Despite the current upheaval related to COVID-19, expect Good Natured Products (Good Natured Products Stock Quote, Chart, News TSXV:GDNP) to have another strong year in 2020, says Beacon Securities analyst Spencer Churchill, who issued an update to clients on the company on April
Churchill reiterated his “Buy” rating and $0.40 target price, which at press time represented a projected return of 220 per cent.
Vancouver-based Good Natured produces and distributes an assortment of renewable and plant-based materials container and packaging products, made with no harmful chemicals. The company has over 100 plant-based food packaging designs, ten grades of bioplastic rollstock sheets and 30 home and business organizational products.
The company announced on April 22 a new line of biodegradable cups, bowls, take-out containers, plates and cutlery for restaurants. The products are made from sugarcane waste, Sustainable Forestry Initiative certified paper and polylactic acid, with the company saying they help to address increased demand from customers for more sustainable and environmentally friendly packaging options.
“Even prior to the very challenging circumstances of COVID-19, consumer eating trends have been changing rapidly toward prepared and takeaway food and demand for appropriate packaging that’s environmentally responsible,” said Paul Antoniadis, CEO of Good Natured, in a press release. “This new product assortment enables us to address a whole new segment of thousands of food and restaurant businesses across North America who require more than just rigid bioplastic container options.”
On the COVID-19 front, Churchill said all of GDNP’s partner plants are operational under the category of essential services and GDNP has not reduced staff but are under a hiring freeze at the moment (which the analyst called prudent). The analyst said the grocery and industrial segments are strong for GDNP although challenges exist at their small business and restaurant clients.
At the same time, Churchill said GDNP is still winning clients, pointing a one-year agreement announced on March 31 to supply between $650,000 and $1.3 million in plant-based packaging material to SmartPac in Bridgeton, MO.
“While the margins on this type of agreement are lower than average (25 per cent – 30 per cent versus corporate average of 30 per cent – 35 per cent), the deal demonstrates how it can be difficult for packaging companies to source plant-based material (one of the competitive advantages the company has highlighted) and it is good to see new business getting completed in the current environment,” Churchill said.
The analyst forecasts fiscal 2020 revenue and EBITDA for GDNP of $15 million and negative $524,000, respectively, and for fiscal 2021 revenue and EBITDA of $20.5 million and $673,000, respectively.
“We viewed the business model as relatively insulated to COVID-19 and it is good to see it has played out this way thus far. The company is well positioned to generate another year of ~100 per cent revenue growth (but not completely organic as in 2019), assuming the addition of Shepherd that is still expected to close by April 30,” Churchill wrote.