NEW: Hippo to reclaim market share

Michael Tome

Research and stockbroking firm, IH Securities, says the repealing of Statutory Instrument (SI) 80 of 2023 early this year will allow Hippo Valley Estates Limited to reclaim some of its lost market share next year.

The promulgation of SI 80 of 2023, which resulted in sugar imports and other commodities being duty-free, was repealed effective January 1, 2024.

Industry players had long raised concern, indicating that the influx of cheap sugar imports threatened the viability of the sugar industry and more than 1 300 commercial out-grower farmers.

According to IH Securities, domestic market sales for the sugar industry were hamstrung, with volumes declining 16 percent from between 2023 and 2024.

“This SI was repealed in early 2024, therefore Hippo should be able to get back some of its lost market share, resulting in volumes and revenue recovery,” said the organisation.

“However, the tax structure effected on January 1, 2024, will continue to exert upward pressure on the cost of doing business, impacting the company’s profitability.

“In addition, we expect margins to remain under pressure as cost lines continue to firm in real terms due to imported inflation.”

IH Securities said Hippo made headway in securing its 99-year leases, with 16 802 hectares having been signed off as of year-end.

Management has also stated that major dams are holding enough water to support optimal irrigation regimes for the coming season.

The company faces significant downside risk as consumer spending is likely to come under pressure owing to the trailing effects of the 2024 drought on bottom-of-the-pyramid liquidity.

“The bulk of the company’s earnings were non-cash, and in our view, returning to profitability in real terms will be a tall order,” said IH.

Working capital flows have also been impacted by the change in cane supply arrangements, which required payment for the cane on delivery to the mill, instead of when the sugar was sold.

For the year under review, Hippo recorded historical revenue of $1,3 trillion, increasing 230 percent from $100,6 billion recorded in the prior year.