Winpak Ltd

Winpak Ltd (TSX: WPK) manufactures and sells a wide range of packaging materials utilized for foods, beverages, and healthcare applications.

Key Highlights:

• Increase in dividend payment: The company reported an increase in dividend payment amidst the ongoing sluggish economic scenario, supported by stable cash flows. In H1FY21, the company reported a total dividend payment of USD 3.068 million, as compared to USD 2.885 million in pcp, which is impressive.
• Healthy Balance sheet: The company is virtually debt free, which indicates that the working capital requirements and capital investments are being funded by the cash flow generated from the operations, which is a key positive. Additionally, a zero-debt balance sheet would result in zero finance costs for the company and would support the margins.
• Positive outlook: For FY21, the group expects positive performance within the flexible packaging segment, supported by notable volume growth from retail protein, cheese products and from nylon film non-food retail and hospitality segments. In the recent past, the company witnessed higher traction from the retort pet food, snack food and specialized printed packaging products, and we expect the momentum to continue in the coming days. Moreover, the management is focusing on additional opportunities from pharmaceutical customers.

Q2FY21 Financial Highlights:

• WPK announced its quarterly result, wherein the company posted revenue of USD 243.969 million, higher than USD 216.201 million in the previous corresponding period (pcp). The growth was driven by improved performance from all three segments of the company.
• Gross profit stood at USD 69.690 million, improved from USD 68.045 million in pcp, supported by elevated revenue, partially offset by higher cost of sales.
• Income from operations was down to USD 38.468 million from USD 40.386 million in Q2FY20. The decline was primarily due to higher marketing & distribution expenses and higher general and administrative expenses.
• The company reported net income of USD 29.439 million, as compared to USD 29.920 million in pcp. The marginal decline was due to higher expenses, partially offset by lower income tax.

Q2FY21 Income Statement Highlight (Source: Company Report)

Risks: The bulk of the company’s expenses are related to raw materials, and elevated raw material costs would lead to margin pressure and might dampen the company’s profitability. Moreover, the group’s performance is dependent on the changing consumer preferences and hence shift in consumer preference would dampen the overall performances.

Valuation Methodology (illustrative): Price to Cash Flow

Stock Recommendation:

On a year-to-date basis, the company reported revenue of CAD 468.775 million, higher than CAD 429.797 million in pcp. The group reported higher volumes from the rigid container segments, supported by the new product offerings coupled with higher condiment and snack food container shipments. The company is making its mark from its rigid container facility in Sauk Village, Illinois. Operation from the above facility is expected to begin from the fourth quarter of FY21.  We have valued the stock using the Price to CF-based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered peers like CCL Industries Inc, Sealed Air Corp etc. Considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock at the closing price of CAD 40.37 on October 05, 2021.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

Technical Analysis Summary

One-Year Technical Price Chart (as on October 05, 2021). Source: REFINITIV, Analysis by Kalkine Group

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