KEY THEMES
Delta Sugar [SUGR] announced its preliminary net earnings for the year 2021. The company achieved net earnings of EGP394mn vs. net losses of EGP254mn. Management attributed the profitability turnaround to (1) Selling all of the sugar produced during 2021, and (2) Higher average selling prices. We note that we expected 2021 to be a great year for SUGR in our Trading Playbook dated 12 July 2021. We said that 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 comparative sales volumes in 2021, which will contribute to a higher ending inventory, and thus improved margins during the year. Furthermore, we anticipate that raising the price of subsidized sugar will affect SUGR’s operations positively in the event that the Holding Company for Food Industries made a contract with SUGR at renewed prices. We note that, since we alluded to the stock back in July, the stock has rallied c.73%.
Elsewhere, it’s interesting to look at the way to assess the value of a stock by still looking at the market price and to reverse engineer what the stock price implies in terms of valuation multiples. One of these important multiples that grab attention is the PEG ratio, which gives an indication how much of growth the market might be implying from a certain stock price. Yesterday was the first trading day for Nahr Al-Khair for Agricultural Investments [KRDI] which rose by 169%, implying a P/E ratio of 14x based on annualized nine-month results. If fair value was at a PEG ratio of 1, this would imply that the market is expecting 14% in earnings growth for the next few years, which only time will tell. To be fair, we see much cheaper opportunities with double-digit growth rates that wait to re-rate. We will soon be laying out our top picks for 2022 in our upcoming STANDPoint annual strategy note, so stay tuned.