Beacon Securities analyst Ahmad Shaath is bullish on packaging and agricultural film company Imaflex Inc. (TSXV:IFX), saying that its just-released Q4 and year ended 2017 financials show promising improvement in the company’s core business. In a client update on Friday, the analyst reiterated his “Buy” rating with a lowered target price of $2.00, representing a potential return of 122 per cent at the time of publication.
Montreal-based Imaflex reported fourth quarter 2017 revenues that were up 12.9 per cent over Q4/16, along with FY17 revenues that grew by 20.1 per cent.
“Fiscal 2017 was a transformational year for Imaflex, with heightened operational and financial performance,” highlighted Mr. Joe Abbandonato, President and Chief Executive Officer of Imaflex in a press release. “During the year, we continued to drive revenue and margin expansion across the Corporation, while building out our agricultural offerings. Our core flexible packaging operations remained the largest revenue contributor, and we are firmly committed to its on-going success.”
Shaath says Q4’s revenue of $21.4 million came ahead of his forecast of $20.5 million, while the company’s Adjusted EBITDA (excluding FX) was $1.7 million, slightly below his forecast of $2.0 million, said to be attributed to higher admin costs and lower gross profit.
But Imaflex’s adj. EBITDA margin for the year was a healthy 10.1 per cent, its best since FY05, which Shaath attributes to the company’s core business, pushed up by operating leverage.
“The company recorded a stellar 12 per cent y/y growth in the core business, which helped it deliver near-record level margins,” says the analyst. “This growth was driven by both volume and product mix (higher proportion of higher-value, printed products mainly from the U.S.). IFX is coming against capacity constraints in FY18E, which should bring revenue growth in its core business back to GDP-like levels. However, the company is spending <$4.0 million of capex to expand its capacity, which should yield $6.0 million of revenue once its fully ramped up sometime in 1H/FY19E. This should help the core business to grow at high single digit (we forecast ~8 per cent y/y) in FY19E. Our thesis on IFX remains intact, with current valuation of core business looking relatively attractive (6.4x FY19E core-business EBITDA vs flex-packaging peers at 8.6x) and free optionality on next-gen, ag film products that could be significant (potentially worth $3.00 per share). Admittedly, we have learned to be patient regarding the lumpy ag film business, and pushed back our next order on Shine N’Ripe XL to FY19E and the first order on ADV ASEAL to FY21E. Consequently, our target price is revised to $2.00 (was $2.50). We maintain our BUY rating,” he says.
The analyst has lowered his FY18 estimates for IFX to $84.2 and $8.0, respectively, and left his FY19 estimates unchanged at $101.0 million and $10.3 million, respectively.