CCL Industries Inc. (TSX: CCL.B) manufactures and sells packaging and packaging-related products like pressure sensitive and extruded film materials, used for labels on consumer packaging, healthcare, automotive, and consumer durable products. 

Key Updates:

• Strong results from Avery segment: The company reported solid traction from its Avery segment and reported sales of CAD 180.3 million in Q1FY22 v/s CAD 140.4 million in pcp. Notably, the company reported operating income of CAD 33.9 million in Q1FY22 v/s CAD 21 million in pcp. Within the Avery segment, the company supplies labels, specialty converted media and software solutions to enable short-run digital printing in businesses and homes alongside complementary office products sold through distributors and mass market retailers. We expect the above momentum to sustain in the coming quarters driven by elevated demand for the company’s offerings.

• Robust profitability margins: The company reported strong profitability margins, wherein EBITDA and operating margins were recorded at 19.8% and 14%, respectively, in Q1FY22, higher than the industry median of 14.8% and 9.8%, respectively. This indicates better cost management than the industry median. Net margin stood at 9.9% in Q1FY22, higher than the industry median of 6.5%.

• Expansion Strategy: The company recently announced its acquisition of Floramedia Group B.V., for a cash consideration of CAD 51.6 million. Floramedia is the European leader in the horticulture media and consumer communications market, and has in-house tag & label creation and production, complemented by sales offices in seven countries. Notably, for 2021, Floramedia reported its sales of CAD 62 million, along with an adjusted EBITDA of approximately CAD 7.8 million. This is expected to enhance the company’s business presence and would support the company’s overall sales growth.

Risk Associated with the investment:

Almost 98% of the end users are denominated in foreign currencies, and hence a volatility in the foreign exchange rates would dampen the company’s sales and profitability. Moreover, the company might face steep competition from other manufacturers which might lead to loss of market share. 

  Q1FY22 Financial Highlights:

  Q1FY22 Income Statement Highlights (Source: Company Report)

• B announced its first quarter FY22 result, wherein the company posted its sales of CAD 1,521.7 million, stood higher than CAD 1,349.5 million in pcp. Sales increased due to an organic growth rate of 10.8%, acquisition-related growth of 4.5% partially offset by 2.5% negative impact from foreign currency translation.
• The group reported a higher gross profit of CAD 412.9 million from CAD 387.1 million in pcp, thanks to the elevated revenue, partially offset by a significant rise in cost of sales.
• The company reported a rise in selling, general & administrative expenses, while finance costs stood at in-line with the previous corresponding period. Earnings before income tax stood at CAD 197.7 million, grew from CAD 194.4 million in pcp.
• The group reported net earnings of CAD 150.2 million, as compared to CAD 147.8 million in pcp, thanks to elevated earnings before income tax, partially offset by a slightly higher income tax expense.

Valuation Methodology (Illustrative): Price to Earnings based

Analysis by Kalkine Group

Stock Recommendation:

Despite the ongoing economic turbulence, the company reported higher dividend distribution of CAD 42.9 million in Q1FY22, as compared to CAD 37.7 million in pcp. This is impressive as most of the companies are lowering their distribution in order to retain liquidity.

We have valued the stock using the Price to Earnings based relative valuation method and have arrived at a single-digit upside (in percentage terms). For the said purposes, we have considered peers like Winpak Ltd, Aptargroup Inc etc. Considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock of CCL.B at the last closing price of CAD 58.99 on June 15, 2022.

One-Year Technical Price Chart (as on June 15, 2022). Analysis by Kalkine Group

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

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.