Imaflex is set for a strong 2020, Beacon Securities says

Investors can expect the solid run of profitability to continue for Imaflex (Imaflex Stock Quote, Chart, News TSXV:IFX) into 2020, says Beacon Securities analyst Ahmad Shaath, who reviewed the company’s recent quarterly numbers in an update to clients on Friday.

Shaath reasserted his “Buy” rating but lowered his target price from $1.00 to $0.90 per share on the sector-wide drop in valuations.

Montreal-headquartered Imaflex specializes in the manufacturing and sale of polyethylene films for both the packaging industry and the agricultural mulch films industry in the United States and Canada. The company posted its fourth quarter and 2019 year-end results on Friday, posting Q4 revenues of $18.7 million, down from $22.5 million a year earlier, while the 2019 revenues were down 6.1 per cent to $81.1 million.

Management explained the decreases in the press release.

“During 2019 our solid line-up of innovative products allowed us to attract and retain customers, albeit at lower than historical sales prices, due to a competitive pricing environment and decreased resin costs,” said President and CEO Joe Abbandonato. “Despite this, our revenues, profitability and cash flows remained more than respectable, particularly given the impact of currency on 2019 profitability and the fact that there were very few sales of our high margin citrus film,” he said.

Commenting on the current COVID-19 environment, the company said that its three plants in Canada and the US have to date remained fully operational and running at normal business levels, as the company “is considered an essential vendor in both countries due to the important role its products play in protecting and preserving food and consumer products.”

Looking ahead, Imaflex management said the company’s diversified strategy positions it to do better in 2020 and that its next-generation agriculture film Advaseal has recently received positive interim results from an efficacy trial, while key milestones are up ahead for the product.

For his part, Shaath had forecast $21.0 million in Q4 revenue compared to the actual $18.7 million while its gross profit of $2.7 million was in line with the analyst’s forecast, enabling IFX to once again beat Shaath’s estimate on adjusted EBITDA, coming in at $1.8 million compared to the analyst’s $1.6 million forecast.

Shaath said IFX’s new five-layer extrusion equipment should deliver growth in the fiscal 2020, a bonus, as the company is experiencing higher demand for its packaging products due to the COVID-19 pandemic. On Advaseal, Shaath commented that IFX is progressing well with the field trials.

Shaath has adjusted his estimates for fiscal 2020.

“We continue to expect IFX to post modest top line growth with no sales for both Shine N’Ripe XL and ADVASEAL in our forecast period. We expect IFX to grow its EBITDA, especially in FY21E as it reaps the full benefits of the new equipment. Given the recent pull back in valuations, we revised our target multiple for IFX to 8.0x EV/EBITDA (from 9.0x previously) which leads to our revised target price of $0.90 (was $1.00),” he wrote.

The analyst is now calling for fiscal 2020 revenue and adjusted EBITDA of $82.9 million and $7.3 million, respectively. At press time, his $0.90 target represented a projected one-year return of 73 per cent.