Tongaat Hulett, Kumba Iron Ore
In Simon Says of the 16 June 2016 edition, I made a case for buying Tongaat Hulett. It mostly involved returning rains that would boost sugar production. I expected starch to be largely flat and property to be lumpy as normal but predicted that sugar would boost profits.
More recently I have written how the theory was not playing out as expected, and with dividends received, my position from July last year is currently pretty much flat (The case of Tongaat Hulett: When sweet dreams turn sour, 19 October issue).
But now we have a trading update from the company, and it is very disappointing. Property has done very well, while starch has performed worse than expected; sugar production is improving but sugar prices are taking the shine off the extra production. At the end of the day, Tongaat expects headline earnings per share to be up only 4.8%, and I got this call totally wrong.
We could stick around in the share for another year waiting to see if the plan starts to come together. But I made a call, bought the share, and it hasn’t worked. So I’d rather move on and deploy the capital somewhere else that may work. I am selling my Tongaat position down to zero. ■