Winpak Ltd

Winpak Ltd (TSX: WPK) manufactures and sells a wide range of packaging materials utilized for foods, beverages, and healthcare applications.

Key Updates:

• Elevated EBITDA supported by lower raw-material prices: The group reported a constant growth in its EBITDA and EBITDA margin, which was primarily driven by declining raw material prices. Notably, raw material includes a major chunk of input costs for a packaging company, and a falling raw material price is likely to support the company’s margins. During 2009 to 2019, EBITDA grew at a CAGR of ~8%, which is decent.

Source: Company Presentation

• Zero-debt Balance sheet: The company is virtually debt free, which indicates that the working capital requirements and capital investments are being funded by the internal accruals. Notably, in Q4FY20, the company had a debt balance of nearly USD 14 million, which has been repaid in Q1FY21, which is another indication of prudent capital management. Moreover, a zero-debt balance sheet would lead to zero finance cost for the company and would support the margin. 

• Demand improvement from specific segments: In Q1FY21, the group witnessed improved demand dynamics from retail protein and cheese products. Moreover, the company’s rigid container segment, primarily related to pet food and single-serve desserts segment, performed well in the recent quarter. The flexible lidding and specialized printed packaging product continued its momentum supported by new business activities from the pharmaceutical clients.

Q1FY21 Financial Highlights:

• WPK announced its quarterly result, wherein the company posted revenue of USD 224.806 million, higher than USD 213.596 million in the previous corresponding period (pcp). The growth was driven by improved performance from all three segments of the company.
• Income from operations surged to USD 34.282 million from USD 31.121 million in Q1FY20. The increase was partially offset by higher sales, marketing and distribution expenses and higher general and administrative expenses.
• The company reported its net income of USD 25.242 million, improved from USD 23.546 million in pcp. The growth was aided by higher income from operations coupled with a slide in the finance expense.
• Cash and cash equivalents were recorded at USD 496.224 million, while total assets were recorded at USD 1,360.229 million.

Q1FY21 Income Statement Highlights (Source: Company Report)

Valuation Methodology (Illustrative): Price to Cash Flow

Risks: The majority of the company’s expenses are related to raw materials, and fluctuation in raw material price would affect the margin and the company’s profitability.

Stock Recommendation:

For FY21, the group expects elevated number from the flexible packaging segment, supported by improved demand from label packaging, spouted pouch and frozen food segments. Moreover, the group also expects its packaging machinery segment to perform well for the rest of FY21, supported by healthy order flow from the packaging machinery segment. The company’s European unit has announced the launch of a strategic initiative Wiicare to create a global commercial healthcare platform, which would cater to the customer requirements and expectations from their procurement partners in the medical and pharmaceutical markets. This is encouraging considering the current demand dynamics for medical and pharmaceutical products. We have valued the stock using the Price to CF-based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered peers like CCL Industries Inc, Aptargroup Inc etc. Considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock at the last closing market price of CAD 40.56 on June 01, 2021.

One-Year Technical Price Chart (as on June 01, 2021). Analysis by Kalkine Group

Pretium Resources Inc.

Pretium Resources Inc. (TSX: PVG) is an exploration and development company engaged in the acquisition, exploration, and development of precious metal resource properties in the Americas. 

Key Highlights:

• Industry Beating margin profile: The company enjoys higher margins as compared to the industry peers, which is a key positive. EBITDA and operating margin were strong at 47.70% and 30.80%, respectively, in Q1FY21, as compared to the industry median of 38.70% and 25.60%.

• Growth in Cash from Operations amidst turbulent times: The group reported a surge in cash from operations, which stood at USD 61.263 million in Q1FY21, as compared to USD 51.284 million in pcp. The increase was primarily supported by higher net income. Free cash flow stood at USD 50.969 million v/s USD 41.803 million in the previous corresponding period.

Q1FY21 Financial Highlight:

• PVG announced its quarterly result, wherein the group reported revenue of USD 142.428 million, higher than USD 126.560 million in the previous corresponding period (pcp). The increase was driven by 12.5% increase in gold prices (USD 1,804/oz v/s USD 1,605/oz in pcp), coupled with higher gold production (85,795 oz v/s 82,888 oz in pcp).
• Operating earnings soared to USD 43.916 million, from USD 35.749 million in pcp. The quarter was marked by higher cost of sales (USD 93.796 million v/s USD 84.141 million in pcp), while the group witnessed a slide in corporate administrative costs (USD 4.445 million v/s USD 5.576 million in pcp) and exploration and evaluation costs (USD 0.271 million v/s USD 1.094 million in pcp).
• Net earnings were reported at USD 26.595 million, up from USD 8.770 million in pcp. The growth was supported by lower interest and finance expense (USD 3.953 million v/s USD 7.722 million in pcp) coupled with lower deferred income tax.

Q1FY21 Income Statement Highlights (Source: Company Report)

Risks: The performance of the company is directly correlated to the gold prices. Volatility in gold prices would affect the company’s realization price, cash flows and margins.

Valuation Methodology (Illustrative): Price to Cash Flow

Stock Recommendation:

For FY21, the company expects its gold production in between 325,000 - 365,000 oz, while cash cost is expected in between USD 820 – 920 /oz. AISC is expected at USD 1,060 – 1,190 / oz, while the management expects free cash flow in between USD 120 million to USD 170 million. The group has available liquidity of USD 369.3 million, which includes cash and cash equivalents and the undrawn revolving portion of the senior secured loan facility. The group reported initial drill results which intercepted high-grade gold mineralization and demonstrated the potential to extend the Valley of the Kings deposit located at the north and at depth adjacent to existing infrastructure. Follow-up drill programs are currently underway, while the results are expected in Q3FY21. We have valued the stock using the Price to Cash Flow based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered peers like B2Gold Corp, First Majestic Silver Corp etc. Considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock of PVG at the last closing market price of CAD 13.77 on June 01, 2021.

One-Year Technical Price Chart (as on June 01, 2021). Analysis by Kalkine Group

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

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