CCL Industries Inc.

CCL Industries Inc. (TSX: CCL.B) manufactures and sells packaging and packaging-related products. The company operates through various segments which include The CCL segment, which generates most of the revenue, sells pressure sensitive and extruded film materials used for labels on consumer packaging, healthcare, automotive, and consumer durable products. The Avery segment sells software, labels, tags, dividers, badges, and specialty card products. The Checkpoint segment includes the manufacturing and selling of technology-driven, inventory management, and labeling solutions. 

Key Highlights

• Healthy cash flows:In Q1 2021, the Company generated cash from operating activities of CAD 140.4 million compared to CAD 80.3 million in Q1 2020. There was an inflow of CAD 87.6 million in free cash flow from operations in the reported period compared to an outflow of CAD 15.0 million in the previous corresponding period.

Source: Company

• Declining net debts: The company reported net debt of CAD 1,329.8 million on March 31, 2021, declined by CAD 61.1 million from CAD 1,390.9 million. On the back of lower debts, the Net debt to Adjusted EBITDA at March 31, 2021, decreased to 1.16 times, compared to 1.24 times at December 31, 2020, which is a key positive. 

• Industry beating margins: The resilient business and management’s solid determination along with prudent steps helped in leaping the industry median margins on many fronts in Q1 2021, which is a key positive. The chart below gives a glimpse of this.

Financial overview of Q1 2021 (In millions of CAD)

Source: Company

• In Q1 2021, the company reported sales of CAD 1,349.5 million, an increase of 4.1% compared to CAD 1,296.5 million in the previous corresponding period. Sales increased due to an organic growth rate of 4.2% and acquisition-related growth of 2.5% partially offset by 2.6% negative impact from foreign currency translation.
• The Company posted a gross profit of CAD 387.1 million, increased by CAD16.4 million compared to CAD370.7 million in Q1 2020.
• The Company’s net earnings in the reported period stood at CAD 147.8 million compared to CAD 126.6 million in pcp, on the back of high gross profit along with low finance cost.

Risks associated with investment

The Company is exposed to many risks which could adversely affect its results of operations and financial conditions. Some of these risks are like current economic conditions and uncertain economic forecast, fluctuations in raw material costs or the unavailability of raw materials, competition, and consumer confidence and spending preferences, etc. 

Valuation Methodology (Illustrative): EV to EBITDA

Stock recommendation

Despite ongoing pressures from the pandemic, the company delivered a strong start to 2021 and posted 4.2% consolidated organic growth. The Company's ability to provide a wide range of products to multinational customers on a global basis, with focused strategies to improved efficiency and lower costs is going to help them a lot in improved numbers and margins. Moreover, it completed Q1 2021 with a stronger balance sheet driven by persistent free cash flows, reduced net debt level along with strong liquidity position, is a key positive. Therefore, based on the above rationale and valuation, we recommend a "Hold" rating on the stock at the closing price of CAD 68.33 on May 27, 2021. We have considered Sonoco Products Co, Winpak Ltd, Avery Intertape Polymer Group Inc etc. as the peer group for the comparison.

1-Year Technical Price Chart (as on May 27, 2021). Analysis by Kalkine Group

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

Disclaimer

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