I looked at Mumias's quarterly financials report carried in the Nation of 31st Aug 2010 and noted that the earnings per share dropped from 1.50 to 1.20.

To the general speculative investor this looks like a reason to exit especially when coupled with the drop in its share price from a high of 15/- at the beginning of August to a low of 12/- at the end of the month.

For a fundamental trader what you need to look for is why the drop in the EPS, from the report Mumias's profitability before tax increased by 83% but because the company has now turned profitable they have a tax bill that reduces the distributable profit.

The fundamental investor would also have noted an article in the same paper about a 1.6 billion loan that Mumias is taking up to develop an ethanol production capacity. Brazilian sugar is deemed to be cheaper than our sugar because it is treated as a by product and not the main product of the sugar plants which is ethanol.

Why would ethanol production be an issue on the performance of Mumias as a long term investment? Effective today, 1st September 2010 Kenyan fuel is to be stabilised with 10% ethanol to produce Gasohol. There are currently only 2 producers of fuel ethanol in Kenya today, with an annual white fuel consumption of over 400,000 tonnes there will be a demand for 40,000 tonnes (56M litres) per annum.

Together with the the new purchase tariffs on power sale to kengen & the ethanol production the reduced EPS for Mumias looks much different.

This is the difference between speculative and fundamental investing.

I fully agree with you that the drop in its share price is more of an uninformed reaction to the Comesa issue.

What the fundamental investor needs to realise is that with additional revenue from power co-generation and ethanol Mumias will be able to compete with cheaper sugar from the COMESA region especially since their sugar has a lower transport and distribution cost.

@robert MSC core business is sugar...with TARDA a distant dream n COMESA around the corner..those fundamentals look shaky...

Since there is duopoly for local Ethanol... Is there a price cap on the product?

What is the point of having 10% blending of ethanol then the producers (one of them associated/owned by Raila's family) sells it at 2x the price of gasoline/petrol...?

@Malimali...The ethanol is renewable while oil is not. Ethanol is produced locally so no foreign exchange loss. Did't your Geography teacher tell you this things pwana?

Thanks for the correction on the drop of the EPS, read the budget for the year 2009/2010 where it was set that the 10% ethanol addition will begin on 1st of September.

Note that the major beneficiary is one Raila Amolo Odinga aka Luo Thrift.

The tariff changes for private producers was effected last year.

And this is what Apex africa had to say about Mumias:

Mumias Sugar Company Limited has announced a 2.0% decline in net earnings during the financial year..... Albeit concerns of weak profitability performance, the released results reflect a cash rich firm with sufficient capacity to sustain short term growth exclusive of the intended additional diversification projects.(water bottling business and ethanol production) Accordingly, we are of the opinion that the recent price weakness presents a good bargain opportunity for medium-to-long term investors.

Mumias Sugar is all about sugar. The rest is just small beer.
Even an amateur fundamentalist should know this

@Roberyawe i thought you were a Pro but *newfarer*....welcome to Wazua...and plz wat happened to your offer...LOL...