African Sugar Companies: Which one is the sweetest?

Dear Africa interested individuals:
                                                        As sugar companies grapple with lower sugar prices amid a supply glut, I decided to take a look at SSA based listed sugar companies.  I also wanted to avoid reviewing the companies from a stock-market related perspective instead, opting for an operational perspective; therefore, no price-related variables were factored into my assessment.  

I reviewed eleven (11) metrics (with seven of them covering multiple-year assessments) and ranked the five sugar companies.  The best in each comparative metric gets a 1 and the worst a 5.  The rest fall in between.  The lowest score became the best performing sugar company among the five selected.  My expectation was that the most resilient and consistent sugar company should be the best and have the lowest ranking score.  I have no idea about results of scenarios I create; I am a doer as well as an onlooker.  

The sugar companies evaluated were:
  1. Illovo Sugar South Africa
  2. Zambia Sugar  
  3. Omnicane Limited Mauritius
  4. Dangote Sugar Refinery Nigeria
  5. Mumias Sugar Kenya

Some of the line items utilized in some way to create the metrics and rank the sugar companies are:
  • Sales
  • Fixed Assets
  • Pre-tax Income
  • Gross Profit
  • Operating Profit
  • Free Cash Flow
  • Net Income
  • Equity
  • Assets
  • Debt (Long & Short Term)
  • Trade & other payables 

The best-performing listed sugar company in SSA is Zambia Sugar Plc with a score of 23 points.  Second-placed sugar company is Illovo Sugar (owns Zambia Sugar) with a score of 26 points.  Third-placed sugar company is Dangote Sugar Refinery with a score of 28 points.  The fourth-placed sugar company is Omnicane Limited with a score of 38 points.  The fifth and last-placed sugar company is Mumias Sugar.  Upon review of the results and other information available to me, here are my findings:  

  1. If you are a portfolio manager and you are fixated on or skewed towards returns in making your investment decisions, then, you should select Dangote Sugar Refinery.
  2. If you are a portfolio manager that rates a company highly if it has the best ability to generate profit from core operations (in this case sugar planting, milling and refining) relative to the competition, then, you should select Zambia Sugar.
  3.   If you are piqued by companies that have demonstrated a consistent ability over a fairly significant period of time to grow pre-tax income way ahead of sales, then, you should select Omnicane Limited.  I invariably, has the highest PER among the five sugar companies. 
  4. If you are strongly attracted to companies with the best ability to generate excess cash from their operations, then, you should select Zambia Sugar.  
  5. If you have a preference for companies that have a very good relationship (relatively) with their suppliers, then, you should select Zambia Sugar.  

I also noticed these other interesting observations which should call for deeper reflection.  You can also call this section "I am just saying" 

A. Positive pre-tax income growth over five years was achieved only by the three (3) sugar companies that cover all aspects of the value chain and do not go outside of it.  They are Zambia Sugar, Illovo Sugar and Omnicane Limited.  Dangote Sugar Refinery (as the name implies) is pretty much into refining as an extreme bulk of its raw sugar for refining is imported from Brazil and not grown locally on a plantation.  Mumias Sugar is also into bottled water production which is an ancillary operation to aid the bottom-line.  The latter two had negative pre-tax income growth.     

B. Four of the five sugar companies are audited by Deloitte.  The only odd one out is Omnicane Ltd.  Omnicane has the highest price-earnings ratio (PER) among the five companies as at July 10th, 2015 of 22X.  The other four have PER less than or equal to half that of Omnicane at 22X. 

C.  The sugar company that has had the most "musical chairs" (at least five) with its CEO over the past eight years is Dangote Sugar Refinery.  The sugar company with the lowest price-earnings ratio (6.5X) among the five companies as at July 10th, 2015 is Dangote Sugar Refinery. 

D.  The former MD of Illovo Sugar is now the MD of Dangote Sugar Refinery. 

E.  Dangote Sugar is the most profitable (relative terms) and is the only company that is not growing the sugar it refines.  The company also has the most volatile profit growth profile among the five.  

F. The sugar companies in Africa's most advanced economy (South Africa) and largest economy (Nigeria) did not come out on top.  The same thing that happened with the African Banks ranking.  A smaller country rises to the top.  Zambia for sugar and Botswana for banking.  They are both southern Africa countries.  When you get real big in business, it is usually very hard to see what is just beneath you.  Illovo can take heart in that it owns Zambia Sugar.  Illovo's sales was about $1.1 billion in FY 2015 March.  Dangote Sugar Refinery was slightly less than half of that.  The other three were much further back.    

So, how has the market responded to my assessment and ranking?  

Zambia Sugar is the best sugar company and has the 3rd lowest PER of 11X.

Illovo Sugar (parent of Zambia Sugar) is the 2nd best and has the 2nd lowest PER of 9X. (Still has an upside from an investment perspective in my opinion)

Dangote Sugar Refinery is the 3rd best and has the lowest PER of 6.5X.  

Omnicane Limited is the 4th best and has the 4th lowest PER of 22X.  

Mumias Sugar is the 5th best and has the 5th lowest PER which is deemed not applicable due to the losses incurred by the company.  


The end.  I have to run...   Have a nice week.

Tell others to tell others about the blog.  A new dawn is here... 

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