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Durban - An upbeat trading statement from Illovo Sugar might tempt investors. Headline and earnings per share expected to be up by 25% to 30%, operating profit an even higher 35%.
Here are points to consider.
The high world sugar price is a factor, buoyed by export shortfalls in Brazil and India. Global consumption higher than production is always a good wicket for major sugar producers.
An investment note from Francesco Sturino at BP Bernstein noted that Illovo has been pulling out of South Africa, mainly due to better margins in its extensive African operations. It said operating margins in South Africa are currently 6.4%, compared to top dollar margins of 36.4% in Malawi and 20.9% in Mozambique.
The trading statement from Illovo noted that apart from world sugar prices, the positive effect on interim results will come from increased production in other African states.
Exports from low-cost African countries will become increasingly important in the future with increased preferential access to European Union markets. However, about 40% of Illovo's volumes are already sold into African markets at historical prices, said BP Bernstein, at a premium to the current world sugar price.
Major shareholder Associated British Foods has been under strain and will probably lean on Illovo for earnings and dividends.
- Fin24.com