Tongaat Hullet expect high revenues on back of add...

Tongaat Hullet expect high revenues on back of additional land leases

Zim Now Writer

Analysts expect revenues in Tongaat Hulett’s Zimbabwe listed unit, Hippo Valley Estates, to top $141 million in the financial year ahead after the company secured additional land leases from the government.

“We believe that US$ revenue will register at US$141m supported by firmer prices on the international market and a 0.62% marginal increase in sugar production emanating from increasing area under hectare as well as carry over-cane,” said IH Securities last week in a research note on the company.

While Ebitda earnings in the full year period to the end of March declined 2% in Zimbabwe dollar terms on an adjusted basis, the analysts at IH Securities said Ebitda margins “will start moderating going forward initially slowing to 25%” in the 2024 full year ahead.

Zimbabwean companies have started to see an uptick in US dollar sales of commodities as the economy dollarizes despite government efforts to prop up the local unit of exchange.

However, the multi-currency nature of Zimbabwe’s economy has been leaving listed companies unable to comply with international accounting and financial reporting standards, owing to difficulties in deriving fair value from a highly exchange rate framework.

“Net income is expected to come in at US$20m in the current earnings cycle,” said IH Securities.

Hippo Valley recently reported that engagements with the Zimbabwean government regarding issuance of 99-year leases are ongoing. It has secured about five leases amounting to 3 804 hectare, with a balance of three lease blocks measuring 20 175 hectares still to be issued.

“Encouraging assurances have been received from the Ministry that the remaining leases will be issued in due course, and that recommended changes to the wording of the lease documents are being finalized,” said the company.

Tongaat says its share of the local market “was compromised as a total of 17 brands were imported into the country” as a result of Zimbabwe’s duty free commodity imports, including sugar.

“The sugar industry estimated the total impact of these imports to have been 5% of the annual local sugar sales volume. World sugar markets often trade below global costs of production, meaning that imported sugar has an unfair price advantage over sugar produced locally in Zimbabwe where production costs are relatively higher,” the company said.

Additional downsides for Hippo Valley include accelerated dollarisation of rates and inputs that were likely to put margins for the company under pressure.

According to Hippo Valley executives, the operating environment in Zimbabwe “is anticipated to remain volatile and hyperinflationary in the short to medium” term.

Hippo Valley opted to forego a dividend payment for its 2023 second half year period to end March, owing to high indebtedness and the tough economic environment.

This is despite the board of the Zimbabwe listed entity declaring a US$0.3 cents dividend for the interim period.

“In light of the heightened volatilities weighing down the economic and operating environments as well as the increased level of borrowings, the directors have not declared a final dividend for the year ended 31 March 2023,” Board chairperson Canaan Dube said.