IH Securities predicts Delta revenue to grow 7,4%

LOCAL financial services firm, IH Securities predicts beverages maker, Delta Corporation Limited’s (Delta)’s revenue to reach US$824,5 million in its current financial year owing to increased product demand.

In its financial year ended March 31, 2024, Delta posted revenue of US$767,87 million, an increase of about 43% from the prior year.

The growth was owing to a 13% increase in its lager beer volumes, sorghum beer (3%), sparkling beverages (29%), wines and spirits (1%) and Schweppes Holdings Africa (11%).

This growth was mostly in forex, as Delta reported that 80% of sales were in foreign currency.

“For FY25, we have assumed minimal price increases, with volumes growth being the key driver of topline performance. We forecast that Delta will post a revenue of US$824,5 million in FY25, marking a 7,4% growth y/y (year-on-year),” IH Securities said in an analysis of Delta’s results.

“While the new capacity investments will go a long way towards increasing efficiencies, margins are expected to be under pressure from the elevated cost of grains stemming from adverse weather conditions in the region. Management has said focus for the current financial year will be on exploiting activities that will prop demand for products.”

IH Securities said it expects Delta to remain in a profitable position.

“Volumes growth for Delta in the just-ended FY24 were largely driven by the alleviation of supply-side constraints as the majority of the US$100mn investments into capacity came online,” IH Securities said.

However, the firm added that Delta’s management had indicated that the bulk of the capital expenditure programme was completed, freeing up cashflows for the group.

As previously reported by our sister paper, The Standard, last month, Delta revealed that it was planning to plough back -/+US$50 million into its operations for its current financial year ending March 31, 2025.

This money will be channelled towards plant, glass, containers and optimising production facilities across all its segments.

“On the demand side, the impact of the El Niño conditions on the agricultural summer crop will likely result in weaker consumer liquidity slowing volumes growth,” IH Securities said.

“This is, however, likely to be offset by increased output in the mining sectors despite moderating prices and strong diaspora remittances. In FY24, the group instituted price increases on some products arising from the increased cost of inputs and the monumental sugar tax.”

Delta is poised to pay US$46 million in sugar tax, on top of its traditional taxes, which for the financial year ended March 31, 2024 were US$142 million.

Delta will also be looking at an improved contribution to its businesses in both Zambia and South Africa for additional foreign currency earnings after scaling up its facilities in the two neighbouring nations.

“We estimate that Delta trades on a P/E price to earnings ratio multiple of 6,7x, compared to its peers at an average of 17.3x and EV/EBITDA enterprise value/earnings before interest, taxes, depreciation and amortisation of 4,7x, compared to peers at an average of 6,6x,” IH Securities said.-newsday