RE:Anyone recall.. Scotia Capital analyst John Zamparo thinks potential U.S. tariffs will likely be “more impactful” on Rogers Sugar Inc. (
) than its business.
“Monday’s news of a proposed/threatened 25-per-cent tariff on all imports to the U.S. would impact consumption of the end products that RSI supplies,” he said. “A 10-per-cent tariff is insufficient to force producers to exit the country and build greenfield facilities stateside, but 25 per cent, if actually enacted, would cause greater disruption. Approximately 40 per cent of RSI’s sugar production is indirectly exported to the U.S. However, specific terms of the tariffs aren’t the point, in our view. The mere uncertainty creates an overhang on RSI in the near term. We believe RSI’s current valuation represents good theoretical value, but the current environment necessitates an even greater discount.”
In a research report released Wednesday, he resumed the firm’s coverage of Rogers with a “sector perform” rating, touting its “dominant (approximately 55-per-cent) share in an industry with sticky demand and significant barriers to entry” and noting its valuation now sits a 10-year low.
“RSI’s recently improved EBITDA growth and opportunity from increased production are clouded by two main risks, in our view,” said Mr. Zamparo. “First is the uncertainty surrounding the final cost of RSI’s expansion project, which will become clearer after Q4/F24. The expansion could cost $230 million rather than the $160 million initially planned (with the latest update at $200 million). The second risk is the prospect of tariffs on products shipped into the U.S. While these may not materialize, the specter of tariffs creates an overhang on the stock, and President-elect Trump’s recent social media activity underscores increased uncertainty that will deter some investors.
“It is difficult to confidently calculate a sufficiently compelling valuation to offset these risks, but we believe less than 10 times P/E (versus 10.7 times today) would be a starting point for some investors. External factors aside, we view RSI as a well-managed business that operates in a duopoly and pays out significant income (6-per-cent-plus yield).”
Mr. Zamparo set a target of $6.25, below the average on the Street of $6.60.