Interesting entry point Steady long term business. Industry capacity remains tight (close to 100 percent) and demand growth appears sustainable. RSI has suggested that any incremental capacity to come online has already been spoken for by new and existing customers, this will provide incremental operating margin leverage to the business in the core sugar segment. Margin improvement efforts in Maple should benefit 2024 results.
Canada's weak currency relative to the greenback , favourable sugar prices and reliable supply appeals to producers of sugar containing products looking to expand production. The benefits of incremental production from RSI will also avoid the current high transport and logistical costs (shipping sugar from Vancouver to Eastern Canada).
the expansion is expected to deliver at least $22 million in incremental EBITDA once up and running. At 9x, this has the potential to boost EV by $200mm.
Because they have pre-raised the capital, it currently dilutes returns but this will rapidly reverse once the expansion is in place. Payout ratio even after the equity issue should be no higher than 80 percent for next 2-3 years as the buildout takes place.
Looking at FY2026, not unreasonable to expect estimated EBiTDA to reach at least $150 million in 24 months, which at 9x EBiTDA would equate to an EV of $1.35 billion. Less expected debt of $350 million, that leaves an equity value of $1 billion, or $8.62 per share. That is a return of 63 percent which along a 6.8 percent dividend per annum would mean a 24 month return of 76.6 percent.
lastly. 2024 EBiTDA estimates which started the year at $113.5 million have been raised to $120 million, as the strike came to an end and good pricing /volume trends persist in sugar.
In essence, this stock should work even with cont8nued economic malaise in Canada, as I expect the loonie to remain weak against the US Greenback especially if the Bank of Canada elects to front run the US Fed and lower rates first. The weak loonie keeps RSI an attractive option for North American producers of sugar contain8ng products.
GLTA