CCL Industries Inc.

CCL Industries Inc. (TSX: CCL.B) manufactures and sells packaging and packaging-related products. The company operates through various segments which include the CCL segment, which generates most of the revenue, sells pressure sensitive and extruded film materials used for labels on consumer packaging, healthcare, automotive, and consumer durable products.

 Key Highlights

• Healthy cash flows:In Q1 2021, the Company generated cash from operating activities of CAD 140.4 million compared to CAD 80.3 million in Q1 2020. There was an inflow of CAD 87.6 million in free cash flow from operations in the reported period compared to an outflow of CAD 15.0 million in the previous corresponding period.
• Declining net debts: The company reported net debt of CAD 1,329.8 million on March 31, 2021, down by CAD 61.1 million from CAD 1,390.9 million. On the back of lower debts, the Net debt to Adjusted EBITDA at March 31, 2021, decreased to 1.16x, compared to 1.24x at December 31, 2020, which is a key positive.
• Industry beating margins: The resilient business and management’s solid determination along prudent steps helped in leaping the industry median margins on many fronts in Q1 2021, which is a key positive. The chart below gives a glimpse of this.
  

Financial overview of Q1 2021 (In millions of CAD)

Source: Company

• In Q1 2021, the company reported sales of CAD 1,349.5 million, an increase of 4.1% compared to CAD 1,296.5 million in the previous corresponding period. Sales increased due to an organic growth rate of 4.2% and acquisition-related growth of 2.5% partially offset by 2.6% negative impact from foreign currency translation.
• The Company posted a gross profit of CAD 387.1 million, increased by CAD 16.4 million compared to CAD 370.7 million in Q1 2020.

• Operating profit for the period stood at CAD 209.1 million compared to CAD 189.3 million in the previous corresponding period.
• The Company’s net earnings in the reported period stood at CAD 147.8 million compared to CAD 126.6 million in pcp, on the back of high gross profit along with low finance cost.

Risks associated with investment

The Company is exposed to many risks which could adversely affect its results of operations and financial conditions. Some of these risks include current economic conditions and uncertain economic forecast, fluctuations in raw material costs or the unavailability of raw materials, competition, and consumer confidence and spending preferences, etc. 

Valuation Methodology (Illustrative): EV to EBITDA

Stock recommendation

Despite ongoing pressures from the pandemic, the company delivered a strong start to 2021 and posted 4.2% consolidated organic growth. The Company's ability to provide a wide range of products to multinational customers on a global basis, with focused strategies to improved efficiency and lower costs is going to help them a lot in improved numbers and margins. Moreover, it completed Q1 2021 with a stronger balance sheet driven by persistent free cash flows, reduced net debt level along with strong liquidity position. Therefore, based on the above rationale and valuation, we recommend a "Hold" rating on the stock at the closing price of CAD 68.34 on July 2, 2021. We have considered Sonoco Products Co, Winpak Ltd, Avery Intertape Polymer Group Inc etc. as the peer group for the comparison.

1-Year Technical Price Chart (as on July 2, 2021). Source: REFINITIV, Analysis by Kalkine Group

Intertape Polymer Group Inc.

Intertape Polymer Group Inc. (TSX: ITP) is a recognized leader in the development, manufacture and sale of a variety of paper and film-based pressure-sensitive and water-activated tapes, polyethylene and specialized polyolefin films, protective packaging, engineered coated products and packaging machinery for industrial and retail use. 

Key highlights 

• Acquiring Nuevopak: Recently, the company has entered into a definitive agreement to acquire Nuevopak Global Limited (“Nuevopak”) which designs and develops a range of machines to provide void-fill and cushioning protective packaging solutions for approximately USD 43.8 million in total cash consideration. We believe the acquisition would further enhance the company’s protective packaging business and strengthen its product bundle.
  

• Robust Operations: The Company is continuously showing a spirited performance across the revenues, net earnings, adjusted EBITDA and adjusted EBITDA margin. In Q1 2021, all major products demonstrated growth on a Y-o-Y basis which drove record revenue, up by 24%, net earnings grew 33%, adjusted EBITDA was up by 59%, while adjusted EBITDA margins improvement by 379 basis points to 17.4% respectively.
  

• Continuation of positive dynamics:The management has shared guidance regarding FY 2021, where they expect to clock a revenue between USD 1375 and USD 1450 million, adjusted EBITDA will be in a range of USD 235 – USD 250 million, while the free cash flows would be in a bracket of USD 80 – USD 100 million. The company believes that the strong demand and order backlog experienced to date would help to achieve these set of numbers.
  

Financial overview of Q1 2021 (In thousands of US dollars)

Source: Company 

• The Company’s revenue increased 24.2% to USD 345.5 million in Q1 2021, compared to USD 278.2 million in Q1 2020. The rise was primarily due to increased demand in products with significant eCommerce end market exposure including water-activated tape and protective packaging.

• In Q1 2021, the Company reported a gross profit of USD 82.5 million, increased by USD 23.4 million compared to USD 59.1 million in pcp. Gross margin stood at 23.9% against 21.2% in the first quarter of 2020.
• Adjusted EBITDA increased 58.7% to USD 60.3 million from USD 38.0 million primarily due to an increase in gross profit.

• The Company’s reported Net earnings in Q1 2021 stood at USD 19.8 million compared to USD 14.3 million in pcp, primarily due to an increase in gross profit, partially offset by an increase in selling, general and administrative expenses.
  

Risks associated with investment

The Company is exposed to many risks which could adversely affect the Company’s results of operations and financial conditions. Some of these risks include current economic conditions and uncertain economic forecast, fluctuations in raw material costs, or the unavailability of raw materials, competition, customer preferences, etc. 

Valuation Methodology (Illustrative): Price to Earnings

Stock recommendation

In Q1 2021, the company experienced strong demand and carried the momentum into the second quarter with a strong order book in place. All significant products demonstrated growth on a year-over-year basis in the first quarter, which drove record revenue, up more than 24%, and strong net earnings and adjusted EBITDA performance. Furthermore, for FY2021, the management has shared healthy guidance where it expects to expect to clock a revenue between USD 1375 and USD 1450 million while the free cash flows would be in a bracket of USD 80 - USD 100 million. Moreover, the company believes that the strong demand and order backlog experienced to date would help achieve these numbers. Therefore, based on the above rationale and valuation, we recommend a "Hold" rating on the stock at the closing price of CAD 29.27 on July 2, 2021. We have considered Supremex Inc, Avery Dennison Corp, Winpak Ltd etc. as the comparison's peer group.

One-Year Technical Price Chart (as on July 2, 2021). Source: REFINITIV, Analysis by Kalkine Group

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

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.