Packaging company Imaflex has price target trimmed at Beacon

After its latest quarterly report, flexible packaging company Imaflex (Imaflex Stock Quote, Chart, News TSXV:IFX) continues to get the thumbs up from Beacon Securities’ Ahmad Shaath, but the analyst trimmed his target price in his latest update on Tuesday.

Montreal-based Imaflex, which specializes in the manufacturing and sale of polyethylene films for the packaging industry as well as agricultural mulch films, reported its second quarter ended June 30, 2019, on Tuesday, featuring revenues of $21.3 million, down from $21.9 million a year prior, and EBITDA of $1.6 million (7.7 per cent of sales), up from $1.4 million a year earlier. Gross margin was 12.8 per cent, up from 11.2 per cent a year ago, and net income came in at $0.2 million versus $0.7 million a year earlier.

In his commentary on the quarter, president and CEO Joe Abbandonato spoke of downward pricing pressures which have lessened in recent quarters and price competition which has suppressed revenue growth, even as the company continues to win new business and sport high production volumes.

“Although we are in a very competitive industry, business fundamentals remained stable during the quarter, supported by higher sales volumes in our core business and solid cash flows,” said Abbandonato in a press release. “Our ability to attract and retain customers attests to our differentiated, competitive offerings and revenue pricing strategy.”

Shaath reiterated his “Buy” recommendation but reduced his target price from $1.20 to $1.00 per share, which represented a projected 12-month return of 68 per cent at the time of publication.

Shaath says the $21.3 million top line was a little below his forecast of $22.2 million, with revenue in IFX’s core business down by less than one per cent year-over-year and Shine N’Ripe XL sales $250,000 less than he had anticipated. Adjusted EBITDA of $1.6 million was better than his forecast of $1.3 million, however.

The analyst noted that delays in new equipment and field trials have impacted his forecasts for Imaflex.

“IFX also announced that installation of the new coextrusion equipment will be delayed, and is now expected to commission the equipment in Q4/FY19, in contrast to our expectations for the equipment to be already revenue generating in Q3/FY19. Additionally, the company is facing delays in starting the field trials for Advaseal which resulted in missing the last growing season of 2019. Thus in order to realize the benefits of a full growing season, the company decided to delay the start of its field trials to Spring 2020,” Shaath writes in a client update.

The analyst has lowered his estimates for fiscal years 2019 and 2020, now calling for fiscal 2019 revenue and adjusted EBITDA of $86.3 million and $6.3 million, respectively, and for fiscal 2020 revenue and adjusted EBITDA of $94.9 million and $6.7 million, respectively.

Shaath reiterated his “Buy” recommendation but reduced his target price from $1.20 to $1.00 per share, which represented a projected 12-month return of 68 per cent at the time of publication.

Imaflex, whose share price has been dropping steadily since mid-2017, lost almost 11 per cent in trading on Tuesday. The stock is now down 29.5 per cent year-to-date and in total has lost 63 per cent of its value since July 2017. The stock currently stands with a market capitalization of $28 million.