Imaflex is still a Buy, says Beacon

Solid profitability in the company’s latest quarter has Beacon Securities analyst Ahmad Shaath sticking with a “Buy” rating on Imaflex Inc (Imaflex Stock Quote, Charts, News, Analysts, Financials TSXV:IFX). Shaath reviewed Imaflex’s Q1 in a report to clients on Wednesday, saying newly introduced equipment should result in better margins for the company down the line.

Montreal-based Imaflex, which manufactures and sells polyethylene films for the packaging and agricultural industries in the US and Canada, released its first quarter 2023 results on Wednesday, coming in with revenue down 25 per cent year-over-year to $23.2 million and adjusted EBITDA on a constant currency basis of $2.2 million compared to $3.5 million a year earlier. Destocking activities along with a decline in resin prices factored into the lower revenue compared to a year ago.

Management said that while the operating environment is still challenging, market softness looks to be stabilizing.

“Although market conditions remained challenging, we remained on course and generated respectable results for the quarter,” said Joe Abbandonato, President and CEO, in a press release. “In turn, we continued to take important steps to secure future growth, completing the installation of the new multi-layer extruder and metallizer at our Victoriaville facility. We are seeing growing customer interest in our products and we are cautiously optimistic order flows will build as we move into the second half of 2023.”

Shaath called the Q1 results generally in-line with forecasts, with the $23.2 million topline comparing to his estimate at $22.3 million and adjusted EBItDA at $2.2 million arriving in-line with his forecast at $2.3 million.

Shaath said Imaflex’s net debt position improved modestly over the quarter and its cash position remains healthy at $6.5 million. On its equipment upgrades, Shaath said the company completed the installation and is currently ramping up the three-layer extruder along with the film metallizer equipment at its Victoriaville facility. The second extruder in North Carolina is expected to arrive in the third quarter of the year and the third extruder at Victoriaville is expected over the fourth quarter.

“Overall, IFX will be doubling its multi-layer film capacity and increasing its overall net capacity, which we expect to improve margins through improved efficiencies and better product mix once its fully ramped up (18-24 months’ time),” Shaath wrote.

Shaath revised his estimates to reflect the continued headwinds and is now calling for full 2023 revenue and adjusted EBITDA of $102.5 million and $12.2 million, respectively. 

With the update, Shaath reiterated a “Buy” rating on IFX and $1.70 target, which implied at press time a projected return of 36 per cent.

“Overall, we remain positive on the long-term upside from the new equipment, as it will provide for better product mix and more operational efficiencies that will improve IFX’s margin materially, however these benefits are not captured by our current forecasts. We introduce our FY24E forecasts, reflecting modest topline growth and some margin improvement from expectations of better product mix, mainly driven by contribution from the recently commissioned equipment,” he said.