Buy Imaflex for a double, Beacon Securities says

Beacon Securities analyst Ahmad Shaath is staying bullish on polyethylene packaging and film makers Imaflex (Imaflex Stock Quote, Chart TSXV:IFX) after the company reported stronger margins over its latest quarter. In an earnings update to clients on Tuesday, Shaath maintained his “Buy” rating and $1.20 target price, which represented a projected return of 100 per cent at the time of publication.

Montreal-based Imaflex released its first quarter fiscal 2019 results on Tuesday, featuring quarterly revenues of $21.9 million, up 6.1 per cent year-over-year and a Q1 gross margin of 14.0 per cent, up from 7.9 per cent during the previous quarter but down from 17.5 per cent in Q1 of 2018.

The topline was on target with Shaath’s forecast of $21.9 million, while the Adjusted EBITDA of $2.2 million was significantly better than his $0.7 million prediction. The analyst chalks the difference up to unexpected stability in the price of resin as well as slight improvements in volumes.

“While Q1/FY19 results had a pleasant surprise with regards to margins, we have been factoring IFX’s improvements to double digit margins throughout FY19 ahead of these results. Thus our forecast for the remainder of FY19 remain unchanged,” says Shaath.

“IFX remains on track to commission its new coextrusion equipment in North Carolina starting 2H/FY19, which should help the company’s revenue growth in 2H/FY19 (our revenue growth for 2H/FY19 remains unchanged at 5 per cent year-over-year). Stability in resin prices during Q1/FY19 bodes well for IFX’s results for the remainder of the year as it will allow the company to deliver double-digit gross margins,” he adds.

Shaath thinks that Imaflex will generate fiscal 2019 revenue and Adjusted EBITDA of $89.7 million and $6.5 million, respectively, and fiscal 2020 revenue and Adjusted EBITDA of $98.2 million and $7.0 million, respectively.