Delta Sugar is expanding its business to benefit from higher sugar prices, which could bode well for the stock. The Egyptian sugar producer will start building two plants next year, the company's chairman announced yesterday.
Shares of Delta have increased by more than 50 per cent on the Egypt Stock Exchange in the past six months. Higher prices of sugar have eaten into profit margins from beverage companies in the region, but producers such as Delta Sugar are expected to benefit.
It was only three weeks ago that Delta was upgraded to "strong buy" by Mirette Mohammed, an analyst at CI Capital. It added another 4 per cent yesterday to close at 22 Egyptian pounds.
Sugar was as high as US$735 a tonne at the beginning of the year because of fears of constricted global supply, but it dropped to less than $500 per tonne by May as major importers began delaying orders until the start of next year's season. By June, prices started to climb again and were averaging $731 a tonne last month.
CI Capital increased its local sugar price forecast to 4,199 Egyptian pounds per tonne next year as the brokerage expects a shortage of 69 per cent in global surplus of sugar. The Egyptian government's decision to allow local producers to sell at a maximum price of 4,500 Egyptian pounds a tonne has also contributed to the local price increase. To capitalise on the trend, Delta will begin construction of two plants next year and is seeking to acquire land for a third factory, said Abdelhamid Salama, the company's chairman.
Delta will invest 3 billion Egyptian pounds in the factories, to be built in Sharkiya and Dakahliya provinces. Each factory is expected to produce 150,000 tonnes of sugar once they go online in 2013.
Next year, Delta is expected to produce 2 million tonnes of sugar, harvested by February, which is expected to cover the country's needs until October.