Sweetening outlook for Delta in Egypt

Markets Update: Delta sugar is expanding its business to benefit from higher sugar demand, which could bode well for the stock.

Delta Sugar is expanding its business to benefit from Egypt's sweet tooth, which could bode well for the stock.

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The Egyptian sugar producer is operating beyond its recommended maximum capacity but its planned sugar facility would raise production by 150,000 tonnes to 400,000 tonnes of sugar per year.

"Political uncertainty has stalled the expansion, but we believe management is keen to proceed once bureaucratic hurdles are cleared after Egypt's post-revolution elections," said Sameh Hassan, an analyst at the Cairo brokerage Naeem Holding. Mr Hassan initiated Delta with an "accumulate" rating, with a "fair value" price of 25.3 Egyptian pounds. The shares closed at 19.79 pounds apiece yesterday.

Delta benefits from favourable market conditions in the Arab world's most populous country. Egypt has been a net importer of sugar for more than two decades, with an average 36 per cent of its demand met by imports, Mr Hassan said. The country has an annual per capita consumption of 36kg - the equivalent of 7,600 teaspoonsful a year. Changing tastes towards more processed foods, confectionery and carbonated soft drinks are also strengthening momentum.

Beet is Delta's main raw material and has accounted for 77 per cent of its costs over the past four years. It takes about 7 tonnes of beet to produce 1 tonne of raw sugar.

Delta does not grow its own beet but buys its annual requirement from thousands of beet farmers across Egypt. Prices are set through direct negotiations between farmers and sugar factories, with the government setting a minimum procurement price.

"Although capped by the government, beet sugar prices are influenced by local demand and international prices," Mr Hassan said. "With the global sugar stock-to-use ratio at all-time lows" international sugar prices were expected to remain firm, he added.

Global sugar prices surged from a low of 13.75 US cents a pound last year to 30.96 cents per pound in September.