Rogers Sugar Inc

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.

Key highlights 

• An income play:The company has a strong history of dividend payment, which establishes the fact that the company’s business is resilient and has reported stable cash flows over the years. The group declared a quarterly dividend of CAD 0.09 per share, payable on 21^st Jan 2021, to shareholders with a record date of 30^th Dec 2020. At the last closing price, the stock was offering a dividend yield of 6.3%, which is lucrative, looking at the current market dynamics and interest rates.

• Increase in Free cash flows: The company clocked Free cash flow of CAD 40 million for fiscal 2020, increased by CAD 9.2 million, as compared to CAD 30.8 million in the previous corresponding period. The increase in free cash flows was primarily due to the rise in adjusted EBITDA of CAD 4.5 million, lower capital and intangible spending, net of operational excellence capital of CAD 3.5 million, and lower taxes paid of CAD 9.9 million.

Source: Company 

Financial overview of Q4 2020

Source: Company 

• The Company reported revenues of CAD 860.8 million for fiscal 2020, increased by 8.4% as compared to CAD 794.2 million in the previous corresponding period. Higher revenues were due to improvement in revenues in both the Sugar and Maple products segments.
• EBIT stood at CAD 68 million for fiscal 2020, compared to CAD 24 million in FY 2019. The reason for an increase in EBIT is primarily an impairment of goodwill for CAD 50.0 million relating to the Maple products segment in the fourth quarter of 2019.
• Net Earning posted by the Company in Fiscal 2020, was CAD 35.4 million, as against a loss of CAD 8.1 million in last year. 

Risks associated with investment

The performance of the company’s business is prone to several risks which could affect its financial performance. Risks related to government regulations and foreign trade policies with regards to sugar is the most significant risk. Other risks include fluctuations in raw sugar prices, interruption in raw sugar supply, competition, inflation, and foreign exchange exposure, etc. are beyond the management control.

Valuation Methodology (Illustrative): Price to Earnings

Note: All forecasted figures and peers have been taken from Thomson Reuters 

Stock recommendation

A significant portion of the Company’s sales are made under fixed-price, forward-sales contracts, which extend up to three years; this reflects that the Company is commanding steady revenues. Since the product of the Company comes under “essential commodities”, hence we expect uninterrupted operations in the upcoming time. The management is bullish for fiscal 2021 as they expect strong performance on the back of firm demand from customers coupled with the reduction in operational and distribution costs mostly related to the return of a normal harvest and beet sugar production in Taber would enhance their margins. We have valued the stock using the price to earnings value-based relative valuation method and have arrived at a target upside of single-digit (in percentage terms). Hence, we recommend a “Hold” rating on the stock at the current market price of CAD 5.71 on December 16, 2020. We have considered North West Company Inc, Colliers International Group Inc, etc. as the peer group for the comparison.

Source: Refinitiv (Thomson Reuters)

Jamieson Wellness Inc

Jamieson Wellness Inc (TSX: JWEL) is engaged in the business of manufacturing, distributing, and marketing branded natural health products including, vitamins, minerals, and supplements.

Key Highlights:

• Strong Financial Performance: The company reported an impressive financial performance driven by quality production capabilities and strategic partnerships, along with product presence across more than 45 countries. During FY16 to FY19, the group’s top-line grew at a CAGR of ~11.6%, while its adjusted EBITDA recorded a CAGR of ~17.5% at the same time.

Financial Metrics (Source: Company Presentations)

• Growth from the International segment: In the recent past, the company witnessed strong growth within the international segment through brand recognition, quality, and strong distribution partnerships. The company’s international revenue grew handsomely between 2014 to 2019. Moreover, the company is expecting exponential growth from China in the foreseeable future as China’s FDA started allowing foreign players into its domestic market through new product licensing regulations. The company reported an impressive product availability with more than 21 products available for the domestic market in China as of Q1FY20.

Source: Company Presentations

• Improving Macro Trends: Due to the recent change in consumer preferences and higher health-consciousness, the VMS segment in North America has delivered consistent growth over the past years and is expected to retain the momentum in the coming years.

Source: Company Presentations

Q3FY20 Financial Highlights:

• JWEL impresses with its quarterly performance, and reported higher revenue of CAD 105.565 million, as compared to CAD 88.558 million in the previous corresponding period (pcp). The increase was driven by higher revenue from both Jamieson Brands and Strategic Partners segments through strong point-of-sale growth coupled with an increase in domestic Jamieson Brands products.
• Earnings from operations stood at CAD 17.804 million, as compared to CAD 13.265 million in Q2FY19, thanks to the higher income, partially offset by the increase in cost of sales and selling, general and administrative expenses.
• Net income soared to CAD 12.144 million, significantly higher than CAD 4.928 million, a year ago, supported by a significant decline in other expenses and interest expense.
• The company reported a cash balance of CAD 3.144 million, while total assets stood at CAD 607.822 million.

Q3FY20 Income Statement Highlights (Source: Company Reports)

Risks: Delay in the regulatory approvals for its products might dampen the company’s product pipeline, which might impact the overall performance of the company.

Valuation Methodology (Illustrative): Price to Earnings based

*Note: All forecasted figures have been taken from Refinitiv (Thomson Reuters)

Stock Recommendation:

The company operates through a diversified range of premium branded products across multiple distribution channels. The group has numerous manufacturing certifications including Health Canada Drug Establishment Licences and Australian Therapeutic Goods Administration (TGA) clearance, which is a key positive and would support the company’s future growth. We have valued the stock using Price to Earnings based relative valuation approach and arrived at a target price offering single-digit upside side potential (in % terms). We have considered peers like Akumin Inc, Knight Therapeutics Inc etc. Considering the above-mentioned facts, current stock price movement, we give a ‘Hold’ rating on the stock at the current closing price of CAD 34.43 on December 16, 2020.

JWEL Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Sierra Metals Inc

Sierra Metals Inc (TSX: SMT) is a precious and base metals producer in Latin America. The company acquires, explores, extracts, and produces mineral concentrates consisting of silver, copper, lead, zinc and gold in Mexico and Peru. Its activity includes the operation of the Yauricocha Mine in Peru and the Bolivar and Cusi Mines in Mexico.

Key highlights

• Diversified portfolio: The company enjoys a healthy revenue mix from diversified commodities. The diversification continues to be led by copper, followed by silver, which has taken an increasing role with the ramp-up of Cusi. Gold has seen a continued increase as a percentage of the mix, aided by improved production and recovery at Bolivar and supported by higher gold prices. In Q3 2020, the group saw an improvement in realized metal prices for copper, silver, gold and zinc. 

Source: Company

• Staged Production Increases: The Company is aggressively drilling to increase and replace resources. It is also ramping up the exploration and infrastructure projects, which were on hold due to COVID-19. For FY2020, the Company expects to achieve a Tonnages Per Day capacity of 9,350 TPD.

Source: Company

• The bullish stance of management: The management is optimistic on the operations of the company where increased production levels and improved efficiencies have helped them in achieving lower costs on a per-unit basis, which is expected to continue with further production increases. With a capex of USD 40-50 million for FY2020, the company expects to achieve total EBITDA of USD 100-105 million.

Source: Company

Financial overview of Q3 2020 (In thousands of United States dollars)

Source: Company

• The Company posted total revenue of USD 73.2 million in Q3 2020, increased by 13% from USD 64.6 million in Q3 2019, largely due to the higher sales from the Bolivar mine. Bolivar quarterly revenues increased by 59% due to the combined impact of higher realized metal prices and higher copper equivalent payable pounds.
• Adjusted EBITDA reported by the Company stood at USD 37.2 million in Q3 2020 increased by 73% compared to USD 21.6 million in Q3 2019. The increase in adjusted EBITDA was due to the rise in revenues realized and a decrease in operating costs at all three mines.
• Net income attributable to shareholders of the Company for Q3 2020 was USD 17.5 million, as compared to USD1.7 million in the previous corresponding period. 

Risks associated with investment

The group’s revenue is directly correlated with the prices of commodities in the international market. Any volatility in commodity (Copper, Gold, Zinc, etc) prices would affect the group’s financial performance.

Valuation Methodology (Illustrative): Price to Cash Flow

Note: All forecasted figures and peers have been taken from Thomson Reuters

Stock recommendation

While in a vulnerable environment due to the COVID 19 Pandemic, management remains optimistic that cash flow and liquidity improvements is likely to stay strong in Q4 2020, as a benefit of higher production and metal prices. Metals prices have strengthened at the start of the third quarter, especially for copper and precious metals and continue to trade at elevated levels. As a result, we expect the company’s financial performance to improve further. Therefore, based on the above rationale and valuation, we have given a ‘Hold’ rating at the closing price of CAD 3.99 on December 16, 2020. We have considered Capstone Mining Corp, Largo Resources Ltd, Trevali Mining Corp, etc. as the peer group for the comparison.

Source: Refinitiv (Thomson Reuters)

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.