Intertape Polymer Group Inc.

Intertape Polymer Group Inc. (TSX: ITP) manufactures and distributes a wide range of packaging product. The firm’s primary products include tapes, films, and woven coated fabrics.

Key Highlights:

• Improved dividend payment: The company reported a higher dividend of USD 18.451 million in H1FY21, compared to USD 17.458 million in pcp. Notably, the stock carries a dividend yield of ~3.0%, which looks decent considering the current interest rate scenario.
• Bullish Management guidance: For FY21, the company expects continuation of strong demand for its products while it reported a strong order backlog till Q2FY21, supported by innovative product offerings and strong demand dynamics from the ecommerce segment. Additionally, the recent acquisition of Nuevopak Global Limited would boost its protective packaging business. Notably, Nuevopak develops a range of machines to provide void-fill and cushioning protective packaging solutions.
• Robust quarterly performance: The group reported a robust quarterly performance in Q2FY21 with a significant improvement in various financial metrics.

Q2FY21 Financial Highlights:

• ITP announced its quarterly result, wherein the company posted revenue of USD 376.686 million, as compared to USD 267.710 million in Q2FY20.
• Gross profit stood at USD 89.284 million, surged from USD 57.087 million in the previous financial year.
• Operating profit was recorded at USD 42.299 million, jumped from USD 16.796 million in Q2FY20. The period was marked by higher selling, general and administrative expenses (USD 44.075 million v/s USD 34.534 million in pcp) coupled with a higher research expense (USD 2.910 million v/s USD 2.546 million in Q2FY20).
• Net earnings stood at USD 14.723 million, marginally higher than USD 14.581 million in the previous year. The quarter witnessed a higher finance cost.

Q1FY21 Income Statement Highlights (Source: Company Reports)

Risks: The company’s operations might be impacted due to a change in consumer preference which would subsequently result in an unfavorable revenue mix. This may dampen the company’s margins and profitability.

Valuation Methodology (Illustrative): Price to Cash Flow

Stock Recommendation:

The company has prudent working capital management and reported quick ratio and current ratio of 1.17x and 2.38x, respectively, in Q2FY21, which was higher than the industry median of 1.06x and 1.57x, respectively. Recently, due to the increase traction from the eCommerce market, the group witnessed favourable tailwinds from the sector and reported growing demand for its products like water-activated tape, protective packaging, dispensing machines etc.  We expect the above momentum to continue in the coming days, which would add improved prospects for the company. We have valued the stock using the Price to CF based relative valuation method and have arrived at a single-digit upside (in percentage terms). For the said purposes, we have considered industry (containers & packaging) median on an NTM basis. Considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock of ITP at the closing price of CAD 27.97 on October 19, 2021.

One-Year Technical Price Chart (as on October 19, 2021). Source: Analysis by Kalkine Group 

Sleep Country Canada Holdings Inc.

Sleep Country Canada Holdings Inc. (TSX: ZZZ) is engaged in the retail of mattresses and operates in the retail marketplace, offering mattresses and bedding-related products. 

Key Highlights:

• Acquires Majority of Hush Blankets: The company recently announced that it is acquiring a majority share of Hush Blankets. Hush, a Canadian-based, direct-to-consumer sleep retailer specializing in weighted blankets, pillows, sheets, and now their recently launched bed-in-a-box mattresses, has quickly become a celebrated household name and one of fastest-growing digital retailers.
• Strong growth in financial metrics: In H1FY21, the company reported a 40% jump in its top-line at CAD 375.196 million. During the period, the company reopened six new stores, while ten stores were renovated/relocated. The growth was primarily attributed to the positive outcome of the company’s strategies like focus on eCommerce platforms, expanding eCommerce platforms, expanding third-party online marketplace channels etc.
• Increase in dividend payment: The company reported a higher dividend distribution of CAD 14.336 million in H1FY21, as compared to CAD 7.144 million in pcp. Moreover, the stock carries a dividend yield of 2.22%, which looks decent considering the current interest rate scenario.
• Partnership with Walmart Canada to reap improved prospects: Recently, the company reported its collaboration with Walmart Canada, wherein it would sell its products through the Walmart stores. Notably, the company launched ten new Sleep Country Expressand Dormez-vous Express stores in Walmart Canada licensee spaces. The above stores would include an average area of 500 square feet and will open across Ontario and Quebec.

Q2FY21 Financial Highlights:

• ZZZ announced its quarterly result, wherein the company posted its revenues of CAD 192.175 million, soared from CAD 114.900 million in pcp. The increase was driven by a 65.5% increase in Same Store Sales coupled with the opening of four new stores and wrap stores.
• Gross profit jumped to CAD 66.351 million, from CAD 36.970 million in pcp. The growth was supported by higher revenues, partially offset by higher cost of sales.
• The quarter was marked by higher general and administrative expenses, while a slide in finance related expenses supported the profitability.
• The group turned profitable and posted a net income of CAD 17.019 million, as compared to a net loss of CAD 0.471 million in pcp.

Q2FY21 Income Statement Highlights (Source: Company Report)

Risks: The demand for the products depends upon the consumer preferences, and a change in the consumer preferences would lead to a decline in sales volume. Moreover, the company is encountering higher input costs, and the continuation of the above trend would challenge the company’s profitability and margins.

Stock Recommendation:

The company reported impressive profit margins and posted EBITDA margin and operating margin at 22.1% and 14.2% in Q2FY21, which was higher than the industry median of 14.9% and 11.9%, respectively. Moreover, the group reported its net margin of 8.9% in Q2FY21, higher than the industry median of 6.8%. On the valuation front, the stock is trading at a price to earnings multiples of 14.9x on an NTM basis, as compared to the industry median of 23.3x. Hence, considering the aforesaid facts, improved margins, recent collaboration with Walmart Canada, we give a ‘Hold’ rating on the stock at the closing price of CAD 35.0 on October 19, 2021.

One-Year Technical Price Chart (as on October 19, 2021). Source: REFINITIV, Analysis by Kalkine Group

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

Disclaimer

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