The Sunday News
Roberta Katunga Senior Business Reporter
STOCKBROKERS have recommended a hold on sugar producing concern, Hippo Valley estates’ shares, at a time when the company recorded a 22 percent drop in its top line producing a depressed set of results despite a five percent rise in sugar production to 239 000 tonnes.According to the company’s results for the year ended March 2014, Hippo Valley estates’ turnover was $136.1 million compared to $174 million the previous year while cash generated from operations was also down nine percent from $32 million to $29.1 million.
The company attributed the drop in revenue to the influx of cheaper imports into the country and pressure from significantly lower sugar prices realised from exports into the European Union.
A local stockbroking firm said, “Although Hippo Valley enjoys a premium on its sugar exports to the EU, this has seen and may continue to result in a reduction in the value of its exports. In addition, proceeds on exports to the EU remain sensitive to the Euro/US$ exchange rate.”
Although Hippo Valley’s total sugar production of 239 000 tons in the 2013/14 season is a major improvement from past figures, it remains below the mill’s output capacity of around 300 000 tons of sugar per annum.
“At an average cane-to-sugar ratio of eight, this implies scope for a further 26 percent increase in cane supply to 2.4 million tons before the mill’s full production potential is reached,” said the company.
Speaking on the investment concerns being faced by Hippo Valley, declining consumer disposable income remains a major challenge as well as high production costs which are a challenge for local sugar players.
“The challenge remains in reducing production costs which play a significant part in thinning profit margins in the sector. Zimbabwe is also a price taker because they are a small player in terms of sugar production hence has no influence on market dynamics,” said the stockbrokers.
The stockbroking firm advised a hold to all Hippo Valley estate shares as despite the depressed results, Government intervention to protect local markets against unfair competition from cheaper imports, which might result in improved performance for the sugar concern.
Government put a restriction on all sugar imports except white manufacturer’s grade sugar for the beverage industry which became effective on 17 January 2014.
Before the ban, duty on sugar imports was 10 percent but with restrictions duty is now 10 percent plus US$100/tonne and a licence to import is required from the Ministry of Industry and Commerce.
“Regardless of the generally low levels of liquidity in the country, the ban is a position that is expected to yield positive results in the short term as it will significantly boost local sales and help the main players regain lost market share. The long term outlook on global sugar prices is positive, influenced by growing demand in emerging markets, changes in the EU’s policies regarding the commodity as well as the increased demand for sugar cane in the production of ethanol.”
