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 April 13, 2021, to shareholders with a record date of March 31, 2021. At the closing price, the stock delivers a yield of ~6.9%, which is lucrative, looking at the current market dynamics and interest rates.

• Expecting healthy volumes for FY2021:The management expects its sugar segment to perform well in fiscal 2021. Strong underlying demand and a successful beet harvest would result in higher sales volumes and improved financial performance over fiscal 2020. As a result of the positive outlook, the company has increased its full-year fiscal 2021 sales volumes guidance to approximately 776,000 metric tonnes, an increase of 15,000 metric tonnes over fiscal 2020 and 10,000 metric tonnes from previous guidance. The group also expect to see improved performance in Maple segment in fiscal 2021.

Financial overview of Q1 2021

Source: Company

• In Q1 2021, the company reported revenues of CAD 223.8 million, increased by CAD 14.5 million, against CAD 209.3 million in the previous corresponding period. The improvement is explained by overall higher revenues from both Sugar and Maple segment. Sugar segment registered a growth of CAD 4.6 million and Maple segment of CAD 9.9 million.
• The reported quarter's operating income stood at CAD 23.3 million, against CAD 26.7 million in Q1 2020. The rise in admin and selling expenses and distribution expenses dragged the operating income.
• The company posted net income of CAD 13.7 million in Q1 2021, against CAD 15.9 million in the previous corresponding period. The reduction in net income was primarily due to higher operating expenses.

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 Refinitiv 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 generating steady revenues. Since the company's product comes under "essential commodities" 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. Therefore, based on the above rationale and valuation, we recommend a "Speculative Buy" rating at the closing price of CAD 5.19 on February 11, 2021. We have considered North West Company Inc, Maple Leaf Foods Inc, etc. as the peer group for the comparison.

1-Year Price Chart (as on February 11^th, 2021). Source: Refinitiv (Thomson Reuters)

Andrew Peller Limited

Andrew Peller Limited (TSX: ADW.A) is one of Canada’s leading producers and marketers of quality wines and craft beverage alcohol products and owns and operates 101 well-positioned independent retail locations in Ontario. The company has a strong portfolio, which includes barnds like Peller Estates, Trius, Thirty Bench, Wayne Gretzky, Sandhill, Red Rooster, Black Hills Estate Winery, Tinhorn Creek Vineyards, etc.

Key Highlights:

• Trading at Steep Discount Against its Peers: Shares of ADW.A are trading at significant discount to its competition from the LTM Price-to-Cash Flow Per Share multiple standpoint. The stock is trading at a multiple of 11.05x whereas peer’s median LTM Price-to-Cash Flow Per Share multiple stood at 22.91x implies a discounted valuation of 46% against the peer’s group. From the LTM Price-to-Sales multiple standpoint, ADW.A shares traded at a multiple of 1.27x whereas peer’s median multiple stood at 1.93x, which shows that ADW.A shares are trading a discount of 15% against the peer’s median. We expect this valuation gap to close as the company’s performance is gradually improving after two straight quarters of strict lockdown measure. 

Source: Refinitiv (Thomson Reuters)

• Impressive Guidance supported by positive sectoral scenario: The company believes that demand for the alcoholic beverage products is likely to remain elevated within Canada, as consumers are inclining towards higher-priced premium wine and spirits products, which is going to drive margin expansion and profitability as well. Moreover, ADW.A entered the spirits and craft beer categories, through its strategic collaboration with Wayne Gretzky, and launched sangrias and ciders through its own brand labels. We believe new product launch along with increased traction for the premium products would support the company’s future business prospects.

Q3FY21 Financial Highlights:

• A announced its quarterly results, wherein the group posted sales of CAD 111.060 million, up from CAD 101.597 million in the previous corresponding period (pcp). The growth was driven by increase activities at the Company's estate properties coupled with higher consumer purchasing during the holiday season.
• Gross profit stood at CAD 38.880 million, declined marginally from CAD 39.549 million in Q3FY20.
• The quarter was marked by a lower selling and administration expense of CAD 25.314 million, as compared to CAD 25.820 million in pcp and a gain on debt modification and financing fees of CAD 2.312 million.
• The group posted net earnings of CAD 10.236 million, stood higher than CAD 8.056 million in Q3FY20.
• The group reported a cash balance of CAD 3.557 million, while total assets stood at CAD 515.942 million.

Q3FY21 Income Statement Highlights (Source: Company Reports)

Key Risks: A decline in the discretionary expense by the consumer could take a toll on the sales volume of the company. Further, a change in consumer preference would hinder the overall sales volumes.

Valuation Methodology (Illustrative): Price to Earnings

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

Stock Recommendation: After witnessing two straight quarters of strict lockdown measures and plunge in demand, the company’s operations are improving gradually with lifted travel restrictions.  Q3FY20 sales surpassed the pre-pandemic sales number reported by the company. Further, shifting consumer trends towards high end whisky and wine would boost the company’s margin profile. Therefore, based on the above rationale and valuation, we have given a “Speculative Buy” recommendation at the closing price of CAD 10.25 on February 11, 2021. We have taken industry median multiple for the valuation purpose.

1-Year Price Chart (as on February 11^th, 2021). 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.