Winpak Ltd

Winpak Ltd (TSX: WPK) is a general industrials company, which is engaged in the business of manufacturing and distributing packaging materials and associated packaging machines. The company’s products are used to pack healthcare products, beverages, and perishable foods. The group provides three packaging technologies, which include packaging machinery, flexible packaging and rigid packaging & flexible lidding.

Financial Highlights – Declined Financial Performance in Q1 FY2020 (29^th March 2020)

(Source: Quarterly Report, Company Website) 

In the first quarter of the financial year 2020, the revenue declined by 4.7 per cent to USD 213,596 thousand as against USD 224,035 thousand in the Q1 FY2019. In the first quarter of the financial year 2020, the gross profit stood at USD 64,169 thousand versus USD 69,130 thousand in Q1 FY2019. The groups’ EBITDA declined to USD 41,956 thousand in Q1 FY2020 versus EBITDA of USD 48,744 thousand in the first quarter of the financial year 2019. Due to an increase in the operating expenses for the period, the group’s operating income stood at USD 31,121 thousand in Q1 FY2020 versus USD 38,586 thousand in Q1 FY2019. The PBT (profit before tax) declined to USD 32,151 thousand in Q1 FY2020 versus USD 39,723 thousand in Q1 FY2019. The net income stood at USD 23,546 thousand in the first quarter of the financial year 2020 versus USD 29,188 thousand in the first quarter of the financial year 2019, reflecting a decline in revenue and EBITDA. The group’s basic and diluted earnings per share stood at 36 cents in the first quarter of the financial year 2020 versus a basic and diluted earnings per share of 44 cents in the first quarter of the financial year 2019.

Share Price Performance

Daily Chart as of 19 May 2020 (Source: Refinitiv, Thomson Reuters)

Winpak Ltd shares are trading at CAD 45.0 at the time of writing on 19 May 2020. Stock's 52 weeks High is CAD 52.65 and Low is CAD 33.11.

Key Risks

The market conditions in which the company operates is full of challenges and might impact the operational performance and reduce financial performance as well. Any change in regulations and government policies could affect the overall business of the company. Liquidity and interest rate risks could affect the operations of the company.

Conclusion

The company has shown a decline in financial performance in the first quarter of the financial year 2020. Both the revenue, the bottom-line performance have declined, with a decline in the profitability for the period. The group needs to manage its operating expenses unless it results in further deterioration in financial performance in the coming years. The group’s cash balance has increased and generated strong cash flow from operations. In the Mid-March, the group witnessed a change in customer behaviour which increased the buying at the retail level, but demand from the foodservice industry and restaurants declined significantly. Due to the outbreak of Covid-19, the group will not be able to complete certain orders on time. The group will pause all development & acquisition activities and will take measures to preserve cash and reduce costs. Presently, the company is trading near its 52-week high, raising doubts at its upside potential at current prices.

Based on the factors as highlighted above, we recommend investors to keep a “Watch” on the stock at the closing price of CAD 45 (as on 19 May 2020), with support from few catalysts needs to be evaluated at a later stage.

Gamehost Inc.

Gamehost Inc. (TSX: GH) operates in the hospitality and gaming segment across the region of Alberta, Canada. The Group also offers Food and Beverage within its casinos and hotels business.

The casino business has been closed in the recent past as it does not fall under the category of essential services. To weather the current situation, the Company has taken prompt action of temporary layoffs of ~90% of the total workforce, in order to preserve the working capital.

Q1FY20 Financial Highlight: For the period ended March 31, 2020, GH reported a lower operating revenue of CAD 13.9 million, as compared to CAD 17 million in pcp. The decline was due to the ongoing shut-down of gaming and leisure segments during the latter part of the quarter. Gross profit declined by 23.1% on y-o-y basis due to a lower income. Profit before income tax declined to CAD 3 million, from CAD 4.9 million in pcp. The group reported a 36% y-o-y decline in net profit to CAD 2.3 million. GH exited the quarter with cash and total assets of CAD 8.7 million and CAD 167.1 million, reflecting a 43.5% and 5.2% decline from December 31, 2020, respectively.

Q1FY20 Income Statement Highlights (Source: Company Reports)

Stock Recommendation: The stock of GH was hammered in the recent past, creating significant destruction to the investor’s wealth. The stock failed to recover from the recent lows and underperformed the index by ~33% in the last three months. To preserve the liquidity, the group has suspended its dividend payment. The group’s casino business is temporarily closed. We expect the group’s outlook to remain bleak as there is an expectation of a rise in the unemployment and a change in consumers spending behavior. Further, despite a stiff correction, we have observed that the stock is not cheap, it is quoting at a price to cash flow of 6.1x on TTM basis, as compared to the industry (Consumer Cyclicals) median of 4.1x. Hence, we recommend a ‘Watch’ stance on the stock of GH at the closing price of CAD 4.65 as on May 18, 2020.

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

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