Global sugar deficit a boon for Hippo

Listed Zimbabwean sugar producer Hippo Valley Estates — which only resumed trading on the Zimbabwe Stock Exchange (ZSE) on Monday — is set to accrue significant benefits from the prevailing global sugar deficit, analyst say.

Hippo exports into the region, the United States, and to the European Union.

To the extent that the group can manage to ramp up production in the current year, it stands to benefit from the attendant increased demand for their product.

In its latest interims, Hippo indicated that it is carrying out some initiatives to restore cane yields to optimal levels, with some 1 074 hectares having been ploughed out and replanted during the six-months period to September 30, 2019.

Output during that half-year period had declined 1 percent to 152 076 tons from 153 343 in the prior comparable period.

Say analysts at stockbrokers Morgan & Co: “Hippo Valley’s comeback to the ZSE comes at an opportune time for the sugar producer as the global sugar market is facing a supply shortage for the first time in five years.

“Last year, the institution (Hippo) managed to attribute total industry exports to Europe, the United States and regional markets of 112 000 tons in 2019 (compared to 58 000 tons in 2018), despite the challenging economic environment.

“Previously, the global sugar industry was experiencing an oversupply that resulted in depressed prices. However, sugar prices in the international market have surged to 15c per pound.

According to an analysis by Clif Droke of market watchers SeekingAlpha, the recent trend of rising oil prices can further drive up demand for sugar.

“Rising oil prices are often good news for sugar for they tend to encourage sugar producers to earmark more sugarcane for the production of ethanol, as ethanol becomes more competitive as an alternative fuel when crude oil prices are rising,” he wrote last month.

“As long as WTI crude oil prices exceed $60/barrel in the coming months, ethanol demand will increase and, consequently, sugarcane will be increasingly diverted away from the food market and toward biofuel — particularly in Brazil.”

Indications from Hippo’s performance back on the local bourse show that investors see the company’s shares as having strong upside, perhaps not just because the stock had not been trading on the ZSE for about six months, but for its strong business fundamentals.

“The resumption of Hippo Valley Estate on the ZSE was met with a 105,13 percent gain on its share price as it was heavily undervalued, we anticipated that the trend will continue on an upward trend,” said the analysts.

The 2019 full year financials were published on December 20, 2019.

Further, half year 2020 financials for the subsidiary were released on February 14, 2020, qualifying the counter to have its shares trading on the ZSE again.

For the six-months to September 30, 2019 Hippo’s revenues jumped 76 percent to $748 million; posting a profit of $188 million, up 755 percent from $22 million prior year comparable.