The stock has been beaten down over the past 11 months but Beacon Securities analyst Ahmad Shaath continues to have positive feelings about good natured products (good natured products Stock Quote, Chart, News, Analysts, Financials TSXV:GDNP), reiterating his “Buy” rating and target price of $2.00/share in an update to clients on Thursday.
Founded in 2006 and headquartered in Vancouver, 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.
Shaath’s latest analysis comes after the company released preliminary figures for its fourth quarter financial results, which Shaath noted to be ahead of expectations on revenue and in line on gross margins.
The company’s guidance puts revenue for the quarter between $21 and $23 million for sequential growth between 17 and 28 per cent, handily clearing the $18.6 million projection from the consensus, as well as the Beacon estimate of $19 million. Management attributed the projected beat to successful price increases and continued robust demand driving volumes as the company keeps adding new customers, as well as being the first full quarter since completing its acquisition of Ex-Tech.
“This is a great illustration of our team’s unwavering commitment to operational excellence and partnering with customers to deliver timely solutions despite global supply chain disruptions that are critically impacting many peers in our industry,” said Paul Antoniadis, CEO of good natured in the company’s January 20 press release. “We collectively rose to prosper despite macro-economic challenges to deliver a record-setting year of revenue growth and environmental impact. good natured has a lot of momentum and I’m very excited for what the future holds.”
Meanwhile, in the face of seasonal headwinds, the company is still expecting its gross margin to come in between 22 and 24 per cent, which would be a step ahead of the Q3 margin of 22.3 per cent. Shaath noted that the company’s price increases are successfully offsetting persistent inflationary pressures.
The company has also produced solid operational results in the last quarter, having completed the Line 3 expansion for IPF, a manufacturer of high quality, rigid plastic sheets used to create a variety of products like thermoformed packaging. The company is currently commissioning a fourth line expansion, with an expectation of commissioning it in the first quarter of 2022.
Meanwhile, good natured is also on track with its operational efficiency program at another of its acquisitions, Shepherd Thermoforming, which Shaath expects to be operational sometime in the second half of 2022. good natured also continued the onboarding process for its new US-based food producer as part of a contract valued at US$13 million.
The updated projections have prompted Shaath to revise some of his upcoming financial estimates to match the midpoint of the preliminary results, raising the company’s 2021 year-end revenue projection from $57.3 million to $60.3 million for an implied year-over-year increase of 261 per cent. Shaath then maintains a $90.5 million revenue estimate for 2022, implying year-over-year growth of 50 per cent.
Meanwhile, after reporting a loss of $1.5 million in 2020, Shaath revised his adjusted EBITDA projection for 2021 to be a $700,000 loss instead of $800,000, with an expectation of a positive turn in 2022 at $5.3 million for an implied margin of 5.9 per cent.
In terms of EPS (reported in US dollars), Shaath continues to project a $0.05/share loss in 2021, with a minimally positive turn in 2022 at $0.01/share.
Shaath continues to put the company’s EV/Revenue multiple projections in good stead, forecasting a drop from the reported 12.1x in 2020 to a projected 3.4x in 2021, then to a projected 2.2x in 2022. Meanwhile, Shaath introduces EV/EBITDA and P/E multiples in 2022, coming in at 38.3x and 54.1x, respectively.
Looking ahead to 2022, Shaath expects good natured to remain busy, particularly by making similar improvements to Ex-Tech as it did with IPF and Shepherd through the implementation of an ERP system, as well as continuing discussions with a US-based food producer regarding a multi-year agreement.
“We expect a busy FY22E for GDNP as the company continues development both operationally and commercially,” Shaath said. “GDNP continues its discussions with potential M&A targets, where we believe a tuck-in acquisition to complement its newly established base in the US as the most logical next step.”
The stock price for good natured has dropped by 26.3 per cent over the last 12 months, with a 9.1 per cent drop since the start of 2022. After spiking to a 52-week high of $1.85/share on February 16, the share value has dropped off, hitting a 52-week low of $0.69/share on October 6. At press time, Shaath’s $2.00 target represented a 12-month projected return of 182 per cent.