Buy good natured products for a double, says Beacon

Expansion plans by Canadian eco-friendly packaging company good natured products (good natured products Stock Quote, Chart, News, Analysts, Financials TSXV:GDNP) are coming to fruition, which is good news for the company and its shareholders. That’s according to Beacon Securities analyst Ahmad Shaath, who delivered an update to clients on Wednesday where he kept his “Buy” rating on the stock while upping his target price from $2.00 to $2.15.

Vancouver-based good natured products makes a range of packaging and consumer products primarily from renewable, plant-based materials with no harmful chemicals, using various designs and grades of bioplastic rollstock sheets as well as home and business organizational products. The company announced on Tuesday the completion of its capacity expansion at its IPF facility and provided further details on the installation of faster production equipment.

“I want to congratulate the team at our IPF Facility for developing and initiating a 50-per-cent production capacity increase within our existing manufacturing footprint,” said Paul Antoniadis, CEO of good natured, in a press release.

“The new high-speed extruder is over two times more efficient than our existing standard equipment and will strengthen our customer experience with shorter onboarding and production lead times. The addition of high-speed extrusion technology and capacity increase improves our supply chain economics and positions the Company well for significant organic growth potential going forward,” Antoniadis said.

GDNP announced this past December its purchase of Ayr, Ontario-based IPF, formerly Integrated Packaging Films, bought for $16.7 million. IPF is a manufacturer of high quality, rigid plastic sheets for a variety of products. GDNP upgraded one of IPF’s four extrusion lines (Line 3), adding about four million pounds of new production capacity, according to the company.

Good natured also said it has ordered a high-speed extruder with projected production of 1,800 to 2,000 pounds per hour (compared to the existing line output of 800 pounds per hour) to replace the Line 4 and effectively add about nine million pounds of net new capacity. The Line 4 replacement is expected to come online during the fourth quarter, this year.

“The expansion follows on good natured’s recent acquisition of Ex-Tech Plastics which further enhances the Company’s access to post-industrial recycled content. This serves customers who have minimum levels of recycled content or responsibly sourced bio-based content in their sustainable packaging mandates, a recently set out requirement in the US Plastics Pact Roadmap to 2025,” the company said.

For his part, Shaath said good natured’s added capacity will help it ramp up sales efforts for the busy retail season in the second half of the year. On the new Line 4 details, Shaath said GDNP is expecting to finance the capex (an estimated $2.8-$3.2 million) through equipment loans and government grants.

“We revised our FY22E estimates to reflect the incremental revenue from the faster equipment at Line 4. At reasonable utilization rates (mid 80-per-cent) and comparable insource/outsource mix, we estimate line 4 can add $7-$9 million to GDNP’s top line. Our revised estimates are at the low end of that range,” Shaath wrote.

The analyst is now calling for 2021 revenue and adjusted EBITDA of $53.6 million and $2.2 million, respectively, and for 2022 revenue and adjusted EBITDA of $90.6 million and $9.2 million, respectively. (All figures in Canadian dollars except where noted otherwise.)

GDNP shot up over the last quarter of 2020 and through the first two months of 2021, rising from $0.15 in early October to a remarkable $1.82 by mid-February. The stock has dropped back to the $1.00 – $1.10 range more recently.

But Shaath sees lots of upside, saying the stock is currently trading at a discount to its industry peers. The analyst’s new $2.15 target represented at press time a projected one-year return of 103 per cent.

“The bump in revenue adds $0.15 to our target price (using EV/Sales (FY22E) of 6.0x). GDNP shares remain attractively valued at a current valuation of just 3.1x EV/sales (FY22E) vs. peers at 6.1x,” Shaath said.

Good natured last reported its financials on May 27 where its first quarter 2021 featured revenue up 159 per cent year-over-year to $7.9 million and adjusted EBITDA of $155,000 compared to a loss of $308,000 a year earlier. It was the company’s first-ever positive EBITDA quarter.

“New customer activity remains strong, and we are confident in our outlook for organic growth, highlighted by our recent launch of Canada’s first compostable and Microwavable To Go Containers,” said Antoniadis in a press release. “These growth drivers are expected to mitigate the logistic inflationary cost pressures we are seeing which could continue through the rest of 2021.’

Good natured also announced in late May the close of its acquisition of Richmond, Illinois-based Ex-Tech Plastics, a plastic sheet and film products company, for US$14.1 million.