Rogers Sugar Inc (TSX: RSI) is a holding company of Lantic Inc. which is engaged in the sugar business and operates as a refiner, processor, distributor and marketer of sugar products in Canada. As a sugar processor in Western Canada, Lantic supplies over 90% of the demand for refined sugar in that region.

Why Should Investors Book Profit?

• Decline in sales volume: The company’s sales volume in the Sugar segment decreased by 4.7% to 214,753 metric tonnes in the fourth quarter of 2021, including the 2020 extra week impact of approximately 15,000 metric tonnes making volume higher than the same quarter last year. Furthermore, the business anticipates the sugar sales volume of roughly 770,000 metric tonnes in FY 2022, a decrease of 9,500 metric tonnes from FY 2021.

• Higher Cash Cycle days: The company is holding higher Cash Cycle (Days) compared to the industry, implying the company takes more days to convert its inventory to cash. Currently, its Cash Cycle is of 68.0 days compared to an industry median of 43.2 days.
  

• Heavily leveraged: The company’s debt to equity ratio at the end of October 2021 stood at 1.14x, which is too high against the industry median of 0.54x. Additionally, its % LT Debt to Total Capital stood at 52.9% against the industry median of 26.0%. These factors imply higher balance sheet risks.
  

• Exhausted technical indicators: Recently, the stock witnessed a healthy rally on the daily price chart and has moved close to the upper band of the Bollinger band, indicating the stock is perhaps overbought and due for a price correction or a consolidation. Furthermore, the momentum oscillator RSI (14-Period) is trading at ~77.05 levels, which also indicates that the stock is in overbought zone and there is a deep possibility of price consolidation or correction.
  

Stock recommendation

In 2021, the company delivered strong financial results as it successfully navigated through unfavorable crop conditions in Alberta and the continued impacts of a global pandemic on customer demand and supply chain. However, for FY2022, the management anticipates lower sugar sales volume at roughly 770,000 metric tonnes, a decrease of 9,500 metric tonnes from FY 2021. Moreover, it has a prolonged Cash Cycle (Days) and is heavily leveraged, implying higher balance sheet risks. Even the technical indicator suggests that stock is perhaps overbought and due for a price correction or a consolidation. Hence, based on the above rationales and valuation, we recommend a “Sell” rating on the stock at the closing price of CAD 5.90 on January 21, 2022.

One-Year Technical Price Chart (as on January 21, 2022). Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

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