Today’s Trading Playbook
KEY THEMES
Sugar prices continued to soar globally as supply shortages hit hardest. Prices of sugar usually correlate with oil prices, as the majority of global sugar capacity is sugar cane-based. This makes both sugar and ethanol production compete for the same main input. When oil prices get higher, sugar cane gets more directed towards ethanol production, thus limiting sugar global supply. Higher global sugar prices are a good omen for Delta Sugar [SUGR], supporting its average selling prices. SUGR has reported earnings of EGP344mn in just H1 2021. Despite expectations of a robust 2021, to replicate the performance through 2022 depends heavily on the impact of SUGR’s inventory change on margins. For margins to remain rich going into 2022, SUGR has to end this year with relatively thin inventory in addition to stable global sugar prices.
Elsewhere, Misr Chemical Industries [MICH] rose notably yesterday, gaining 4.7%, closing the day at EGP11.53/share. MICH is on the lookout to deliver yet another triple-digit bottom line going into 2021/22. The chloralkali manufacturer has previously announced its 2M 2021/22 indicators, showing a bottom line of EGP32mn (+15% y/y). Selling prices for MICH are expected to remain in a good shape in 2021/22 due to supply tightness of chlorine and caustic soda in the U.S. amid robust demand. The situation of disrupted supply got amplified by the fallout of hurricane Ida and the woes of the flooding in Germany, causing a number of capacity outages. Furthermore, the limit of industrial usage of electricity in China further kept the Asian output subdued. Over the long run, news about increasing Egypt’s water desalination capacity, besides allowing the private sector to take part should serve as a main long-term catalyst for MICH. MICH is currently traded at 2020/21 P/E of only 6x, while our 12M PT for the name is EGP13.9 (+21%). We note that today is the last day for eligibility for MICH’s EGP1.00 cash dividend per share.
POSITIVE
SUGR, MICH: Higher global commodity prices in general bode well for the two names’ top lines and in turn profitability.
Now, on to the top news and analysis for the day.