CCL Industries Inc.

CCL Industries Inc. (TSX: CCL.B) manufactures and sells packaging and packaging-related products. The group operates through four segments, namely CCL, Avery, Checkpoint and Innovia. The group derives most of its revenue via CCL segments which sell pressure sensitive and extruded film materials used for labels on consumer packaging, healthcare, automotive, and consumer durable products. The company offers innovative packaging services and operates across major geographies like Europe, North America, Asia etc.

Q1FY20 Financial Highlights: For the quarter ended March 31, 2020, sales of CCL fell 2.7% to CAD 1,296.5 million, led by a 2.7% organic decline along with a 1.2% negative impact from currency translation partially offset by 1.1% acquisition contribution. Due to the ongoing COVID19, the group witnessed a soft demand from Asia and Europe, while North America reported a flat performance during Q1FY20. Gross profit slump to CAD 370.7 million from CAD 386.1 million in Q1FY19 due to lower revenue. The company showed operational efficiency and reported a fall in selling, general and administrative expenses, which came in at CAD 180.9 million as compared to CAD 195.6 million in pcp. Earnings before income tax improved to CAD 172.2 million as compared to CAD 168.2 million in the previous corresponding period, supported by a decline in finance costs. Net earnings for the period stood at CAD 126.6 million against CAD 123.6 million in pcp. The group exited the quarter with cash and cash equivalents of CAD 545.5 million and total assets of CAD 7,443.8 million.

Q1FY20 Income Statement Highlights (Source: Company Reports)

Valuation Methodology: Price to Cash Flow Based Relative Valuation (Illustrative)

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

Stock Recommendation: The group has invested in enhancing capacity to support the demand from Home & Personal Care and Food & Beverage segments. The group mentioned that it would continue to enhance the capacity to broaden its capabilities and expanding its geographical footprints. The group has reduced its FY20 Capital expenditure to CAD 250 million, from CAD 350 million in order to support its short-term liquidity. We expect that the Company is likely to benefit from improved demand from ‘essential goods’ segment, which would support the cash flow and income of the Company in the coming days. The stock is trading above its 20 days and 50 days simple moving average (SMA) of CAD 42.93 and CAD 41.38, respectively, which indicates a bullish trend. We have valued the stock using van P/CF based relative valuation method and have arrived at a target upside of lower double-digit (in percentage terms). For the said purposes, we have considered Winpak Ltd, Silgan Holdings Inc, Greif Inc, etc. as peers. Hence, we recommend a ‘Buy’ rating on the stock at the current market price of CAD 43.91 on 21 May 2020.  

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

Bird Construction Inc.

Bird Construction Inc. (TSX: BDT) operates as a general contractor, with a decent presence across the Canadian market. The Company focuses primarily on projects related to industrial, commercial and institutional sectors of the general contracting industry.

To weather the current COVID 19 pandemic, the Group is focusing on cost efficiency and taking measures such as temporary layoffs, reduction in the Board of Director’s compensation etc. The Board of Directors declared a monthly dividend of CAD 0.0325 per common share, payable on June 19, 2020.

Q1FY20 Financial Highlights: BDT came up with a decent set of quarterly numbers and posted an exuberant growth in revenue to CAD 321.64 million, as compared to CAD 261.77 million in Q1FY19. The increase was driven by growth in the industrial work program, while the commercial and institutional work program remained flat. Gross profit stood higher at CAD 16.91 million, improved drastically from CAD 6.32 million, thanks to higher revenue. Income from operations stood at CAD 3.86 million as compared to a loss of CAD 7.98 million in pcp, supported by lower general and administrative expenses. Net income for the period stood higher at CAD 1,123 million, as compared to a loss of CAD 6.46 million in Q1FY20, thanks to a higher finance income and an income tax recovery, while higher finance and other costs remained a drag. The Group exited the quarter with a Cash balance of CAD 140.40 million and a total asset of CAD 821.60 million.

Q1FY20 Income Statement highlights (Source: Company Reports)

Stock Recommendation: At the current market price, the stock is offering an annualized dividend yield of ~7%, which looks attractive considering the current interest rate scenario. The Company witnessed a temporary slowdown in activity in the months of April and early May 2020 due to temporary project shutdowns and reduced productivity on project sites account of COVID 19 impact. The group expects it high margin industrial work program to drive the growth going forward. Bird Construction Inc. secured new contracts of CAD 220.8 million and derived construction revenues CAD 321.6 million during the first quarter of FY20. The group has a solid backlog which would help the group in sustaining the revenue. The stock is trading above its 20-days and 50-days simple moving average (SMA) of CAD 5.06 and CAD 4.89, respectively, indicating a bullish trend. The stock is currently trading at forward EV/EBITDA multiple of 3.6x against the industry (construction and engineering) average of 6.7x. Hence, we recommend a ‘Speculative Buy’ rating on the stock at the closing price of CAD 5.61 as on May 21, 2020.

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

Disclaimer

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