Cascades Inc

Cascades Inc. (TSX: CAS) is a paper and packaging company and manufactures, transforms, and sells packaging and tissue products primarily made from recycled fibers. The Company has a network of 90 facilities and operates across the North America and Europe regions.

The Company would disclose its second quarter FY20 results on August 06, 2020.

Key Highlights:

• Recently, the Company collaborated with Vegpro, the largest fresh baby lettuces producer in Canada to provide 100% recycled and recyclable plastic containers. The new packaging helps to extend the shelf life of salads. The above-mentioned containers are likely to improve airflow and prolong conservation time by limiting the buildup of excess humidity. As reported by the Management, the Company has commenced the production of this new packaging and the transition will take place gradually, until early 2021.

Q1FY20 Financial Highlights: CAS announced its quarterly results, wherein the Company reported sales at CAD 1,313 million, reflecting a growth of 7% on y-o-y basis, underpinned by strong momentum from the tissue paper segment. The quarter witnessed a stable performance from the other segments as well followed by improved selling price and favorable sales mix. Income from containerboard also increased year-over-year, as higher volumes and a beneficial exchange rate offset the impacts from a less favorable sales mix and lower average selling price. Operating income stood at CAD 90 million as compared to CAD 72 million in the previous corresponding period (pcp). The increase was aided by elevated sales numbers, partially offset by higher cost of sales and an increase in selling and administrative expenses. The Company reported net earnings at CAD 33 million, unchanged from Q1FY19, primarily due to higher finance expense, FX loss and higher provisioning for income taxes. The group ended the quarter with cash and cash equivalent of CAD 153 million while total assets stood at CAD 5,477 million.

Q1FY20 Income Statement Highlights (Source: Company Reports)

Risks:  The group is exposed to certain market risks, including risks arising from changes in the selling prices of its principal products, the cost of raw material, interest rates and foreign currency exchange rates, all of which could have an impact its financial position, operating results and cash flows.

Valuation Methodology: Price to Earnings Based (Illustrative)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The stock of CAS stood resilient in the recent past and appreciated ~30% and ~20% in the last six months and nine months, respectively. Amidst a global slowdown, the Business is gaining traction from the tissue paper segment, and we believe, the company would foresee stable sales volume from the ‘essential’ commodities. The e-commerce industry is creating a robust demand for the packaging industry; the group’s recent offerings are likely to tap into this space. The group expects a surge in consumer packaging demand that would lead to specialty product growth while industrial growth is expected to remain soft in coming quarters. Within the Boxboard Europe segment, the group expects a decent growth aided by higher industry demand and favorable price realizations. Investors should note that the is trading above the 200-days simple moving average (SMA) of CAD 12.78, indicating a bullish-trend. We have valued the stock using Price to Earnings value-based relative valuation method and have arrived at a target upside of single-digit (in percentage terms). For the said purposes, we have considered industry (containers & packaging) median NTM basis. Hence, we recommend a ‘Hold’ rating on the stock at the current market price of CAD 14.98 on July 24, 2020.

CAS Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Disclaimer

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