Rogers Sugar Inc

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.

Recently, the Company confirmed the appointment of Mr Jean-Sébastien Couillard for the position of Vice President, Finance, Chief Financial Officer and Corporate Secretary of Lantic Inc. (a subsidiary of Rogers Sugar) with effective from September 8, 2020. The Company declared a quarterly dividend of CAD 0.09 per share, payable on September 30, 2020.

Q3FY20 Financial Highlights: RSI announced its quarterly results, wherein the Company posted a higher revenue of CAD 206.147 million as compared to CAD 191.448 million in the previous corresponding period (pcp). The increase was driven by strong demand from the consumer volumes and additional sales from the U.S., partially offset by a reduction of volumes from the industrial and liquid segments. Total sugar volume sold stood at 172,054 metric tonnes, lower compared to 180,824 metric tonnes in pcp, while Maple syrup sales stood at 14.313 million pounds, significantly higher from 9.325 million pounds in pcp. Gross margin stood lower at CAD 29.873 million against CAD 30.741 million in pcp, due to significantly higher cost of sales. Results from operating activities stood at CAD 12.372 million as compared to CAD 18.57 million in pcp, primarily attributable to higher administration and selling expenses and distribution expense. The increase in the administration expense was due to administrative costs associated with the COVID-19 pandemic. Earnings before income taxes came in at CAD 8.225 million as compared to CAD 14.299 million in pcp, marginally supported by a lower finance cost. Net earnings stood significantly lower at CAD 5.538 million as compared to CAD 10.432 million in pcp.

Q3FY20 Income Statement Highlights (Source: Company Reports)

Risks: A decline in the sales volume of industrial and liquid segments may pose a challenge. Further, any obstacle in the beet harvest, coupled with supply disruptions, would impact the overall performance of the Company.

Valuation Methodology: Price to CF Based (Illustrative)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The stock corrected ~1% so far this year. The product of the Company comes under ‘essential commodities’; hence we expect uninterrupted operations in coming quarters. The Company has returned ~CAD 9.4 million to shareholders during the quarter, which includes CAD 9.3 million in the form of dividends and CAD 0.1 million was through share repurchases. The quarter was marked by increased retail demand driven by COVID-19 related pantry loading and higher export volumes coupled with new tariff quotas which fueled to increased sales to the US. Market conditions remain favourable for the sugar business and, despite the COVID-19 pandemic and the challenges related to a smaller crop in Taber, the group expects that the Sugar segment is likely to exceed last fiscal year’s volume and adjusted EBITDA. The Company has ample liquidity which seems sufficient enough to navigate through the current challenging time. Further, Company has no debt repayments until June 28, 2024, which augers well from a liquidity preservation point of view. The RSI stock carries a dividend yield of 7.47%, which is lucrative, considering the current interest rate environment. The stock closed above the 200-days simple moving average of CAD 4.82, indicating a bullish pattern. We have valued the stock using P/CF based relative valuation approach and arrived at a target price offering lower double-digit upside potential (in % terms). We have considered industry (Consumer Non-cyclicals) median on NTM basis. Hence, considering the aforementioned facts and risk, we recommend a ‘Speculative Buy’ rating on the stock at the Closing price of CAD 4.85 as on August 20, 2020.

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

High Liner Foods Incorporated

High Liner Foods Incorporated (TSX: HLF) is a Canadian company which is mainly engaged in the processing and marketing of prepared and packaged frozen seafood products. The Company’s products are sold across U.S., Canada and Mexico under the brand name of high liner, fisher boy, Mirabel, Sea Cuisine and catch etc. which are available in the most grocery and club stores.

Q2FY20 Financial Highlights: High Liner announced its second-quarter results, wherein the Company posted sales of USD 165.829 million as compared to USD 223.034 million in the previous corresponding period (pcp). The decline was majorly attributable to a lower sales volume of 49.3 lbs as compared to 60.4 lbs in the previous corresponding quarter due to closure of the foodservice industry which includes restaurant and schools on account of COVID-19. The quarter was marked by an improved performance from the retail segment, partially offset by the negative impact of the weaker Canadian dollar. Gross profit dipped to USD 36.733 million, as compared to USD 42.848 million in Q2FY19 due to a lower quarterly income. However, gross profit margin stood higher at 22.2%, as compared to 19.2% in pcp. The Company posted adjusted EBITDA of USD 17.087 million as compared to USD 17.883 million in pcp. Net income soared to USD 3.382 million from USD 0.946 million, a year ago, aided by a lower share-based compensation expense, a decline in business acquisition integration and other expense (income), combined with a decrease in finance costs.

Q2FY20 Income Statement Highlights (Source: Company Reports)

Risks: The company is exposed to various risks and uncertainties, including the timely identification of events that could lead to a product recall; volatility in the exchange rate; competitive developments including increases in overseas seafood production; availability and price of seafood raw materials and finished goods and the impact of geopolitical events.

Stock Recommendation: The stock corrected ~22% in the last one year due to closure of food services business across the country on account of COVID 19 pandemic. High Liner has reported an excellent number despite a tepid macro environment and restrictions across the foodservice segment, which is commendable. The company's overall supply chain continues to be robust and reported smooth flow of production, transportation and warehousing activities etc., which augurs well for consistent operations. The company has able to maximize its retail sales and witnessed an increased demand for higher-margin value-added products with high case fill rates and the introduction of new products, which is a key positive and is prominent from the margin expansion. The company's production segment is running as per the planned capacity while the company is focusing on improved efficiencies. With the gradual re-opening of the food services businesses (especially restaurants), the Management is positive on increasing its sales volume in the coming days. The company reported better than expected recovery within the foodservice segment, which is a key positive for the business. The group is confident enough to deliver growth in FY30. The company is confident in its liquidity position as a result of prudent cash management and early refinancing of debt in late 2019. The company does not have any impending debt maturities and will continue to utilize USD 150.0 million working capital credit facility if required. The stock appreciated ~38% and closed above the 200days Simple Moving average of CAD 7.27, indicating a bullish trend. On the valuation front, the HLF stock is trading at a forward EV/Sales multiple of 0.6x, which is significantly below the industry (Food & Tobacco) median of 1.8x. Considering the above facts, current price movements, we recommend a 'Speculative Buy' on the stock at the closing market price of CAD 7.93 on August 20, 2020.

HLF Daily Technical Chart (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.