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 improved profitability margins as compared to the industry median, which indicates better operational efficiencies. Notably, in FY21, the company reported EBITDA margin and operating margin of 19.2% and 14.2%, respectively, as compared to the industry median of 15.7% and 9.6%, respectively. Moreover, the company reported its net margin of 10.6% in FY21, higher than the industry median of 5.9%.

• Healthy balance sheet: At the end of FY21, the company reported its Debt-to-Equity ratio of 0.01x, significantly lower the industry median of 1.23x. This will help the company to outpace its peers during the rising interest rates environment.

• Impressive topline growth: Historically, the company reported a stable revenue growth from its operations, which indicates sustainable demand for the company’s product, which is a key positive. Notably, in the last ten years, WPK posted a CAGR growth of 4.4% in its top line, which is encouraging. Notably, the company reported its revenue of USD 1,002 million in FY21, as compared to USD 852.5 million in FY20.

Source: Company Report

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.

  FY21 Financial Highlights:

FY21 Income Statement Highlights (Source: Company Report)

• WPK announced its full-year result, wherein the company posted its revenue of USD 1,001.9 million, higher than USD 852.4 million in FY20. The growth was driven by 9.7% y-o-y growth in sales volumes supported by higher traction from the rigid packaging and flexible lidding operating segment.
• Despite a higher cost of sales, the company posted an improved gross profit of USD 274.4 million, as compared to USD 263.6 million in FY20, supported by elevated income.
• The period was marked by improved Sales, marketing and distribution expenses, higher Research and technical expenses, which resulted to a decline in Income from operations of USD 142.4 million, as compared to USD 146.7 million in FY20.
• Net income stood at USD 106.3 million, slightly lower from USD 108.9 million, due to lower income from operations, partially offset by lower finance expense coupled with a decline in income tax.
  

 Valuation Methodology (illustrative): Price to Cash Flow

Analysis by Kalkine Group

Stock Recommendation:

In FY21, the company reported its total dividend payment of USD 165.5 million, significantly higher than USD 5.7 million in FY20. This is impressive as most of the companies are lowering their dividend in order to retain liquidity. 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 CCL Industries Inc, Crown Holdings Inc etc. Considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock of WPK at the closing price of CAD 41.48 on March 08, 2022.

One-Year Technical Price Chart (as on March 08, 2022). Analysis by Kalkine Group

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

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