KEY THEMES
After a year of devastating losses in 2020, Delta Sugar [SUGR] is about to turn this around during the ongoing 2021. SUGR had record sales last year, selling as much as 427,000 tons, nearly depleting its entire inventory. We expect SUGR to turn profits in 2021 on the back of: (1) starting the year with a thin inventory, (2) higher global sugar prices, and (3) expectations of lower sales volumes in 2021, which will contribute to a higher ending inventory, and thus improved margins during the year. We note that, SUGR nearly sold only 9,300 tons during Q1 2021. We believe SUGR is capable of achieving a bottom line between EGP180mn to EGP200mn this year.
We valued SUGR using two valuation techniques. First, we derive our valuation from an 8-year median EBITDA, which came at USD22mn, applying a 5.5x EV/EBITDA, and valuing SUGR investments at c.EGP500mn, we reached an equity value of EGP1.7bn (EGP12.2/share). Second, we applied USD600/ton as an EV/ton derived from Canal Sugar inauguration costs for its 0.75mtpa sugar facility, where we reached an equity value of EGP2.4bn (EGP17.16/share). In average, both valuation methods yielded a PT of EGP14.5/share, hence; we have an upside of 72%.