Imaflex (Imaflex Stock Quote, Chart, News, Analysts, Financials IFX:TSXV) keeps bringing the hits, says Ahmad Shaath, analyst with Beacon Securities, who reviewed the company’s latest quarterly beat in an update to clients on Wednesday.
Founded in 1994, Imaflex is a Montreal-based developer and manufacturer of flexible polyethylene films for the packaging industry and agricultural mulch films with operations in Quebec and North Carolina.
The company announced its first quarter 2021 results for the period ended March 31, 2021, with revenues up 18.5 per cent year-over-year to $24.9 million and EBITDA falling 26.9 per cent to $3.5 million. Management said the year-over-year drop in earnings was due to foreign exchange impacts, where the company has about two-thirds of its business in the US. Excluding forex, Imaflex said the Q1 EBITDA came in at $3.8 million, representing a 23.2-per-cent uptick over the prior year’s first quarter.
“The positive momentum seen throughout 2020 continued into the first quarter of 2021, with Imaflex once again delivering impressive results,” said Joe Abbandonato, President and CEO, in a press release. “We expect this trend to continue as we remain well positioned to capitalize on our multi-year efforts to build out the business, supported by our long-term customer partnerships.”
Imaflex accounted for the revenue lift via product pricing with tailwinds coming from resin prices and through greater volumes, particularly in converted products. (The company said it has been able to adjust product pricing in accordance with resin input costs, as it has no long-term customer contracts.)
The company’s gross profit continues to shine, with the Q1 coming in at $4.6 million or 18.4 per cent of sales compared to $4.0 million or 19.2 per cent of sales in Q1 2020.
“Since the beginning of 2020, Imaflex has been consistently generating stronger than historical margins. This has been largely driven by the positive impact of scale on the business, whereby incremental revenues have a fairly meaningful effect on margins due to the diminished impact of labor and overhead costs relative to sales,” Imaflex said in the press release.
On outlook, management said there’s solid, long-term growth opportunity ahead, although the COVID-19 pandemic continues to bring with it a measure of uncertainty tot the business.
For Shaath, Imaflex’s Q1 represented the fourth quarter in a row where the company beat his estimates. Shaath was calling for revenue of $19.6 million and adjusted EBITDA on a constant currency basis of $3.0 million compared to the resultant $21.9 million and $3.8 million, respectively. The first quarter EPS of $0.04 per share was also better than Shaath’s forecast of $0.03 per share.
“IFX continued to generate strong cash flow, with FCF of ~$2.3 million. On a trailing-twelve-month basis, IFX has been consistently generating >$10 million of FCF for the last three quarters,” Shaath said.
“The company’s cash balance continued to climb to new heights, with IFX ending Q1/FY21 with a record $5.5 million (up from $3.2 million in Q4/FY20). We expect this trend to continue even after accounting for a slight increase in working capital investments in light of recent increases in resin costs, which can be easily satisfied with IFX’s operating line (~$11.2 million remains available from $12 million total),” he wrote.
“IFX’s debt repayment schedule calls for ~$0.5 million per quarter, mostly relating to equipment loans (~$7.0 million), a majority of which should be paid off by Q4/FY24E. We continue to expect IFX to generate strong FCF and build its cash balance as no major capex programs are on the horizon. Leverage wise, IFX is now well below the peer group with net-debt-to EBITDA ratio of 0.3x vs peers at 3.0x,” Shaath wrote.
Shaath has upped his forecast and is now calling for 2021 and 2022 revenue of $95.0 million and $99.8 million, respectively, and for 2021 and 2022 adjusted EBITDA of $13.0 million and $13.4 million, respectively.
With the update, Shaath has reiterated his “Buy” rating but bumped up his target from $1.60 to $1.75, saying that the target is still based on a 7.0x multiple of his EV/EBITDA 2022 estimates. At the time of publication, the $1.75 target represented a projected 12-month return of 33 per cent.
IFX was a strong climber in 2020, finishing the year with a return of 60 per cent. So far in 2021 the stock is up 21 per cent.
“IFX continues to post results that exceed our expectations, capitalizing on strong demand, the extra capacity it added last year in the US and higher sales of printed products,” Shaath wrote.
“With continued strength in cash flow generation, exceptional balance sheet strength and low-leverage, IFX is in exceptional position to pursue further growth initiatives (organically and/or M&A). At a current valuation of just 5.3x EV/EVITDA, IFX shares represent an excellent risk/reward trade,” he said.
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