Intertape Polymer Group Inc.

Intertape Polymer Group Inc. (TSX: ITP) is a recognized leader in the development, manufacture and sale of a variety of paper and film-based pressure-sensitive and water-activated tapes, polyethylene and specialized polyolefin films, protective packaging, engineered coated products and packaging machinery for industrial and retail use.

Key highlights

• Positive Outlook:The management has shared guidance regarding Q4 2020, where they expect to clock an increase of over 10% in revenue; adjusted EBITDA would be in a range of USD 58-USD 63 million; free cash flows would in a bracket of USD 35 – USD 45 million. The complete FY2020 capex would be in the range of USD 45 – USD 50 million, while it would be of USD 12.5 million for the upcoming quarter.

• Diversity of End Markets:The company enjoys a strong variety through its products in end markets. The group witnessed positive momentum since the trough in demand from May. This product diversification provides a safety cushion to the group as it does not derive significant revenues from any single end market. In Q3 2020 Fulfilment/E-commerce, Building & Construction and Retails were the strongest performers.

Source: Company

• Increase in dividend distribution:The company has increased the annualized dividend by 6.8% from USD 0.59 to USD 0.63 per common share.

Financial overview of Q3 2020

Source: Company 

• The Company’s revenue increased by 10.0% to USD 323.0 million in Q3 2020, compared to USD 294 million in Q3 2019, primarily due to increased demand in products with significant e-commerce end market exposure including water-activated tape and protective packaging.

• In Q3 2020 the Company reported a gross profit of USD84 million, increased by USD 20 million compared to USD 64 million in Q3 2019, primarily due to low COGS and continued cost savings initiatives implemented in the prior quarter. COGS as a % of revenue in Q3 2020 came down by 450 basis points (bps) to 73.7% compared to 78.2% in Q3 2019.

• Adjusted EBITDA increased by 40.1% to USD 64.5 million, mainly due to an increase in gross profit.

• In Q3 2020, the Company reported Net earnings of USD 26.7 million, which increased by USD 14.2 million compared to USD 12.5 million in Q3 2019.

Risk associated with investment

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

Valuation Methodology (Illustrative): Price to Earnings 

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

Stock recommendation

The company witnessed significant growth from the e-commerce segment, which supported the revenue numbers and EBITDA. The group has taken some prudent steps regarding inventory management and cost control, resulting in an improved bottom line. Further, the management is also optimistic, and gave an outlook for Q4 2020, to register a growth of 10% or more in revenue, along with some high numbers in EBITDA and free cash flows compared to Q4 2019. The company also increased the dividend by 6.8% on an annualized basis. Therefore, based on the above rationale and valuation, we have given a "Hold" rating at the closing price of CAD 24.59 on December 30, 2020. We have considered Supremex Inc, Scapa Group PLC, Avery Dennison Corp etc. as the peer group for comparison.

Source: Refinitiv (Thomson Reuters)

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