CCL Industries Inc. (TSX: CCL.B) manufactures and sell packaging and packaging-related products and operates through four segments, namely CCL, Avery, Checkpoint and Innovia. CCL segments which sells pressure sensitive and extruded film materials used for labels on consumer packaging, healthcare etc. derives the major revenue for the company. The company offers innovative packaging services and operates across major geographies like Europe, North America, Asia etc.

Recently, the company issued unsecured notes amounting to USD600 million with an interest of 3.050% due in 2030. The group is likely to utilize the proceedings for the payment of existing credit facility and general corporate purpose.

Q1FY20 Financial Highlights: The Company reported sales of CAD 1,296.5 million as compared to CAD 1,332.1 million in the previous corresponding quarter. Sales were down on account of a decline of 2.8% in organic growth and a negative FX impact, partially supported by acquisition-related growth. The quarter was characterized by robust growth in the Americas, particularly within Merchandise Availability Solutions on technology rollouts, lower performance from Europe & Asia during March. Plant closure during February across the China region took a toll in the overall profitability. Gross profit stood at CAD 370.7 million, as compared to CAD 386.1 million in pcp, primarily due to lower revenue. Selling, general and administrative expenses stood at CAD 180.9 million against CAD 195.6 million Q1FY19 due to a decline in the corporate costs. Earnings before income tax stood marginally higher at CAD 172.2 million as compared to CAD 168.2 million in the previous corresponding period, thanks to a significantly lower finance cost. The company reported its net earnings for the period at CAD 126.6 million against CAD 123.6 million in Q1FY19. The company exited the quarter with cash and cash equivalents of CAD 545.5 million and total assets amounting to CAD 7,443.8 million.

Q1FY20 Income Statement Highlights (Source: Company Reports)

Valuation Methodology: P/CF Based Relative Valuation (Illustrative)

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

Stock Recommendation: The stock of CCL.B corrected ~18% so far this year, due to a stiff correction across the broader market due to COVID 19 pandemic. The group is witnessing a solid demand from healthcare & specialty and food segments. The demand is likely to grow from other segments as the governments across geographies where the group operates are easing the lockdown restrictions and opening the business in a phased manner. The group is likely to benefit from the opening of non-essential retail stores openings and apparel manufacturing facilities. The group is currently focusing on working capital management and reduced its capital expenditure for FY20. To weather the current economic cycle, the Company issued unsecured senior notes amounting to USD 600 million, which seems sufficient enough to weather the current challenging situations. We have valued the stock using P/CF based relative valuation approach and arrived at a target price offering double-digit upside potential (in % terms). For the said purpose, we have considered Packaging Corp of America (NYSE: PKG), Winpak Ltd (TSX: WPK) and Ball Corp NYSE: BALL), etc., as a peer group. Hence, we recommend a 'Buy' on the stock at the closing market price of CAD 45.07 as on June 12, 2020.

CCL.B  Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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