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

Key updates:

• Higher profitability margins: The company reported higher profitability margins as compared to the industry median, which indicates better operational efficiencies. Notably, in Q1FY22, the company reported EBITDA margin and operating margin of 20.9% and 16.6%, respectively, as compared to the industry median of 14.9% and 8.8%, respectively. Moreover, the company reported its net margin of 12.3% in Q1FY22, higher than the industry median of 3.7%.

• Consistent Growth in topline: Historically, the company reported a stable revenue growth from its operations supported growing demand for the company’s product, which is a key positive. Notably, the company reported its revenue of USD 1,002 million in FY21, as compared to USD 570.1 million in FY12.

Revenue Comparison (Source: Company Presentation)

• Growth in Cash Flows: In Q1FY22, the company reported a solid growth from cash flow from operation of USD 23.4 million, as compared to USD 11.7 million in FY20, supported by higher net income. This is impressive and would support the overall liquidity of the company.

Risks associated with the investment:

The majority of the company’s expenses are related to raw materials, and a surge in the 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.

Q1FY22 Financial Highlights:

Q1FY22 Income Statement Highlights (Source: Company Report)

• WPK announced its first quarterly result, wherein the company posted its revenue of USD 275.9 million, higher than USD 224.8 million in pcp. The growth was driven by impressive growth from all its operating segments.
• The group reported a higher gross profit of USD 81.5 million in Q1FY22, as compared to USD 65.8 million in Q1FY21, driven by higher revenue, partially offset by a higher cost of sales.
• The period was marked by higher Sales, marketing & distribution expenses, higher Research & technical expenses and also a surge in general & administrative expenses. Despite a surge in input costs, the company reported a higher income from operations of USD 45.9 million, as compared to USD 34.2 million in pcp, supported by a higher gross profit.
• Net income stood at USD 33.9 million, surge from USD 25.2 million in pcp, due to higher income from operations, partially offset by higher finance expense and an increase in income tax expense.
  

 Valuation Methodology (illustrative): Price to Cash Flow

Analysis by Kalkine Group

Stock Recommendation:

The company reporetd an impressive first quarter performance and witnessed higher income from all the three segements, supported by growing traction from the packaging of perishable foods and beverages segments.  Additionally, the company reported healthy volume growth from the modified atmosphere packaging product, and also supported the company’s overall revenue mix. We have valued the stock using the Price to CF-based relative valuation method and have arrived at a single-digit upside (in percentage terms). For the said purposes, we have considered peers like International Paper Co, Sonoco Products Co etc. Considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock of WPK at the last closing price of CAD 41.99 on April 27, 2022.

One-Year Technical Price Chart (as on April 27, 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.