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Trade insight example

Illovo Sugar Ltd

2 December 2014 

Yesterday, Illovo Sugar reported disappointing results attributed to bad weather and falling international sugar prices. Total group sugar production (contributes 70% to group revenue) for the period fell by 9% to 1.3 million tons, as a result of late summer rains, frost damage in KwaZulu Natal Midlands, a dry winter and an industry strike.

Total cane harvested (contributes 20% to revenue) on the group's own estates amounted to 4.3 million tons compared to 4.7 million tons in the same period last year. This reduced harvest resulted in operating profit from the group's cane growing operations declining to R570 million from R718 million in 2013

Despite challenging circumstances faced generally by the group across its markets, increased domestic sales were achieved in Malawi and Zambia. Operations in Zambia and Mozambique are expected to achieve record sugar and cane production for the year. Malawi's contribution to operating profit increased year-on-year to R560 million, representing 41% (2013: 33%) of the group total for the period. In Tanzania, the newly-commissioned distillery operated consistently above installed capacity and with strong demand for potable alcohol in the East African region.

European Union sugar prices have continued to trend downwards as industry producers reposition themselves in the run up to the deregulation of its sugar industry in September 2017. With new reforms (dropping quotes) implemented in Europe for 28 members, Illovo management will be reduce sales in EU to about 150000 tonnes annually and place their focus on African markets. Salient Features:

  • Group revenue down 5% to R5 932 million, impacted by 9% lower sugar production and reduced export market prices
  • Operating profit down 14% to R1 393 million
  • Downstream operating profit up R68 million to R130 million
  • Headline earnings per share down 10% but distribution remains unchanged
  • Record sugar production expected in Zambia and Mozambique

Previously the group reported subdued set of results for the year ended March 2014 mainly due to competition from low-price imported sugar and adverse year-on-year cane fair value adjustments, despite improved sugar sale volumes and better domestic pricing. Source: JSE SENS

Technical analysis

After fairly strong move down we have seen a grinding consolidation back up which resembles a bear flag pattern (parallel red lines). This pattern alludes to the momentum remaining down on the share.

Should the support of the pattern break the recent low of 2508c becomes our initial target, a break of which further favour a projected bear flag target of 2430c. It is important to watch volume as volume should be heavy during the decline that forms the flagpole.

Heavy volume provides legitimacy for the sudden and sharp move that creates the flagpole. An expansion of volume on the support break lends credence to the validity of the formation and the likelihood of continuation. - Travis Robson, Premium Client Manager

Illovo Sugar Ltd, 2/12/2014

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