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 

• 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 improved 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 USD1,375 and USD1,450 million, adjusted EBITDA will be in a range of USD235-USD250 million, while the free cash flows would be in a bracket of USD80-USD100 million. The company believes that the strong demand and order backlog experienced to date would help to achieve these set of numbers.
  

• Acquired Nuevopak: Nuevopak Global Limited (“Nuevopak”), which designs and manufactures a variety of equipment to provide void-fill and cushioning protective packaging solutions, was recently acquired by the business 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.
  

• Diversity of End Markets:The company enjoys a strong variety through its products in end markets. This product diversification provides a safety cushion to the group as they do not derive significant revenues from any single end market. In Q1 2021, General Manufacturing, Fulfilment/E-commerce and Building & Construction segments were the strongest performers.

• Event update: The company will be releasing its second quarter results on August 11, 2021.

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

Source: Company

• The Company’s revenue increased 24.2% to USD345.5 million in Q1 2021, compared to USD278.2 million in Q1 2020. The rise was primarily due to increased demand in products with significant e-commerce end market exposure including water-activated tape and protective packaging.

• In Q1 2021, the Company reported a gross profit of USD82.5 million, increased by USD23.4 million compared to USD59.1 million in pcp. Gross margin stood at 23.9% against 21.2% in the first quarter of 2020.
• Adjusted EBITDA increased 58.7% to USD60.3 million from USD38.0 million primarily due to an increase in gross profit.

• The Company’s reported Net earnings in Q1 2021 stood at USD19.7 million increased from USD14.3 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 are 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

The company witnessed excellent demand in Q1 2021 and maintained that momentum into the second quarter with a solid order book. In the first quarter, all key products saw year-over-year increase, resulting in record revenue of more than 24%, as well as excellent net profits and adjusted EBITDA. Furthermore, the management has provided positive outlook for FY2021, stating that sales would be between USD1375 and USD1450 million, with free cash flows in the USD80-USD100 million range. Moreover, the business thinks that the high demand and order backlog it has seen thus far would aid in meeting these targets. Therefore, based on the above rationale and valuation, we recommend a "Hold" rating on the stock at the closing price of CAD 27.94 on August 03, 2021. We have considered Supremex Inc, Avery Dennison Corp, Cascades Inc, etc. as the comparison's peer group.

One-Year Technical Price Chart (as on August 03, 2021). Source: Kalkine, Analysis by Kalkine Group 

Copper Mountain Mining Corp

Copper Mountain Mining Corp (TSX: CMMC) is a copper producer, developer and explorer. The company’s flagship asset is the Copper Mountain mine is located in southern British Columbia near the town of Princeton.

Key highlights

• Robust production with lowering cash cost:The company has shown resilience in maintaining its production. The Company achieved strong production in Q2 2021 of 29.6 million pounds of copper equivalent (comprised of 25.5 million pounds of copper, 7,627 ounces of gold, and 147,973 ounces of silver). Despite the insurgence of second wave of the pandemic the company maintained its quarterly copper production in Q2 2021 is commendable. Additionally, on the back of some prudent steps taken by the management, the company brought down its cost in Q2 2021, to USD1.38 /lb copper produced V/s USD 1.48 in pcp.

• Improving operating matrix: Despite the turmoiled period in 2020 and the insurgence of second wave of Covid 19 in many nations in Q2 2021, the Company maintained its pace and witnessed spirited performance across its gross margin, EBITDA margin and operating margin, while the net margin saw a slight decline. The Company is continuously working closely to carry this winning momentum, which is appreciable.

• Rising cash flows from operations: Through agile management, robust production, operational efficiency and higher average realization price of the metals, the company is continuously increasing its operating cash flow, which is appreciable. During Q2 2021, the Company generated CAD 94.5 million of positive cash flow from operations compared to CAD 15.7 million in the previous corresponding period.

• Reaffirmed outlook for FY2021: On the back of strong first half of 2021 production results, the Company has increased its FY 2021 annual production and expects to achieve the upper end of its guidance range of 90 to 100 million pounds of copper, where the AISC cost would be in a range of USD1.80 - 2.00 per pound. Furthermore, the Ball Mill 3 Expansion Project is on track for commissioning late in the third quarter of 2021 and it is designed to increase mill throughput to 45,000 tonnes per day from 40,000 tonnes per day.

Financial overview of Q2 2021

Source: Company

• In Q2 2021, the company posted higher revenue at CAD 142.0 million, against CAD 91.0 million in the previous corresponding period. Revenue increased significantly because of higher metal sales and higher metal prices.
• Gross profit in the reported period increased to CAD 85.7 million compared to CAD 30.2 million in the pcp, an increase in gross profit was primarily due to higher sales and lower cost of sales at CAD 56.2 million V/s 60.8 million in Q2 2020.
• On the back of above stated reasons the company reported higher operating income of CAD 76.9 million compared to CAD 28.7 million in pcp.
• Net income in Q2 2021 stood at CAD 38.6 million compared to CAD 31.9 million in pcp. Increased sales and higher realized metal prices were the reasons behind this, whereas the company reported higher income tax.
  

Risks associated with investment

The company’s financial performance is mostly dependent on the price of copper and gold, which directly affects the company’s profitability, margins and cash flows. The prices of these commodities are subject to volatility which could impacts its financials. 

Valuation Methodology (Illustrative): EV to Sales

Stock recommendation

The company posted yet another strong production quarter contributing to record operating cash flow. Additionally, because of the production achieved to date, the group increased its production guidance range for FY2021 to 90 to 100 million pounds of copper, which is encouraging. Also, the Net Debt to last twelve-month EBITDA reduced to 0.7, demonstrated a strong balance sheet. Therefore, based on the above rationale and valuation, we recommend a “Hold” rating on the stock at the closing price of CAD 3.49 on August 03, 2021. We have considered Hudbay Minerals Inc, Capstone Mining Corp, Lundin Mining Corp, etc. as the peer group for the comparison.

One-Year Price Chart (as on August 03, 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.