here is the commentary from the report:
A sweet time to take another look at Rogers Sugar; upgrading to Buy (target $7.50)
The Desjardins Takeaway
Following the release of a 2Q FY24 beat and updates to our model to reflect a stronger- than-expected outlook in Sugar, we are upgrading our recommendation to Buy. Our constructive view is also supported by Maple’s well-executed recovery and positive outlook. In both segments, we believe that RSI is making the right moves to drive solid profitable growth. The icing on the cake is an attractive valuation and 6.8% dividend yield.
Highlights
A sugar high contributes to stronger-than-expected 2Q results. Consolidated adjusted EBITDA rose 52.3% yoy to a record C$38.1m and blew past our C$30.1m estimate and consensus of C$29.2m. Positive demand and pricing conditions in the sugar market and company-wide operational improvements have contributed positively to recent performance and support a positive outlook.
The Sugar segment has stepped up its game and is advancing a major expansion project. Sugar’s 2Q margins were spectacular and, based on management’s comments, look poised to remain at attractive levels thanks to supportive market conditions and a higher contribution from refining activities. Looking further ahead, we are pleased that the expansion project calling for a ~20% production capacity increase at the Montral plant (~100,000MT) is progressing and is still scheduled to start up in 1H FY26.
Well-funded for expansion. The C$117.9m equity offering completed in March, combined with loans/available credit, is expected to fund the C$200m sugar expansion project. We expect RSI’s leverage to remain within its historical range.
Profitability recovery in the Maple segment, and more encouraging market dynamics. Maple’s adjusted EBITDA grew 80.9% yoy in 1H FY24 thanks to higher selling prices and lower operating costs. The abundant 2024 maple syrup crop and RSI’s automation/ continuous improvement initiatives implemented in late FY23 advantageously position the company to meet demand.