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South Africa: Tongaat Hulett Unlikely to Repeat Profit Feat
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Business Day (Johannesburg)
25 July 2008
Posted to the web 25 July 2008
Johannesburg
TONGAAT Hulett notified shareholders it expects a 44% rise in profit from operations to R443m when it reports interim results on August 4.
This is impressive. The share price rose quite nicely yesterday, up 3,62% to R80,50 - no doubt driven by the trading statement. But when one looks forward the situation seems a little more cloudy.
Firstly the group is exposed to the ailing residential housing market in KwaZulu-Natal, and while it has started initiatives in the commercial and tourism property fields, earnings growth from its property interests are likely to be muted.
Local demand growth for its maize- and sugar-based carbohydrate products is not likely to be strong due to the weaker economy. Also, the global sugar price has been weak over the past six weeks.
Some analysts predicted the sugar price might double in the next 12-18 months due to tighter supply and rising demand for ethanol.
But that's like predicting the oil price - who knows where it's going?
The most recent trend has been downwards as demand from developed countries subsides.
Another interesting prospect is that the group, having brought its empowerment partners on board, may reach some kind of electricity co-generation agreement with the government this year, which may give the share price a lift. Also, last year's corporate restructuring costs are unlikely to be repeated.
Still, it is unlikely the first half's increase in profit will be repeated in the second half.
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The Bottom Line is Edited By Edward West
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