Anticipated Sugar Price Rise And Ethanol Price Stabilization Will Improve Future Prospects

Key Takeaways

• Global sugar deficit could raise prices, boosting Südzucker's future revenues if managed properly amidst EU harvest and inventory challenges.
  
• Stabilizing ethanol prices and increased fruit segment profits may enhance Südzucker's overall earnings and competitiveness.
  
• Declining revenues, significant profit drops, and financial pressures point to serious challenges in profitability and potential refinancing risks for Südzucker.

Catalysts

Produces and sells sugar products in Germany, rest of the European Union, the United Kingdom, the United States, and internationally.

• Südzucker is facing a challenging environment in its Sugar segment, with an anticipated deficit in the world sugar market potentially leading to an increase in global sugar prices. This could positively impact future revenues if the deficit is confirmed.
  
• The anticipated large harvest in the EU sugar market and continued high sugar inventories, together with fluctuations in sugar prices, could have a future impact on net margins if managed effectively.
  
• The structural changes in the European market with agreements like Mercosur could present opportunities for better price competitiveness, potentially improving earnings in the long term.
  
• CropEnergies, a segment within Südzucker, is expected to benefit from a stabilization in ethanol prices, which could lead to an improvement in earnings after a challenging period of lower prices.
  
• The Fruit segment is currently seeing increased operating profits due to higher sales volumes and moderately higher margins, which could lead to sustained improvement in the company's overall earnings.

Südzucker Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Südzucker's revenue will decrease by 1.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 0.5% today to 3.7% in 3 years time.
• Analysts expect earnings to reach €350.8 million (and earnings per share of €1.73) by about February 2028, up from €46.0 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 7.4x on those 2028 earnings, down from 46.2x today. This future PE is lower than the current PE for the GB Food industry at 12.2x.
• Analysts expect the number of shares outstanding to grow by 0.36% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 4.5%, as per the Simply Wall St company report.

Südzucker Future Earnings Per Share Growth

Risks

• Südzucker's group revenues are slightly below the previous year's level, while revenues in key segments like Special Products, CropEnergies, and Starch have declined, hinting at potential ongoing revenue challenges.
  
• The group's EBITDA and operating profit saw significant declines of 55% and 73% respectively, which, alongside a negative EPS, indicates substantial pressure on net margins and overall earnings.
  
• The Sugar segment reported an operating loss for the first time in the fiscal year, largely due to a sharp downturn in prices and higher production costs, suggesting continued risks to profitability and net margins.
  
• Special items, including a €76 million charge mainly from the CropEnergies segment, due to project reassessment and related restructuring, highlight potential issues with capital allocation and impacts on earnings.
  
• The ongoing high net financial debt of €1.7 billion and the upcoming €500 million bond maturity in November 2025 pose refinancing risks that could affect cash flow and financial stability.

Valuation

• The analysts have a consensus price target of €10.98 for Südzucker based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €14.0, and the most bearish reporting a price target of just €9.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €9.4 billion, earnings will come to €350.8 million, and it would be trading on a PE ratio of 7.4x, assuming you use a discount rate of 4.5%.
  
• Given the current share price of €10.42, the analyst price target of €10.98 is 5.1% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.