Here is the commentary from the report:
SOLID BEAT IN Q2/F24 AS THE STARS ALIGN
THE TD COWEN INSIGHT
Sugar is generally a slow-growth business, but market conditions have shifted materially in favour of the Canadian sugar refiners, providing both pricing power and growth opportunities at the same time. Moreover, although the bumper crop boosted maple syrup sales, industry reserves remain sub-optimal, and this is preserving the rational competitive environment (at least for now).
Event
Q2/F24 adjusted EPS of $0.17 was well ahead of last year's $0.09 and TD/consensus of $0.11/$0.11, despite an ~$0.02 hit from the Vancouver sugar refinery strike (slightly more than expected). The beat came mostly from shockingly high Sugar GP/MT (not entirely sustainable) and higher Maple volumes and GM%.
Our F2024E/F2025E/F2026E EBITDA increase 12%/9%/10%, mostly reflecting the greater pricing power in Sugar and higher volumes in Maple.
Rolling out valuation another quarter to higher estimates boosts our target to $7.00.
Impact: POSITIVE
Sugar: Volumes fell 8% y/y as the strike in Vancouver (17% of capacity) reduced supply. However, the surprise was GP/MT jumping $74 y/y to a record-high, leading to 47% EBITDA growth and a 34% beat. With demand growing and the U.S. and Mexico suffering supply deficits, Canada's more stable supply has made it the preferred locale for N.A. sugar-containing-product manufacturers to set up shop; consequently, pricing power has shifted in favour of the refiners, and this part appears sustainable despite one refiner's recent capacity expansion and two other projects (including RSI's) to be commissioned
by 2026. Lower production also meant disproportionate Q2/F24 allocations to high- margin customers — this mix benefit should revert. Our F2024E/F2025E/F2026E Sugar EBITDA increases 13%/10%/11% to reflect the solid pricing environment, partly offset by inflationary pressure on admin & selling costs.
Maple: Volumes dipped 2% y/y, but were 4% above expectations, and GM% expanded 370bps to 10.9% (50bps ahead of expectations), leading to a 15% EBITDA beat. RSI raised F2024 volume guidance by 6%, reflecting solid demand from some large customers, coupled with a bumper maple syrup crop. Better pricing power and declining costs (automation initiatives, continuous improvement efforts), coupled with the fact that strategic industry reserves remain 30-40% below optimal levels, pulled forward some expected margin opportunities. Our F2024E Maple EBITDA increases 9%, though increases beyond this are more modest. GM% in the 10-11% range appears sustainable.