Intertape Polymer Group Inc.

Intertape Polymer Group Inc. (TSX: ITP) manufactures and sells a variety of packaging products. The group’s primary product categories include tapes, films, and woven coated fabrics.

Key Updates:

• An Income Play: Historically, the group reported consistent dividend payout irrespective of economic cycles, which shows the business resiliency. Notably, ITP paid a total dividend of USD 26.032 million in 9MFY20, higher than USD 25.250 million, a year ago. Moreover, the stock of ITP carries an annualized dividend yield of ~3.6%, higher than the TSX composite of ~3.32%.

10-years Dividend payment (Source: Refinitiv, Thomson Reuters)

• Better Margins than Industry: The company posted better margins than the industry, driven by higher operational efficiency, which is a key positive. Gross margin, EBITDA margin and operating margin in Q3FY20 stood 26%, 18.6% and 13.1%, respectively, as compared to the industry median of 25.1%, 16.5% and 11.7%, respectively. Meanwhile, the company reported its net margin at 8.4%, higher than the industry median of 6.6%.
• Strong quarterly growth: As the industry is on the verge of recovery, a sequential growth confirms the revival of the demand, and the continuation of the trend would lead to sustainable cash flows. Meanwhile, the group reported improved revenue of USD 323 million in Q3FY20, as compared to USD 267.1 million in Q2FY20, while gross profit stood significantly higher at USD 84.1 million, against USD 57.3 million in Q2FY20. Operating income, on the other hand, stood at USD 42.5 million, grew from USD 16.9 million, a quarter ago.
• Bullish Technical Indicator: The stock of ITP closed above the long-term support levels of 100-days, 150-days and 200-days simple moving average (SMA), indicating a bullish price trend. In the recent past, the stock gained momentum and soared ~46% and ~103%, respectively in the last six months and nine months, respectively, driven by improved operating performance.                                               

Source: Refinitiv (Thomson Reuters)

Q3FY20 Financial highlights:

• ITP announced its quarterly results, wherein the group posted revenue of USD 323.027 million, higher than USD 293.598 million in the previous corresponding period (pcp).
• Gross profit stood at USD 84.110 million, higher than USD 64.063 million in Q3FY19. The increase was supported by higher sales, partially offset by higher cost of sales (USD 238.917 million versus USD 229.535 million in pcp).
• The quarter was marked by higher selling, general and administrative expenses (USD 38.621 million versus USD 35.025 million in pcp) and a decline in research expenses (USD 2.554 million versus USD 3.326 million in pcp). Operating profit stood at USD 42.469 million versus USD 24.098 million in pcp.
• Net earnings for the period stood at USD 27.173 million, as compared to USD 12.541 million in Q3FY19.
• The group reported a cash balance of USD 13.121 million, while total assets stood at USD 1,081.216 million.

Q3FY20 Income Statement Highlights (Source: Company Reports)

Risks: Changing consumer preference and a loss of clients may dampen the company’s topline and cash flows.

Valuation Methodology (Illustrative):  Price to Earnings

Note: All forecasted figures and peers have been taken from Thomson Reuters 

Stock Recommendation:

The company reported a higher cash flow from operations of USD 67.523 million and USD 90.983 million, for Q3FY20 and 9MFY20, respectively, grew from USD 48.350 million and USD 61.732 million in Q3FY19 and 9MFY19, respectively. The group received a higher demand through the e-commerce segment, and we believe the momentum to continue in the coming days, which would further lead to improved business prospects. We have valued the stock using the Price to Earnings based relative valuation method and have arrived at a higher single-digit upside (in percentage terms). For the said purposes, we have considered industry (Containers & Packaging) median on NTM basis. Considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock at the closing market price of CAD 22.85 on February 16, 2021.

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

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