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.

Q2FY20 Financial Highlights: ITP announces its quarterly results, wherein the company posted revenue of USD 267.770 million, lower than USD 295.609 million in the previous corresponding period (pcp). The decline was due to a decrease in volume/mix coupled with lower selling prices, primarily due to the net impact of COVID-19 on demand. Gross profit stood at USD 56.491 million, lower than USD 64.694 million in pcp, due to a lower income while the lower cost of sales supported the profitability. Gross margin slid marginally to 21.1% from 21.9% in Q2FY19 primarily due to the unfavorable impact of unabsorbed overhead costs related to production slowdowns. Operating profit came lower at USD 17.136 million, as compared to USD 21.363 million in Q2FY19. Selling, general and administrative expenses, stood lower than the previous corresponding quarter. Earnings before income tax expense stood at USD 19.213 million, as compared to USD 12.00 million, supported by other finance income of USD 9.590 million, as compared to other finance costs of USD 0.798 million. Net earnings, during the quarter, stood at USD 14.921 million, as compared to USD 6.462 million in pcp.

Q2FY20 Income Statement Highlights (Source: Company Reports)

Risks: The company is exposed to a variety of risks including risks from COVID-19; the Company's ability to maintain and improve quality and customer service; anticipated trends in the Company's business; anticipated cash flows from the Company's operations; availability of funds, etc.

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 ITP corrected ~7% so far this year, due to a low demand scenario on account of COVID 19 pandemic. The business witnessed remarkable growth from e-commerce segment, which supported the company’s top-line and EBITDA levels. Furthermore, the group took prudent steps through capacity optimization, inventory management and cost controls, which subsequently resulted in an improved bottom line. Amidst a sluggish demand scenario, the company managed to report a higher free cash flows underpinned by working capital management and lower capital expenditure. For FY20, the company has lowered its capital expenditure and expects it to be in the range of USD 30 million to USD 40 million. The company has ample liquidity and reported cash and loan availability of USD 340.5 million at the end of the second quarter of FY20, which seems sufficient to withstand the current economic cycle. The group invested in the water-activated tape capacity, protective packaging and packaging automation solutions, including sustainable alternatives within each category, which is expected to establish the company as the leader in its segment. We have valued the stock using 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, and current price movement, we recommend a ‘Hold’ rating in the stock at the current market price of CAD 15.45 on October 05, 2020.

ITP daily price chart. Source: Refinitiv (Thomson Reuters)

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.