-to-Market Price (x)
Strong Buy
x > 25%
Buy
15% < x <25%
Accumulate
5%< x <15%
Hold
-5% < x < 5%
Reduce
-15% < x < -5%
Sell
-25% < x < -15%
Strong Sell
x < -25%
Investment Grade
Explanation
Growth
3 Yr. Earnings CAGR > 20%
Value
Equity Positioned Within Maturity Stage of Cycle
Income
Upcoming Dividend Yield > Average LCY IBOR
Speculative
Quality Earnings Reflect Above Normal Risk Factor
Prime Research
4
Delta Sugar
Egypt
FY13 Update
March 16, 2014
PRIME SALES TEAM
Hassan Samir
Managing Director
+202 3300 5611
[email protected]
Mohamed Ezzat
Head of Sales & Branches
+202 3300 5784
[email protected]
Shawkat Raslan
Heliopolis Branch Manager
+202 3300 5110
[email protected]
Mohamed Higazy
Manager – Institutions Desk
+202 3300 5621
[email protected]
Amr Alaa, CFTe
Supervisor- Local Institutional Desk
+202 3300 5609
[email protected]
Mohamed Elmetwaly
Team Head - High Networth Desk
+202 3300 5610
[email protected]
Emad Elsafoury
Team Head – High Networth Desk
+202 3300 5624
[email protected]
RESEARCH TEAM
[email protected]
HEAD OFFICE
PRIME SECURITIES S.A.E.
Regulated by CMA license no. 179
Members of the Cairo Stock Exchange
2 Wadi El Nil St., Liberty Tower,
7th-8th Floor, Mohandessin, Giza, Egypt
Tel: +202 33005700/770/650/649
Fax: +202 3760 7543
+202 3300 5728
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Abu Dhabi – UAE
TEL: +97155 - 3214567
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