Park Lawn Corporation

Park Lawn Corporation (TSX: PLC) provides goods and services associated with the disposition and memorialization of remains in Canada and the United States. The group owns and operates cemeteries, crematoriums, and funeral homes, and funeral services business.

Key Highlights:

• Bullish Price Trend: PLC shares are hovering in a bullish zone, as at the last close, its shares traded above the long-term as well as short-term support levels of 200-day and 50-day Simple Moving Averages (SMAs), which implies a bullish price trend in the stock. Moreover, its shares registered a bullish breakout on the daily price chart, as its shares crossover its long-term 200-day SMA and managed to close above it, typically considered as a bullish indicator.

Technical Price Chart (as on January 15^th, 2021). Source: Refinitiv (Thomson Reuters)

• Industry Leading Margin Profile: The company reported improved margins as compared to the industry median, which is impressive. During the third quarter of FY20, PLC reported a gross profit margin of 80.9% and EBITDA margin of 18.6%, significantly higher than the industry median of 48.9% and 10.7%, respectively. Moreover, the company’s net margin, during Q3FY20, stood at 6.5% as compared to the industry median of 3.4%. Moreover, From FY16 to 9MFY20, the group’s adjusted net earnings and adjusted EBITDA grew at a CAGR pf ~60.5% and ~62.8%, respectively.    

Source: Company Presentation

Q3FY20 Financial Highlights:

• PLC announced its quarterly results, wherein the company posted revenue of CAD 83.79 million, significantly higher than CAD 66.57 million in the previous corresponding period (pcp), driven by the positive effect from its recent acquisition.
• Gross profit soared to CAD 67.76 million, from CAD 54.04 million in Q3FY19, supported by higher revenue, partially offset by a higher cost of sales (CAD 16.02 million versus CAD 12.53 million in pcp).
• Earnings from operations stood at CAD 8.94 million, as compared to CAD 6.72 million in pcp. The increase was supported by a higher gross profit, while a higher operating expense (CAD 58.82 million versus CAD 47,32 million in pcp) remained a drag.
• Net earnings for the period were reported at CAD 5.47 million, significantly higher than CAD 1.63 million in Q3FY19.
• The company reported a cash balance of CAD 46.07 million, while total assets were recorded at CAD 1,513.97 million.              

Q3FY20 Income Statement Highlights (Source: Company Reports)

Risk: Liquidity and interest rate risks could affect the operations of the company. Any change in regulations and government policies can also affect the overall business of the company.

Valuation Methodology (Illustrative): Price to Earnings based

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

Stock Recommendation:

The group is focusing on enhancing its presence across new markets and is emphasizing on organic growth through Mausoleum & On-site Developments, Permanent Placement Developments and Easy Cremation processes. Moreover, the management is looking for margin expansion through efficient integrating of acquisitions, vendor leverage and through technological supports. The group is targeting to achieve adjusted EBITDA of CAD 100 million by 2022. Also, the business model is immune to economic cycles, which indicates income stability. We have valued the stock using Price to Earnings-based (P/E) relative valuation method and have arrived at a single-digit upside (in percentage terms). For the said purposes, we have considered peers like GDI Integrated Facility Services Inc, New Look Vision Group Inc etc. Hence, considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock at the closing market price of CAD 28.73 on January 15, 2021.

1-Year Daily Price Chart (as on January 15^th, 2021). Source: Refinitiv (Thomson Reuters)

Imaflex Inc.

Imaflex Inc. (TSXV: IFX) is engaged in the manufacturing and sale of polyethylene films for the flexible packaging industry. The company's flexible packaging products consist of polyethylene film and bags, including garbage bags, as well as metalized film. Its agriculture products are comprised of both non-metalized and metalized mulch films, including standard, compostable and barrier films.

Key Highlights:

• Impressive Financials: In the recent past, the group has delivered an impressive operational performance, backed by a strong line-up of innovative products. Gross margin and EBITDA margin grew from 10% and 5% in FY15 to 18.3% and 16% in H1 20, respectively. The company’s future growth would be supported by major equipment purchases combined with ADVASEAL®, which focuses on lower chemical usage and would achieve soil disinfestation prior to planting.

Source: Company Reports

• Unique Product offerings: The company has strong product-line, which include mulch & barrier films, compostable films, UV-reflective films etc. Apart from offering significant protection for the crops, the products are also environment-friendly in nature and require lower usage of water, and also helps in the preservation of the soil. As most of the developed countries are focusing on eco-friendly products, we believe, the company is well-positioned to cater to the upcoming business prospects arising from the industry.

Q3FY20 Financial Highlights:

• IFX announced its quarterly results, wherein the company posted revenues of CAD 22.904 million, as compared to CAD 19.195 million in the previous corresponding period (pcp). Increase in the revenue was aided by higher flexible packaging sales volumes, combined with heightened sales of agricultural films and converted products. 
• Gross profit grew significantly to CAD 4.385 million from CAD 2.521 million in the previous corresponding period (pcp).
• The quarter was marked by a 6.1% y-o-y increase in the selling & administrative expense to CAD 1.923 million. Despite an increase in cost, the corporation reported EBITDA of CAD 2.953 million, as compared to CAD 1.735 million in pcp. Moreover, the group’s EBITDA margin grew to 12.9%, against 9% in Q3FY20.
• Net income stood at CAD 1.236 million, from CAD 0.470 million in Q3FY19.               

Q3FY20 Income Statement Highlights (Source: Company Reports)

Risks: The group might witness several challenges like labor shortages, poor revenue mix, higher input costs, which might take a toll on the company’s overall performance.

Stock Recommendation:

The stock of IFX gained handsomely in the last nine-months and one-year, respectively driven by solid operational performance. With the company’s offerings namely, UV-reflective films, the farmers would get immediate protection which would be faster and more efficient than the chemicals. This would also accelerate growth, yield, & quality for the crops. Moreover, commercialization of ADVASEAL® would likely to drive the company’s future growth because of the availability of a vast market. The group reported a solid performance during the quarter, and we expect the momentum to continue. The stock closed above the 50-days, 100-days, 150-days and 200-days simple moving average (SMA), indicating a bullish price trend. On the valuation front, the stock of IFX is available at an EV to Sales of 0.7x, as compared to the industry (Containers & Packaging) median of 1.3x. Therefore, considering the aforesaid, facts and current price level, we recommend a ‘Hold’ rating on the stock at the closing price of CAD 1.05 on January 15, 2021.

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

Disclaimer

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