good natured products has target trimmed by Beacon

Solid quarterly results look good on good natured products (good natured products Stock Quote, Charts, News, Analysts, Financials TSXV:GDNP), but in a Thursday note to clients Beacon Securities analyst Ahmad Shaath has revised downward his target price on the stock while staying optimistic on a better second half of the year.

good natured products makes packaging and consumer products made from renewable, plant-based materials with no harmful chemicals. The Vancouver-based company reported its fourth quarter 2022 results on Thursday, showing Q4 revenues up two per cent year-over-year to $23.3 million and adjusted EBITDA was $0.0 million compared to $0.5 million a year ago. 

For the year, GDNP’s revenue was up 65 per cent to $101.0 million and adjusted EBITDA was $3.0 million compared to a loss of $0.1 million in 2021.

The company said it’s seeing continued reduced demand for its industrial products as customers work through high inventory levels.

“Although this trend in our Industrial business group continued as anticipated through Q4 2022 and into early 2023, our pipeline for eco-friendly packaging remains very robust,” said CEO Paul Antoniadis in a press release. 

“Recent policy developments, including the White House announcing incentives to transition 90 per cent of plastics to bio-based feedstock within 20 years, are providing the Company with tremendous potential for long term growth and value creation,” he said.

Shaath called the Q4 results a modest beat of estimates, where the $23.3 million topline was ahead of his and the consensus estimates, both at $22.0 million, and adjusted EBITDA at $0.0 was also better than Shaath’s call at negative $0.3 million and the Street at negative $0.2 million.

More from the positive side, Shaath said GDNP’s full 2022 year featured 36 per cent organic growth, with a full contribution from the company’s large contract with a US-based food retailer (started in October of 2021). 

But pricing pressures are expected to continue for good natured, Shaath said, as declining prices for petroleum-based resin will continue to pressure GDNP’s topline at least over the first half of the year.

“Offsetting this is improvement in cost components such as freight as well as reductions in SG&A that GDNP’s management is focused on,” Shaath wrote. “This drives our revised forecast for FY23E, where we see Q1/FY23E as a trough quarter and bank on a recovery in the 2H of the year. Trends in the consumer packaging business remain positive and should help the company alleviate some of the pressure in its Industrial business.”

By the numbers, Shaath is expecting $101.0 million in revenue for 2023 and adjusted EBITDA of $4.8 million. Shaath reiterated a “Buy” rating on GDNP while lowering his target price from $0.70 to $0.55 per share, which at press time represented a projected one-year return of 139 per cent.