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Strategies & Market Trends : Value Investing
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To: E_K_S who wrote (31269)6/26/2008 11:50:32 AM
From: Jurgis Bekepuris  Read Replies (2) of 78673
 
CZZ is an interesting situation. On one hand, the company is arguably cheap. There is a possibility of the further increases in ethanol sales and profits. On the other hand, sugar sales are in the dumps and company is losing money on every ton sold. This may or may not turn around. I am not sure that all sugar production can be converted into ethanol production for higher profits. From what I read, I don't think this is easily possible.

The past history and PE is very misleading, since company has losses YTD 2008. It also had losses in 2006, so 2007 is the only year with positive income. There is also some distortion due to sugar price hedging using futures (the hedge resulted in 2008 losses).

Also I am not sure if CZZs purchase of XOM distribution operations in Brazil is positive. I have looked at distribution and refining margins globally (just to compare with the current refiner fall in USA) and it's not much better anywhere. Companies like PBR have substantial sales in distribution area and very low profits.

Overall, I decided that I am not interested in CZZ here. I may be totally wrong if sugar prices follow the increases of other agro commodities or if CZZ gets great price and sales for ethanol.

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