Imaflex Inc.

Imaflex Inc. (TSXV: IFX) is engaged in the manufacturing and selling polyethylene films for the flexible packaging industry. Its flexible packaging products consist of polyethylene film and bags, including garbage bags and metalized film. Its agriculture products are comprised of both non-metalized and metalized mulch films, including standard, compostable and barrier films.

Key Updates

• Higher Cash Conversion Period: The company reported a lengthy cash conversion time of 102.2 days in Q3FY21, higher than the industry median of 47.6 days. The above indicates that the corporation lags to convert its investments in inventory and other resources into cash flows.

• Lower Profitability Margins: In Q3FY21, its gross and EBITDA margins were 14.9% and 11.9%, respectively, lower than the industry median of 26.1% and 15.6%. The above indicates weak operational efficiency, and continuing the above trend remains a crucial concern for the group. However, the company's net margin for the quarter stood at 9.4%, better than the industry median of 6.4%.

• Decline in Cash from Operations: The company reported its cash from operating activities of CAD 6.618 million in 9MFY21, a drop from CAD 9.791 million in pcp, despite a rise in net profit. The decline was primarily due to weak working capital management. Should IFX fail to improve its working capital efficiency, its overall liquidity position would be adversely affected.

Q3FY21 Financial Highlights

• IFX announced its quarterly result, wherein it recorded a revenue of CAD 29.459 million v/s CAD 22.904 million in the previous corresponding period. The increase in the revenue was aided by improved income from both United States and Canada. 
• Gross profit grew slightly to CAD 4.396 million from CAD 4.385 million in pcp. The quarter witnessed a significantly higher cost of sales (CAD 25.063 million v/s CAD 18.519 million in pcp).
• The company showcased impressive cost control techniques and reported lower selling costs, administrative expenses, and finance costs on a YoY basis.
• Net income stood at CAD 2.774 million, higher than CAD 1.236 million in Q3FY20, supported by lower income tax expense.

Q3FY21 Income Statement Highlights (Source: Company Report)

Stock Recommendation

Any outbreaks of new coronavirus variants, adverse occurrences at any of the group's plants, deferrals in customer purchases, delay in payment related issues with customers, supply and distribution interruptions, etc., could impact the company's overall performance in the coming days. In addition, the stock of IFX closed below its 50-day and 100-day moving averages, indicating a technical weakness in the stock price. Notably, the stock is available at a higher P/E multiple of 7.9x on an NTM basis, compared to the industry (Basic Materials) median of 6.6x. Considering the aforesaid facts and above rationale, we give a 'watch' stance on the stock of IFX at the last traded price of CAD 1.34 on November 30, 2021.

One-Year Technical Price Chart (as on November 30, 2021). Source: REFINITIV, Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

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