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Ethanol rally fuels jump in Suedzucker, CropEnergies shares

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Shares in Suedzucker, Europe's biggest sugar refiner, soared nearly 15% after it ditched expectations of a profits fall, citing an improved ethanol market which had improved prospects for biofuels subsidiary CropEnergies.

Shares in German-based Suedzucker soared 14.8% to E15.75 in early deals in Frankfurt, adding nearly E450m ($500m) to the company's stockmarket value.

The gains followed the release by the group of results for the March-to-August half which, while showing declines in both revenues and operating profits, implied a strong recovery in the June-to-August quarter.

The data implied operating profits soaring some 50% to E77m for the quarter, twice the result that investors have forecast.

And, citing a "background of a positive… development", Suedzucker raised its guidance for revenues in the year to February 2016 to E6.2bn-6.4bn, from E6.0bn-6.3bn.

Operating profits will come in at E180-230m – at least matching the previous year's results, and well ahead of the E50m-150m that the group has factored in

'Positive price development'

The upgrade, which also leaves Suedzucker on course to exceed the E177m in full-year operating profits that investors have forecast, puts the group on track to report its first rise in profitability in three years, after declines reflecting difficulties in major markets it operates in, including sugar and ethanol.

Suedzucker's "positive" June-to-August quarter

Revenues, (operating profits) reported on Tuesday for March-August half: E3.331bn, (E134m)

Revenues, (operating profits) previously reported for March-May quarter: E1.629bn, (E57m)

Implied revenues, (operating profits) for June-August quarter: E1.702bn, (E77m)

Year-on-year change in revenues, (operating profits) for June-August quarter: -0.4%, (+51%)

And ethanol values have already staged a rebound from a record low of E417 a cubic metre reached in the Rotterdam export market in mid-January.

Ethanol for September delivery in Rotterdam, and as monitored by Platts, was priced on Tuesday at $548.48 per cubic metre, up nearly E100 per cubic metre since the start of June.

Suedzucker said that its upgraded profits guidance was "mainly supported by the ongoing positive bioethanol price development".

Company record

Indeed, Suedzucker's bioethanol subsidiary, CropEnergies, also attested to the ethanol market recovery in a separate profits upgrade statement which sent its own shares up 14.7% to E4.25 in Frankfurt.

New Suedzucker 2015-16 guidance, previous guidance, (2014-15 result)

Revenues: E6.2bn-6.4bn, E6.0bn-6.3bn, (E6.8bn)

Operating profit : E180m-230m, E50m-150m, (E181m)

In the March-to-August half, operating profits came in at E40m, a company record for the period.

"The main reason for the increase in earnings was significantly higher bioethanol prices in Europe," CropEnergies said.

Market revival

Ethanol values worldwide have been buoyed by factors including a boost to gasoline demand from lower energy prices, which has meant extra ethanol use by countries enforcing blending mandates, besides by country-specific factors, such as tax changes in Brazil.

CropEnergies 2015-16 guidance, previous guidance, (2014-15 result)

Revenues: E700m-750m, E675m-725m, (E827m)

Operating profit : E50m-70m, E10m-E40m, (E-11m)

In Europe, CropEnergies' mothballing of its Ensus plant in the UK has also helped support values, by tightening supplies.

While there is no word yet whether the improved ethanol price, at a time of depressed grain values, might spur the imminent reopening of the suite, observers see the prospect in April 2017 of an increase in the UK's mandatory blend rate of ethanol into gasoline to mean a restart mid next year at the latest.

Ensus outlook

CropEnergies, when asked about prospects for an Ensus restart, said that that while bioethanol prices "have increased considerably since the beginning of the financial year... it is uncertain whether this price development is sustainable due to low forward prices.

"We therefore expect the high price volatility to continue and cannot comment on when the plant in Wilton will be restarted," the group told Agrimoney.com.

Suedzucker shares had lost some ground by the close to end up 12.9% at E15.49, with CropEnergies shares finishing up 11.5% at E4.13.

DZ Bank raised to "buy" from "hold" its recommendation on Suedzucker stock, with a price target of E17.30, rained from E16.70.

By Agrimoney.com

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