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Tongaat Huletts, the agriculture and agricultural processing business with a substantial land portfolio has had a much improved financial year (ending March 2017).
Some of the salient feature noted:
- Revenue increased by 7.4%
- Operating profit increased 39.4%
- Headline Earnings increased 44.6%
- Annual Dividend was increased by 30.4%
The group operates under three core divisions namely: Sugar, Starch & Glucose and its land conversion activities.
FY17 saw the sugar division grow operating profit to R1.271bn, from a loss of R15m in the previous year (FY16), to account for roughly 50% of the group’s total operating profit figure. The improved performance comes despite only a marginal increase in sugar production levels over the year. While yield in its Kwazulu-Natal, Mozambique and Zimbabwe operations were hindered by drought and water restrictions, the sugar division has benefitted from import tariff protection and higher realised prices for exports.
Starch and Glucose
This division accounted for around 20% of FY17 group operating profit and saw a decline in margins due to the drought in the last season. Operating profit contracted by 12.5% from the comparative period (FY16).
Land Conversion and Development
The land conversion and development division accounted for around 30% of the groups operating profit in FY17. Operating profit did however contract by roughly 43% in the year as 75 developmental hectares were sold compared with 121 hectares sold in the previous financial year.
Revenue and earnings growth have been driven by primarily one of the three core divisions of the company, sugar. The company does expect to continue to benefit from improving production within this division as more normal growing conditions return with improved rainfall (and in turn dam fill levels) across key grow regions. The starch and glucose division looks to have “weathered” the storm of drought conditions, with the relief thereof expected to improve production costs going forward. The land conversion division remains subject to the cyclical nature of property. Although this division was the worst performing division, the group remains in negotiations for the sale of another 233 hectares of developmental land, nearly double of that realised in FY17.
The consensus of analyst estimates arrive at a long term target for Tongaat Huletts at R150.
While the company is perhaps not as widely covered by analysts as many others, the Thompsons Reuters poll of analyst estimates maintain a buy rating.