Tongaat Hulett | The way the cookie crumbles

TON's H1 '19 financial results were weak, despite 28% yoy growth in sugar sales. Diluted HEPS fell by 113% yoy to -74cps. In South Africa, import competition reduced both domestic sales volumes and prices. Currency fluctuations and illegal imports hindered profits in Mozambique. Due to the challenges in SA and Mozambique, cane values fell, which affected earnings. The land business revenue fell by c.96% yoy to R28m at a loss of c.R30m compared to a profit of R661m in FY ‘18, as negotiations were not complete by period end. In FY '20, higher tariffs in SA will allow TON to price SA sugar to a sustainable margin, in contrast to previous losses. With weather conditions conducive, we expect Group sugar production to rise at a 7% CAGR to c.1.5m tons in FY '21. Growth in sugar and normal price realisations will contribute to Group earnings CAGR of c.24% to FY ‘21. The land and starch business have good prospects and demonstrate Group diversification benefits. According to our calculations, all businesses contribute to a strong recovery of Group earnings over the next few years.