Morning Equity Briefing |
Foods
Tereos Internacional reports strong EBITDA growth; its parent also sees lift in EU sugar profits
Jack Gorman
FACTS: Listed starch and sugar company Tereos Internacional reported Q3 results (year-end March); its parent, Tereos Group, released full-year results (year-end September) on February 4th.
ANALYSIS: First a brief description – Tereos Internacional is a Brazilian-listed operator of sugar (Brazil, Africa), starch (Europe) and ethanol (Brazil, Europe) assets. It intends to list on Euronext this year. It is majority owned by the Tereos Group, a French co-operative which also operates a large European beet sugar processing business.
Tereos Internacional reported a 28% increase in adjusted EBITDA for Q3 to R$260m, driven by its cane sugar operations. The company is expanding its sugarcane production capacity organically and via acquisition. This volume increase, coupled with positive price/mix in Brazilian sugar and ethanol, was responsible for a 95% increase in profits in the sugarcane division to R$195m.
In its European divisions, starch/ethanol profits fell year-on-year from R$102m to R$61m as price increases lagged wheat and corn cost increases. However, a rebound in margins is anticipated in the current quarter as much of these recent input cost increases are passed through in 2011 contracts. An encouraging aspect of the out-turn was continued volume growth in what is a seasonally weak quarter. The 2.6% growth in volumes was driven by demand from the paper and corrugated board, chemicals and infant nutrition markets.
Separately, the Tereos Group in its own full-year results (year-end September 2010) reported a 20% increase in adjusted EBITDA from its sugar beet operations in Europe to €300m. Some 1.7m tonnes of sugar were sold, including its quota allocation of almost 1.2m tonnes. The group indicated that the financial outlook for the current year is excellent as its markets remain resilient.
DAVY VIEW: The complexities and value of the starch molecule and its derivatives have been long cherished by industry but remain undiscovered by many investors. Tereos Internacional, via Syral, is a large player in the European starch derivatives market and competes with the likes of Cargill, Tate & Lyle and Roquette. Its balance of sugar and starch assets makes it a very interesting story. It is supported by a parent, Tereos Group, whose European sugar beet activities also remain buoyant.