SXP has price target chopped at Beacon

After fourth quarter results fell below his expectations, Beacon Securities analyst Ahmad Shaath has cut his price target on Supremex (Supremex Stock Quote, Chart, News, Analysts, Financials TSX:SXP).

On February 22, SXP reported its Q4 and fiscal 2023 results. In the fourth quarter, the company posted Adjusted EBITDA of $9.0-million on revenue of $72.3-million, down from $78.8-million in the same period a year prior.

“After a record 2022, calendar 2023 has been challenging for Supremex as a result of the slower-than-expected pace at which the industries we serve have been recovering, and to a lesser extent, operational inefficiencies in previous quarters after relocating certain packaging operations,” said CEO Stewart Emerson. “While the sales landscape continues to improve, market conditions remain very weak. That said, Supremex enters 2024 with solid operating teams in both business segments after its third quarter packaging segment reorganization. In envelopes, we will continue to nurture the Canadian market while driving expansion in the U.S. On the packaging side, the combination of improved efficiency and quality of execution should enable us to resume positive momentum. Given our solid cash flow and healthy balance sheet, we remain well positioned to take advantage of growth opportunities, while continuing to methodically pay down debt, repurchase shares and pay increased dividends.”

Shaath says the fourth quarter was a disappointment and that he believes SXP is now a “Show Me” story.

“We are reducing our TP to $5.00 (vs. 8.50 prior) based on our unchanged multiple EV/EBITDA (FY24E) of 4.5x,” the analyst said. “Our valuation reflects multiple contraction vs current levels (4.7x at the time of writing), which we believe is fair as SXP is now firmly a show me story (especially on the Packaging side). However, the company remains strongly positioned to continue to return capital to shareholders in the form of dividends (recently increased by 14%, current yield of 4.1%) and share buybacks (purchased ~1.2%/~311k shares over FY23, which accelerated recently as SXP purchased ~255k shares since the start of FY24E). With potential total return of 31% vs current levels, we maintain our BUY recommendation.”

The analyst thinks SXP will post Adjusted EBITDA of $41.0-million on revenue of $288.0-million in fiscal 2024. He expects those numbers will improve to Adjusted EBITDA of $44.0-million on a topline of $289.0-million in fiscal 2025.