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.

The Company declared a quarterly cash dividend of USD 0.1475 per common share, payable on June 30, 2020.

Current Operational update: 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. IPG reported its available cash and loan facilities at USD 329.1 million, followed by a credit facility of USD 200 million, which is sufficient to weather the current downturn.

Guidance: For the Q2FY20, the Company expects its revenue in between USD 235 million and USD 250 million. Adjusted EBITDA for the period is anticipated within the range of USD 29 million and USD 34 million.

Q1FY20 Financial Highlights: ITP released its first-quarter result and reported excellent bottom-line growth. Revenue, during the quarter, stood at USD 278.87 million, reflecting a 0.4% growth over Q1FY19, primarily aided by to higher volume/mix and additional revenue from the Nortech Acquisition, while lower selling prices remained a drag. Operating profit improved on y-o-y basis at USD 24.07 million against USD 21.64 million in the previous corresponding period, primarily attributable to a decline in cost of sales and selling, general & administrative expenses. Net earnings grew significantly to USD 14.17 million, as compared to USD 10.53 million in the previous corresponding quarter, supported by lower income tax, which was partially offset by higher interest expense.

Q1FY20 Income Statement Highlights (Source: Company Reports)

Valuation Methodology (Illustrative):  Price/Earnings based Relative Valuation

Note: All forecasted figures and peers have been taken from Refinitiv (Thomson Reuters), NTM-Next Twelve Months 

Stock Recommendation: The stock of ITP made a drastic correction of ~40% during the last nine months and witnessed huge selling pressure. The Company operates in the packaging segment and witnessed a surge in demand from the essential commodities, which has ensured its top line along with uninterrupted cash flows. The Company seems to have ample liquidity and ensured efficient cost management to support the working capital requirement, which is encouraging. The stock is offering a dividend yield of ~7.5%, which is lucrative amid lower interest rate environment. We have valued the stock using Price/Earnings based relative valuation approach, and we have considered industry median (containers & packaging) on an NTM basis and arrived at a target price offering double-digit upside potential (in % terms).  Hence, we recommend a ‘Speculative Buy’ rating on the stock at the closing price of CAD 11.09 as on May 15, 2020.

ITP One-Year Daily Price Chart, Source: Refinitiv (Thomson Reuters)

Spin Master Corp.

Spin Master Corp. (TSX: TOY) is Canada’s leading children's entertainment company. The Company has a strong portfolio of traditional and digital toys, games, products and entertainment properties. 

Strategic Steps to drive Profitability: The Company is focusing on long-term growth catalysts like product innovations through global research and development network and development of evergreen global entertainment and digital toys assets. TOY will further intend to expand its international sales footprints across the developed and emerging markets through Company's global platform followed by strategic acquisitions.

Q1FY20 Financial Highlights: Spin Master Corp. came up with its quarterly numbers, and posted a marginal decline in revenue to US$ 227.3 million, as compared to US$ 239 million in pcp. The decline was majorly driven by a soft demand scenario from Asia Geography while the group witnessed a decent growth from North America and Europe regions. The Group witnessed a surge in Selling, marketing, distribution and product development expenses, and administrative expenses which resulted in a loss before income tax recovery of US$ 74.9 million, as compared to US$ 28.5 million in Q1FY19. Net loss stood higher at US$ 26.7 million, as compared to US$ 20.9 million in pcp, supported by an income tax recovery of US$ 48.2 million.

Q1FY20 Income Statement Highlights (Source: Company Reports)

Valuation Methodology (Illustrative):  EV/Sales based Relative Valuation

Note: All forecasted figures and peers have been taken from Refinitiv (Thomson Reuters), NTM-Next Twelve Months

Stock Recommendation: The ongoing pandemic took a toll on the group’s Asian operations as the supply chain got disrupted. However, the management said that it had been stabilized by the end of the quarter. The group witnessed robust demand from games, puzzles, activities and arts & crafts segments. As most of the consumers choose to stay at home, demand for the entertainment content and digital gaming remained high, which contributed the topline. During the quarter, the Spin Master made significant progress through a structural revision in the supply chain, enhanced cross-functional alliance and cost management initiatives which are expected to yield the benefits in the second half of FY20. The Company has ample liquidity of US$ 424 million of cash balance and US$ 250 million of credit facility, which seems to be enough in weathering the current crises. We have valued the stock using EV/Sales method and used Industry (Leisure Product) average as target multiple and arrived at a target price of double-digit upside potential (in % terms). Hence, we recommend a ‘Buy’ rating on the stock at the closing price of CAD 17.31 as on May 15, 2020.

TOY One-Year Daily Price Chart, Source: Refinitiv (Thomson Reuters)

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