Cascades Inc.

Cascades Inc. (TSX: CAS) is a paper and packaging company and manufactures, transforms, and sells packaging and tissue products primarily made from recycled fibers. The Company has a network of 90 facilities and operates across the North America and Europe regions.

Major Highlight:

• Recently, the Group announced the launch of a new product line designed for e‑commerce, that incorporates a comprehensive range of customized, creative and sustainable products offerings. Through the above strategy, the Corporation is expected to cater to a more diversified customer base in the coming days.
• The Company recently closed its Brown Containerboard Packaging facility located in Burlington, Ontario. The closure is following the group’s strategy to optimize its operations through improve productivity, reduce fixed costs and strengthen the service offering.

Q1FY20 Financial Highlights: The group posted a 7% y-o-y sales growth to CAD 1,313 million, as strong tissue paper demand majorly contributed to the growth. The quarter witnessed a stable performance from the other segments as well followed by improved selling price and favorable sales mix. Income from containerboard also increased year-over-year, as higher volumes and a beneficial exchange rate offset the impacts from a less favorable sales mix and lower average selling price. Operating income soared to CAD 90 million, from to CAD 72 million in Q1FY19, driven by higher revenue while the higher cost of sales and an increase in selling and administrative expenses remained a drag. Net earnings stood at CAD 33 million, unchanged from Q1FY19, primarily due to higher finance expense and FX losses. The Company exited the quarter with cash and cash equivalent of CAD 153 million and total Assets of CAD 5,477 million.

Q1FY20 Income Statement Highlights (Source: Company Reports) 

Valuation Methodology: Price to Earnings Based Relative Valuation (Illustrative)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The stock of CAS stood resilient and appreciated ~26% so far this year, amidst a stiff correction across the broader market due to COVID 19 pandemic. Investors should note that the stock was trading above its 100-days and 200- days simple moving average (SMA) of CAD 12.53 and CAD 12.23, respectively, indicating a long-term bullish trend. The e-commerce industry is creating a robust demand for the packaging industry; the group’s recent offerings are likely to tap into this space. Further, the sale of Brown Containerboard Packaging facility in the Burlington is likely to help in optimizing the operations. The group expects a surge in consumer packaging demand that would lead to specialty product growth while industrial growth is expected to remain soft in coming quarters. Within the Boxboard Europe segment, the group expects a decent growth aided by higher industry demand and favorable price realizations.  We have valued the stock using Price to Earnings based relative valuation method and have arrived at a target upside offering double-digit (in percentage terms). For the said purposes, we have considered industry (Containers & Packaging) median on an NTM basis. Hence, we recommend a ‘Buy’ rating on the stock at the current market price of CAD 14.34 on June 8, 2020.

CAS Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Intertape Polymer Group Inc.

Intertape Polymer Group Inc. (TSX:ITP) is a leading company which develops, manufactures and markets a variety of paper- and film-based pressure-sensitive and water-activated tapes, polyethylene and specialized polyolefin films, protective packaging, woven coated fabrics and complementary packaging systems for industrial and retail use. The Company acquired Nortech Packaging and Tishma Technologies, which assembles and services automated packaging machines.

Outlook: For the second quarter of FY20, the Intertape is expecting its revenue within the range of CAD 235 to CAD 250 million. Adjusted EBITDA for the period is anticipated in between CAD 29 million to CAD 34 million.

Q1FY20 Financial Highlights: ITP impresses with its quarterly result and reported top-line at USD 278.87 million, as compared to USD 277.82 million in  Q1FY19, driven by an improved volume/mix and additional revenue from the Nortech Acquisition, partially offset by a lower selling prices. Operating profit stood higher at USD 24.07 million, versus USD 21.64 million in from the previous corresponding period, aided by a fall in cost of sales and selling, general & administrative expenses. Net earnings soared to USD 14.17 million from USD 10.53 million in pcp, supported by lower income tax, which was partially offset by higher interest expense. The Company exited the quarter with a cash balance of USD 19.43 million, while total assets stood at USD 1,085.06 million.

Q1FY20 Income Statement Highlights (Source: Company Reports) 

Valuation Methodology: Price to Earnings Based Relative Valuation (Illustrative)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months 

Stock Recommendation: The stock of ITP corrected ~24% so far this year, amidst a knee jerk reaction across the broader market due to COVID 19 pandemic. The Company’s production facilities are open and operating normally as the products are categorized under essential commodities. The Group notified that it would operate at a lower capacity aligned with the market demand and to manage its working capital and associated cost levels in an efficient manner. We expect, the demand for packaging segments to grow, aided by improved consumer sentiment and gradual recovery in manufacturing activities. The Company has a healthy market presence, and the recent acquisition is likely to improve the business prospects through product innovations and technology support, which is likely to help the Group to retain its top line and cash flows in coming days. At the last traded price, the stock was trading above its 50-days and 75 days simple moving average of CAD 12.12 and CAD 11.91, respectively, indicating a medium-term bullish trend. The stock is offering a dividend yield of 6.6%, which is lucrative, considering the current interest rate environment.  We have valued the stock using Price to Earnings based relative valuation method and have arrived at a target upside offering double-digit (in percentage terms). For the said purposes, we have considered industry (Containers & Packaging) median on an NTM basis. Hence, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of CAD 12.94 on June 8, 2020.

ITP Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Disclaimer

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