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Imaflex has still more upside, says Beacon


A strong quarterly beat has Beacon Securities analyst Ahmad Shaath staying solid on Imaflex (Imaflex Stock Quote, Chart, News, Analysts, Financials TSXV:IFX), reiterating a “Buy” rating and target price of $1.75/share 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 for agricultural mulch films with operations in Quebec and North Carolina.

Shaath’s update comes after Imaflex recently released its second quarter financial report, where the company posted $27.4 million in total revenue, representing a 32 per cent year-over-year increase and outpacing Beacon’s own projection of $23.9 million, which Shaath noted came in the face of foreign exchange headwinds. Meanwhile, the company’s gross profit came in at $4.5 million (16.5 per cent margin) for the quarter, a 24 per cent year-over-year increase from 2020 and ahead of Beacon’s projection of $4.2 million. The company’s adjusted EBITDA also outpaced expectations, with the reported $3.7 million (13.3 per cent margin) producing a 37 per cent year-over-year increase while beating Beacon’s projection of $3.2 million (13.6 per cent margin).

“Imaflex continues to generate impressive top and bottom line growth,” said Joe Abbandonato, President and CEO in the company’s press release. “We expect this positive backdrop will continue to provide a strong tailwind for us to further scale the business and we remain confident in our ability to generate meaningful profitability and cash flows going forward.”

Imaflex closed the quarter with $4.4 million in cash. Meanwhile, the company remains in the process of filing the registration package for ADVASEAL, a coated plastic mulch film for the controlled releases of one or multiple pesticides for the control of fungal pathogens, weeds and/or nematodes in soil prior to planting, with the Environmental Protection Agency needing to assess the purity and impurities of the active ingredients found in the product.

Shaath said it was yet another solid quarter for Imaflex.

“IFX reported strong Q2/FY21 results that beat our estimates on both revenue and profitability for the fifth quarter in a row,” Shaath wrote.

“While growth continued to be mainly driven by tailwinds from resin prices, volumes were strong (in low double-digits). IFX is seeing significant growth in its printed products in the US, which are also higher margin. Of note, revenue in IFX’s home market in Canada posted its first y/y growth since Q3/FY19, coming in at a record $9.5 million and up 36 per cent year-over-year. IFX attributed this to mainly prices, but volumes also contributed respectable single-digit growth rates buoyed by returning demand for garbage bags (mainly business-type clients),” he said.

The Q2 results prompted changes to Shaath’s projections for the third quarter, as he now forecasts Imaflex to hit $25.7 million in revenue (previously $22.9 million), $4.1 million gross profit and 16 per cent margin (previously $3.9 million with a 17.1 per cent margin), and $3.2 million in adjusted EBITDA with a 12.7 per cent margin (previously $3 million with a 17.1 per cent margin).

From an annual perspective, Shaath now projects Imaflex will reach nine figures in revenue for the first time in 2021, forecasting $104.3 million in revenue (previously $95 million) for a projected 20.3 per cent year-over-year increase before a slight dip to a projected $102.7 million (previously $99.8 million) for 2022.

Imaflex’s gross profits also rise in Shaath’s revised estimates, with a new projection of $17.6 million and 16.8 per cent margin (previously $16.8 million and 17.6 per cent margin) in place for 2021, followed by a projected dip to $16.9 million and 16.5 per cent margin (previously $17.5 million and 17.6 per cent margin) for 2022.

Shaath forecasts similar movement for the company’s adjusted EBITDA, as he now projects $14.1 million in adjusted EBITDA and 13.5 per cent margin (previously $13 million with 13.6 per cent margin) for 2021, followed by a forecasted drop to $13.5 million with a 13.1 per cent margin (previously $13.4 million with 13.4 per cent margin) in 2022.

Valuation ratios appear to level off in Shaath’s projections, with the company’s EV/Sales multiple dropping from 0.9x in 2020 to a projected 0.7x for both 2021 and 2022, the EV/EBITDA multiple dipping from 5.8x in 2020 to a projected 5.4x in 2021 before rising to a forecasted 5.6x in 2022, and the price-earnings ratio dropping from 10.8x in 2020 to a reported 8.8x in 2021, then dipping to a projected 8.2x in 2022.

Shaath believes Imaflex represents attractive value for investors in relation to its peer group.

“Return of B2B demand for some of its products in Canada following economic reopening is positive,” he said. “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 5.6x EV/EVITDA, IFX shares represent an excellent risk/reward trade,” he said.

Imaflex’s share price has steadily increased over the course of 2021, with its 41.5 per cent growth topping out at a high point of $1.53/share on July 27. At press time, Shaath’s $1.75 target represented a projected return of 25 per cent.

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Geordie Carragher is a staff writer for Cantech Letter
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