Intertape Polymer Group Inc.

Intertape Polymer Group Inc (TSX: ITP) is a packaging company that makes and sells a variety of goods. Tapes, films, and woven coated fabrics are the company's main product categories.

Why Investor’s Should Book Profit?

• Weak margin profile: The group posted lower profitability margin in Q2 FY21, as compared to the industry median, which indicates poor operational efficiency and remains a major concern for the company. Notably, ITP reported its gross margin and operating margin 23.70% and 7.40%, respectively, significantly lower than the industry median of 27.90% and 10.60%. Notably, the company reported its net margin of 3.90%, lower than the industry median of 6.40%.
  

• Rising debt levels remains a key concern: The company reported a constant increase in its total debt in the recent quarters, which is dampening the company’s overall financial flexibility. Notably, the group reported its total debt of USD 580.40 million in Q2FY21, which is the highest in the last five quarters. Moreover, debt to equity ratio stood at 1.8x, as compared to the industry median of 1.02.

Analysis by Kalkine Group

• Falling free cash flows: The company's free cash flows declined by USD 28.8 million to USD 6.4 million in the reported period, owing to lower cash flows from operating activities and higher capital expenditures.

• Hovering near the upper band of Bollinger band indicator: At the daily price chart, the stock of ITP closed near the upper range of its 20-days Bollinger band, indicting a possible correction from the recent level.

Technical Price Chart (as on November 09, 2021). Source: REFINITIV, Analysis by Kalkine Group

Valuation Methodology (Illustrative): Price to CF based

Stock Recommendation:

It was another outstanding quarter with demand driving robust growth in revenue, adjusted net earnings and adjusted EBITDA. The company continue to experience strong organic growth into August led by the categories where we have made investments in capex and acquisitions. However, it reported decline in free cash flows, which fell by USD 28.8 million to USD 6.4 million. Furthermore, its debt is increasing on a continues basis, which implies risk to its balance sheet. Moreover, the stock is trading at the stretched valuations on multiple fronts compared to the industry. Even the technical indication implies that the stock is in a bearish trend and that the price may correct or consolidate further. Therefore, based on the above rationale and valuation, we recommend a “Sell” rating on the stock at the closing price of CAD 30.17 on November 9, 2021. 

One-Year Technical Price Chart (as on November 09, 2021). Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

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