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Mumias Sugar Is Upgraded to ‘Accumulate’ at Kestrel

Mumias Sugar Co., Kenya’s largest producer of the sweetener, was raised to “accumulate” at Kestrel Capital East Africa Ltd., Wycliffe Masinde, an analyst at the Nairobi-based brokerage, said.

The stock was upgraded from “hold,” Masinde said in a phone interview today. Earnings per share are expected to rise to 1.22 shillings in the fiscal year through June 2011 from 1.03 shillings, he said in an e-mailed note to clients.

With a 45.2 percent market share, the miller’s upgrade is based on the expected expansion of acreage under cane growing, “diversification into power co-generation, ethanol production and impending sector reforms,” he said. The expansion project is expected to boost sugar production by 220,000 metric tons a year, Masinde said.

The main advantage of the project, which is expected to cost 32 billion shillings ($397.5 million), are economies of scale that come with a larger plantation and the fast maturity of cane at about 14 months compared with an average 20 months in western Kenya, where Mumias is based, he said.

“We expect sugar production for Mumias to increase 11 percent to 261,729 tons in 2011 and 11.4 percent increase in revenue to 17.3 billion shillings in 2012,” Masinde said. “The company plans to increase area under cane by 10.5 percent from the current 57,393 hectares (141,821 acres) to 63,393 hectares over the next two years.”

There are currently nine licensed sugar millers in the East African nation including Mumias, which is 20 percent state-owned. The government wholly owns another five millers, two of which are under receivership, Masinde said.

“The government plans to privatize the five state-owned sugar millers before March 2012,” he said. “Mumias has indicated that they might bid for a stake in one of the government-owned sugar companies when they are available for sale. This might significantly increase area under cane and boost its sugar production.”

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