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The Real Good Food Company's Napier Brown is in a sweet spot

Global sugar market trends are moving in favour of Napier Brown, the company owned by the Real Good Food Company (LON:RGD), City broker Hardman says.
The Real Good Food Company's Napier Brown is in a sweet spot

Global sugar market trends are moving in favour of Napier Brown, the company owned by the Real Good Food Company (LON:RGD), City broker Hardman says.

Hardman is predicting a doubling of Napier Brown’s volumes in the coming years against a background of volatile, cyclical prices in the €11bn European sugar market.

“A combination of the 2017 ending of the EU sugar quota regime (well ahead of which market shares should dramatically free up) and a tie-in with Omnicane, a quality, low cost Mauritian sugar cane refiner, should significantly boost Napier Brown’s profits from historic levels. Omnicane is a 24% shareholder in RGD,” Hardman notes.

Napier Brown, which accounted for two-fifths of Real Good Food’s underlying earnings (EBITA) in fiscal 2013, supplies around 12% of UK sugar volumes, but the broker can see this rising to around 20% after the abolition of EU sugar quotas.

“Napier Brown is not tied to specific producers so, unlike sugar suppliers who are, it will benefit from the greatly more fluid supply arrangements,” Hardman believes.

Napier Brown has expanded its UK import facilities and has pending supply agreements for low-cost refined cane sugar. Hardman believes new supply agreements in the pipeline with Omnicane for East African sugar are set to add 60-70% to Real Good Food subsidiary’s sugar volumes.

Real Good Food and Omnicane will source sugar together, and Hardman is backing Napier Brown, with its “decades of expertise and service” to be able to ratchet up margins.

“Multi-source refined cane sugar import suppliers will do the best – Napier Brown fits the bill best out of all market participants. It has flexibility to mix sources; quality assures input and secures the most appropriate suppliers as market demands change. It already sells to 90% of largest UK sugar users, so looks to expand existing clients, not find new ones. All is set,” Hardman’s Mike Foster argues.

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