CCL Industries Inc.

CCL Industries Announces Bolt-on Acquisition for Avery: CCL Industries Inc. (TSX: CCL.B) manufactures and sells packaging and packaging-related products. As on 24 July 2020, the market capitalization of the company stood at ~CAD 7.38 billion. The company has announced that it has acquired a specialized short-run digital label converter -InTouch Label and Packaging Co., Inc. The enterprise value of the transaction, net of cash and debt, is approximately CAD 10.9 million.

Closing of USCAD 600 Million Offering of 3.050% Notes due 2030: The company has closed its offering of USD 600 million of 3.050% notes which is due in 2030. CCL intends to use the proceeds from the offering to repay amounts owed under its revolving credit facility and for general corporate purpose.

Quarterly Performance (For the Period Ended 31 March 2020): During the first quarter, sales of the company decreased by 2.7% to CAD 1,296.5 million as compared to CAD 1,332.1 million in the first quarter of 2019. In the same time span, operating income was CAD 200.3 million as compared to CAD 204.8 million for the comparable quarter of 2019 and net earnings stood at CAD 126.6 million.

Financial Highlights (Source: Company Reports)

Key Risks: The company expects that both Avery and Checkpoint will suffer significant sales declines in the second quarter. The company is exposed to a variety of risks including the adverse impact of the COVID-19 pandemic on its customers, suppliers, the global economy and financial markets; the impact of competition; consumer confidence and spending preferences; general economic and geopolitical conditions; currency exchange rates; interest rates and credit availability.

Valuation Methodology: EV/Sales Multiple Based Illustrative Relative Valuation (illustrative)

EV/Sales Multiple Based Illustrative Relative Valuation (Source: Refinitiv, Thomson Reuters)

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

Stock Recommendation: With prudent planning, the company finished the first quarter in a decent liquidity position with cash-on-hand of CAD 545.5 million and US$ 607.0 million undrawn capacity on its syndicated revolving credit facility. The company also reported a net leverage ratio of 1.9x of adjusted EBITDA. As per TSX, the stock of CCL.B is inclined towards its 52-weeks’ low level of CAD 34.57 and is proffering a decent opportunity for accumulation. The stock of CCL.B gave a return of 7.74% in the past three months. We have valued the stock using the EV/Sales Multiple based illustrative relative valuation and have arrived at a target price offering an upside of lower double-digit (in percentage terms). For the said purposes, we have considered Winpak Ltd, Richards Packaging Income Fund etc. as peers. Considering the current trading levels, decent returns in the past three months, financial resilience and the acquisition of Avery, we recommend a ‘Buy’ rating on the stock at the closing market price of CAD 44.28, up by 0.249% on 24 July 2020.

CCL.B Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Intertape Polymer Group Inc.

Renewal of Normal Course Issuer Bid: Intertape Polymer Group Inc. (TSX: ITP) manufactures and sells a variety of packaging products. The firm's primary product categories include tapes, films, and woven coated fabrics. As on 24 July 2020, the market capitalization of the company stood at ~CAD 896.35 million. The company has recently announced that TSX has approved the renewal of the Company's normal course issuer bid wherein it will be entitled to repurchase up to 4,000,000 common shares for cancellation.  

Quarterly Performance (For the Period Ended 31 March 2020): During the first quarter ended 31 March 2020, revenue increased 0.4% to USD 278.9 million, primarily due to an increase in volume/mix and additional revenue from the Nortech Acquisition. In the same time span, gross margin of the company went up to 21.1% from 20.8%, primarily due to an increase in spread between selling prices and combined raw material and freight costs. During the quarter, cash flows from operating activities improved by USD 2.4 million to an outflow of USD 16.1 million mainly due to a YoY decrease in cash used for working capital items and an increase in gross profit.

Quarterly Financial Highlights (Source: Company Reports)

Future Expectations: The Company expects to exceed its provided guidance and estimates its revenue of ~USD 267 million for the three months ended June 30, 2020. With the out-performance of revenue, management also expects adjusted EBITDA to be greater than the top end of the outlook range of USD 34 million. The company is seeing positive signals and improved confidence in end market demand. The company is expected to release its June quarter report on 13 August 2020.

Key Risks: The investment in the company involves risks including the changes in the business conditions and growth or declines in IPG’s industry, IPG’s customers’ industries and the general economy. Investors are advised not to place an undue reliance.

Stock Recommendation: The company has diverse end markets but is not immune to the broad nature of the economic downturn. The company seems to be well-positioned to weather the downturn and the resilient performance demonstrates the essential nature of ITP work. ITP retains a healthy financial position with improved margins, a flexible capital structure and ample liquidity. As per TSX, the stock of ITP is moving towards its 52-weeks’ high level of CAD 19.35 but retains the potential for further growth. The stock of ITP gave a return of 20.36% in the past three months and a return of 28.4% in the last one month. On a trailing twelve months (TTM) basis, the stock is trading at an EV/Sales multiple of 1.1x, lower than the industry median (Basic Materials) of 2.1x. Considering the current trading levels, decent returns in the past three months, improvement in performance and positive long-term outlook, we recommend a ‘Hold’ rating on the stock at the closing market price of CAD 15.19, down by 0.5239% on 24 July 2020.

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

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