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Rogers Sugar hits sticky patch despite sweet dividend

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Investors are growing sour on Rogers Sugar Inc. as it battles increased competition, lower margins and a new wave of negative publicity about its staple food product.

Shares in Canada's only publicly traded sugar producer have fallen about 17 per cent so far this year, despite a sweet dividend payment that currently yields about 8 per cent.

Analysts have been slashing their price targets and lowering their recommendations on the stock after the Vancouver-based company recently reported lower earnings and higher costs in its latest quarter and warned export volume was falling.

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"We don't see a lot of growth from Rogers Sugar for the foreseeable future," said Trevor Johnson, an analyst at National Bank Financial.

The company's international growth is constrained due to protectionist measures in other countries. It already has about 50 per cent of the Canadian market and there are few acquisition opportunities. Its only major competitor is privately held Redpath Sugar Ltd., and some smaller regional distributors.

"Because they don't have a lot of levers to pull, I don't get that excited about earnings momentum," said Mr. Johnson, who has an "underperform" recommendation on the stock and a $4.25 target price.

Of the four analysts that cover the stock, three have a "sell" or equivalent rating and one says "hold," according to S&P Capital IQ. The analyst consensus price target is $4.44, according to Thomson Reuters.

Rogers Sugar closed at $4.51 on the Toronto Stock Exchange on Tuesday, more than 30 per cent below its 52-week high of $6.63 reached a year ago.

The World Health Organization's newly released and heavily publicized draft guidelines calling for the reduction of sugar consumption in the human diet could weigh on investor perception, as consumers continue to turn to sweetener substitutes.

"We all know that sugar isn't a high-growth industry. In fact, it's probably on the decline," says Barry Schwartz, vice-president and portfolio manager at Baskin Financial Services Inc.

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His firm recently sold the stock after Rogers Sugar reported a 22-per-cent drop in first-quarter earnings compared to the same time last year. His firm still owns the company's convertible bonds.

"[Sugar consumption] will still grow with population growth, but at a lesser rate," Mr. Schwartz said.

In regulatory filings, Rogers Sugar states that per capita consumption of refined sugar in Canada has been "stable" over the past five years, at approximately 31 to 33 kilograms per year, "primarily linked" to an increase in the population.

The company, whose brands include Rogers and Lantic, operates sugar refineries in Montreal and Vancouver as well as a sugar beet processing facility in Taber, Alta.

BMO Nesbitt Burns analyst Stephen MacLeod recently downgraded the stock to "underperform" from "market perform," saying he expects the company to be challenged by flat refined sugar volumes and competitive pricing. Higher natural gas prices used to power the refineries are also expected to weigh on earnings.

TD Securities analyst Michael Van Aelst warned investors in a recent note that the company may need to cut its dividend by 15 to 20 per cent "if not more" in 2015, as a result of its "challenging outlook."

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Rogers Sugar said on Tuesday that it's "comfortable" with its current dividend policy.

"I would love to prove him wrong, and I expect to do so," president and chief executive Edward Makin said in an interview, calling the company "a yield play."

"There are not many places you can put your money these days and get 8 per cent."

Mr. Makin called the recent analyst downgrades "a little aggressive," but a buying opportunity. He and a handful of other executives have recently bought shares on the recent dip.

As for the negative sentiment around the company's product, Mr. Makin said it's a "misconception" that sugar is unhealthy, and not backed up by science.

"We've been a bit of a convenient punching bag of late, and it's unjustified."

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About the Author

Brenda Bouw is a freelance writer and editor based in Vancouver. She has more than 20 years of experience as a business reporter, including at The Globe and Mail, The Canadian Press, the Financial Post and was executive producer at BNN (formerly ROBTv). Brenda was also part of the Globe and Mail reporting team that won the 2010 National Newspaper Award for business journalism. More


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