Rogers Sugar Inc. stock is soaring in a market starved for growing companies and more reliable dividends. Still, analysts remain neutral on its near-term growth.
Shares in the Montreal-based company, Canada’s only publicly traded sugar producer, are up by about 17 per cent so far this year, outperforming the S&P/TSX composite index by about 18 percentage points.
The stock has been on a tear since management recently signalled that acquisitions are now a bigger priority. Analysts say acquisitions have been lacking for the company in recent years.
“There has really been nothing outside of organic growth,” National Bank Financial analyst Trevor Johnson said. “If they are willing to leverage the balance sheet, add some assets, then you can see earnings and projections being a bit more frothy.”
The dividend, now yielding about 7.5 per cent, is also considered stable in a market in which other commodity companies, particularly those in oil and gas, mining and potash, are slashing or suspending dividends.
“We think that they’re generating enough cash flows to support the dividend, which is an above-average yield,” said Mr. Johnson, who has a $4.50 target and a “sector perform” rating on the stock, which is similar to “hold.”
All four analysts who cover Rogers Sugar have a “hold” or equivalent rating. The analyst consensus price target over the next year is $4.44. The stock closed Friday at $4.92.
BMO Nesbitt Burns analyst Stephen MacLeod recently increased his target to $4.50 from $4.25, amid what he sees as “modest” growth in not just sugar volumes, but also company earnings.
“While we continue to believe that the fundamental outlook remains challenging for Rogers Sugar … we believe downside to the stock is limited,” Mr. MacLeod said in a note, citing challenges such as the company’s heavy reliance on the Canadian market and competitive pricing.
The company’s improved results over the past five quarters were also a reason for Mr. MacLeod to be more upbeat. Revenue for the first quarter ended Jan. 2 was up slightly to $130.1-million from $128.7-million for the three months ended Dec. 27, 2014. Adjusted net earnings were $12.8-million, or 14 cents a share, compared with $10.8-million, or 11 cents, a year earlier. More than 90 per cent of the company’s sales are in Canada, with the rest largely in the United States.
“We are trying to find ways to get outside of Canada to allow us to grow,” chief executive officer John Holliday said in an interview. “We are trying to find ways to have more consistent, predictable access to markets … that we can plan on and manage on a longer-term basis.”
He said the company is looking at acquisitions roughly in the $100-million to $150-million range, which could include sweetener companies, given consumers growing taste for those alternative products. The company looked at a potential acquisition in the United States recently, but backed down when it “didn’t have the value creation we wanted,” Mr. Holliday said.
The Canada-EU Comprehensive Economic and Trade Agreement, as well as the Trans-Pacific Partnership (TPP), are also expected to help to open up new markets for Canadian refined sugar, Mr. Holliday said.
“The TPP is more meaningful for us,” he said, adding that it would give the company greater access to the U.S. market.
TD Securities analyst Michael Van Aelst said Rogers Sugar needs to tap into “more favourable” export markets in the next two or three years to prevent profit erosion and the possibility of a dividend cut.
“Management likely sees an accretive acquisition as another method of protecting the dividend over the long term; however, we are a little cautious on this prospect,” Mr. Van Aelst said.Report Typo/Error