good natured Products keeps Buy rating with Beacon

In-line quarterly results from green packaging company good natured Products (good natured Products Stock Quote, Charts, News, Analysts, Financials TSXV:GDNP) have Beacon Securities analyst Ahmad Shaath staying bullish in a new update to clients on Tuesday. Shaath reiterated a “Buy” rating and $0.70 per share target on GDNP, saying the company is building a solid track record of profitability.

Vancouver-based good natured Products makes and distributes packaging and consumer products primarily made from renewable, plant-based materials, including food packaging, bioplastic rollstock and home & business organizational products. The company reported its third quarter financials on Tuesday after having released preliminary numbers last month, now finalizing Q3 revenue of $26.2 million, up 45 per cent year-over-year and adjusted EBITDA of $0.8 million compared to a loss of $0.6 million a year earlier.

Commenting on the quarter and GDNP’s future, CEO Paul Antoniadis said the macro backdrop remains challenging but he expects demand for packaging products to remain resilient.

“Q3 2022 illustrates the significant progress we’re making toward leveraging our investments in internal production capabilities, productivity initiatives and revenue and margin mix that drove a greater percentage of revenue contribution from higher margin product categories in Q3,” wrote Antoniadis in a press release.

Looking at the Q3 results, Shaath said the company’s $26.2 million in revenue was close to his estimate at $25.9 million and the consensus at $26.1 million, while the $0.8 million in EBITDA was also in line with Shaath’s call at $0.8 million and the Street at $0.7 million. Shaath noted that GDNP has now posted positive adjusted EBITDA for four straight quarters, while its gross margin for the Q3 was 27.2 per cent, the company’s highest since the second quarter of 2021. He said the strong gross margin came about due to a higher mix of Packaging products (38 per cent of total revenues versus 19 per cent for the previous quarter and 18 per cent for the Q3 2021) along with higher selling prices, which together helped offset inflationary cost pressures.

“On the call, management reiterated that demand for its Packaging products remains strong especially in the key vertical of food packaging,” Shaath wrote.

“This should help alleviate the softening in demand from the Industrial segment that the company mentioned with the preliminary results earlier this month. This should also help provide a lift to gross margins, with Q3/FY22 results showcasing the potential improvement in margins as Packaging increases its overall share of the revenue mix,” he said.

Up ahead, Shaath is now calling for full 2022 revenue and adjusted EBITDA of $103.8 million and $3.9 million, respectively, and 2023 revenue and adjusted EBITDA of $115.6 million and $7.5 million, respectively.

At press time, Shaath’s maintained $0.70 per share target price represented a projected 12-month return of 180 per cent.