Opinions
David Baskin
Rogers Sugar Inc
RSI-T
COMMENT
Jun 12, 2018
Stock price when the opinion was issued
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EPS of 15c beat estimates of 12C. Revenue of $261M beat estimates of $246M.
EBITDA of $33.5M beat estimates of $28.9M.
Sales volume guidance was increased, with strong sugar demand and pricing.
The Maple segment is expected to do better as unfavourable conditions of last year subside.
These earnings are solid.
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RSI beat EPS estimates of 13c coming in at 14c. Revenue also beat estimates of $304.7M coming in at $333.03M increasing 10% year-over-year. Adjusted EBITDA was $141.6M up 28% year-over-year. The quarterly and full-year results look solid, with increasing sales driven by price increases and volume growth. The sales volume expectation for sugar in FY2025 is set at 800,000 metric tonnes. The sales volume for maple is expected to grow moderately by 0.5M pounds. We think the earnings were solid and RSI continues to be an OK value/income stock.
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Valuation, dividend, and balance sheet are OK. Too boring for him. If you're a small- to mid-cap dividend player, it's a pretty good and steady name. Less sensitive to the economy. Protected by sugar quotas, which look pretty secure right now (though you never know what the government will do). #2 player in the space, and hard to get into.
Don't expect miracles. Take your 5% dividend, get the dividend tax credit, be happy with that.
Stagflation, or simply inflation, would likely hurt the stock quite a lot as investors would seek higher-paying alternatives. The lack of dividend increases would hurt its appeal in such a scenario as well. The company has not had an annual loss since 2001. Payout ratio is less than 30% Debt is a bit high but manageable. We would not really see the dividend at huge risk in the mid term. But it would be a change in government quotas or competition that would be more detrimental to the company, we think. Its busines is not overly sensitive to the economy. Sales only slipped slightly in 2008, for example.
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This is an interesting stock to consider in the face of current discussions of tariffs. The United States sugar industry is heavily protected, and Rogers is protected in Canada. It is one of two main producers, a duopoly behind a tariff wall. He has wondered how long that wall would stand. With Trump in power, he thinks this wall will stay up for longer, making this stock more attractive. However, sugar is a low-growth or no-growth commodity. The social trend is against it and the younger generation consumes less of it. The yield is high (about 6%) and will probably not come down, but it is strictly a yield play. (Analysts' price target is $6.25)