Is CETA Great News For Rogers Sugar?

| About: Rogers Sugar (RSGUF)

I recently wrote an article about Rogers Sugar (OTC:RSGUF) and how they could benefit from increasing sugar prices and certain non-systematic events.

Recently Rogers Sugar hosted an event at its Montreal refinery that gave indications of more sales to come. In their press release, the Company referred to the recent agreement in principle for expanding trade called the Canada/European Union Comprehensive Economic and Trade Agreement (CETA). This agreement was reached in October and the depth of benefits to Canadian companies is starting to be realized.

Not surprisingly, prior to this agreement it was common for Canadian exports of beverages and food items to face European Union tariffs or restrictions. The new CETA agreement essentially eliminates all of these barriers and will allow them unrestricted access to a market that contains over 500 million consumers at a time when economic prospects are improving in Europe.

While Canada's food processing industry is large (Canadian exports for the food processing industry totaled $26.5 billion in 2012), the average export between 2010 and 2012, of manufactured food and beverages to the European Union was relatively small at approximately $536 million.

So how does this benefit Rogers Sugar?

The Company gave the following quote in their press release:

"The initial 30,000-metric-tonne-per-year export quota for sugar containing products will grow over time to almost 52,000 metric tonnes per year. CETA thus brings a double benefit to Lantic. Additional sugar will be refined right here at our Montreal refinery, and value-added sugar containing products produced by Lantic Blending will be exported to the premium and large European Union market. New market access into the EU for sugar and chocolate confectionery, and other processed foods that use sugar will also benefit Lantic and its customer base in Canada."

Given that Rogers is one of the major sugar refiners in Canada, they are likely correct in their assessment.

An indication of how much this will mean to the sugar market was given in a press release by the Canadian Agri-Food Trade Alliance (CAFTA) Executive Director Kathleen Sullivan who indicated the following:

"When completely implemented, we believe it will increase Canadian agriculture and food exports by C$1.5 billion including $600 million in beef, $400 million in pork, $100 million in grains and oilseeds, $100 million in sugar containing products, and a further $300 million in processed foods, fruits and vegetables."

So if we look at the historical sales of sugar in Canada, we see that in 2011 sales were 1,184,553 tonnes.

(Source: Canadian Sugar Institute)

And from my previous article we know that Rogers 2011 sales were given as 649,078 tonnes, which gives Rogers approximately 55% of the Canadian market.

Given this scenario and assuming not too much has changed (Rogers sales in 2013 were 649,274 tonnes), they should then be the recipient of orders for an additional 15,000 to 16,500 tonnes of sugar. This equates to an increase in volumes of approximately 2.3 to 2.5 percent.

Based on the most recent numbers published for 2013 (and remember sugar prices have been increasing since then), with revenue given as $558 million and cash flow of $37.5 million we get a value of approximately $860 million per tonne for revenue and cash flow of $58 per tonne.

So assuming all things being equal as this agreement comes into place, it should generate an additional $12.9 to $14.2 million in revenue, and approximately $1.0 million in additional cash flow initially. As the quota increases to 52 million metric tonnes, these amounts should increase.

So while not big numbers, it does point to additional improvements for the Company.

Disclosure: I am long OTC:RSGUF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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