Rogers Sugar Inc (TSX: RSI) is a Canada based sugar manufacturing company, which is engaged in refining, packaging, and marketing of sugar and related products.

The products of the Company come under essential product-line, and the business remained operational amidst the closure of most of the businesses due to current COVID 19 pandemic. The Group announced a quarterly dividend of CAD 0.09 per common share, payable on June 26, 2020.

Q2FY20 Financial Highlights: For the period ended March 28, 2020, RSI reported improved revenue of CAD 199.126 million, as compared to CAD 189.25 million in the previous corresponding quarter, thanks to improved performance from both sugar and Maple products segment. Sugar and Maple production during the quarter stood at 175,226 metric tonnes and 12.89 million pounds respectively. The quarter was marked by a significant rise in the cost of sales, resulting in a hit on the gross margin. Gross profit came at CAD 19.39 million, as compared to CAD 28.212 million in the pcp. Adjusted EBITDA remained more or less flat at CAD 16.5 million. Net earnings stood lower at CAD 0.96 million, as compared to CAD 8.01 million the previous corresponding period. The group returned $14.7 million to shareholders during the quarter, of which $9.4 million was through dividends, and $5.4 million was through share repurchases.

Q2FY20 Income Statement Highlights (Source: Company Reports)  

Valuation Methodology (Illustrative):  Price/Earnings based Relative Valuation

Note: All forecasted figures and peers have been taken from Refinitiv (Thomson Reuters), NTM-Next Twelve Months

Stock Recommendation: The Stock of RSI corrected ~18% and ~9% in the last one year and nine months, respectively. At the current market price, the stock offers a strong dividend yield of 7.58%, which is attractive, looking at the current interest rate scenario. The product of the Company comes under ‘essential commodities’; hence we expect uninterrupted operations in coming quarters. The Company reported its outstanding revolving credit facility of CAD 201.0 million with CAD 64.0 million available for drawdown, which ensures the working capital requirement over the coming months. Due to the business disruption scenario, investors tend to choose safe investment bets and lean towards defensive businesses. The stock is trading above its 50-days simple moving average (SMA) of CAD 4.55, and we believe the recent downfall in the prices offers a good entry point. We have valued the stock using Price/Earnings based relative valuation approach and taken Industry (Consumer Non-Cyclicals) median on NTM basis and arrived at a target price offering a double-digit upside potential (in % terms). Hence, we recommend a ‘Speculative Buy’ rating on the stock at the current price of CAD 4.70 as on May 13, 2020.

RSI One-Year Daily Price Chart, Source: Refinitiv (Thomson Reuters)

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