KeyStone’s Your Stock Our Take Intertape Polymer Group (ITP:TSX), Star: are Transat A.T. Inc. (TRZ:TSX) and Dog: InPlay Oil Corp. (IPO:TSX).
This week in our Your Stock, Our Take segment we look at Intertape Polymer Group (ITP:TSX), which manufactures and sells of a variety of paper and film-based pressure-sensitive and water-activated tapes, polyethylene and specialized polyolefin films, protective packaging, engineered coated products and complementary packaging systems for industrial and retail use. The stock pays a relatively attractive 4.16% dividend and a listener who has been watching the company for a while asks if now is the time to pick up a position. Our Star this week is Transat A.T. Inc. (TRZ:TSX), a Canadian company which specializes in the organization, marketing and distribution of holiday travel in the tourism industry. Powered by competing takeover bids from Air Canada and Group Mach Inc., shares in Transat have jumped over 160% since the end of April. Finally, our Dog of the Week is, InPlay Oil Corp. (IPO:TSX), is engaged in the acquisition, exploration, and development of petroleum and natural gas properties, and the production and sale of crude oil, natural gas, and natural gas liquids. InPlay has dropped 27% in the last month following the energy prices which has slid considerably in the last 30-days. Is the drop an opportunity or a sign of things to come? We will discuss.
KeyStone’s 2019 Canadian Dividend All Star Special Report – 4 new BUY Recommendations
About is Report
KeyStone’s 2019 Canadian Dividend Stock Report is a comprehensive analysis of the complete universe of dividend stocks in the Canadian market. We identified 352 dividend paying stocks listed in Canada and applied KeyStone’s rigorous criteria to find the company’s that provide the best value to investors. The report contains our top 8 current BUY recommendations which include 4 new BUYs (recommended as a result of this research) and 4 select BUY recommendations under existing coverage. The report also contains research (mini-reports) on 23 additional companies which we rate as possessing superior fundamentals relative the overall universe of Canadian dividend stocks (making up our ‘Top Tier’ monitor list).
BACKGROUND – Canadian Dividend Stock Universe
In total, there are 3,139 securities listed on the TSX and TSX Venture exchanges.
Out of this group, 763 securities pay a dividend or income distribution. After removing investment funds (such as ETFs), the universe of Canadian dividend stocks is reduced to about 352 individual companies. New companies are added to this list each year.
After conducting preliminary research on all 352 companies we narrowed the field down to 74 stocks which make up our basic monitor list. These are companies which we rate as possessing reasonably strong fundamentals with respect to financial performance, valuation and dividend sustainability. Digging deeper into the basic monitor list, we have highlighted 31 stocks in this report with overall superior fundamentals, including 8 current BUY recommendations.
As a teaser – one of the new recommendations provides a dividend yield of just under 6% plus strong growth potential.
The Top Tier Monitor List
This report contains research and analysis on 23 individual companies which make up our ‘Top Tier’ Monitor List. These companies stand apart from the overall universe of Canadian dividend stocks due to overall superior fundamentals (including growth, value, and sustainability of dividends). This is the group of companies that we will follow the most closely over the next several quarters. These companies are not current BUY recommendations; however, this is a vetted list of quality companies from which upcoming recommendations will likely be discovered.
Your Stock, Our Take
Intertape Polymer Group – thinking of starting a position – your take?
- Marianne via email.
Your Stock, Our Take
Intertape Polymer Group (ITP:TSX)
Current Price: $18.50
Yield: 4.16%
Market Cap: $1.1 Billion
What does the company do?
Intertape manufactures and sells of a variety of paper and film-based pressure-sensitive and water-activated tapes, polyethylene and specialized polyolefin films, protective packaging, engineered coated products and complementary packaging systems for industrial and retail use.
Key Points:
Recent Quarterly Financials
Intertape’s Q1 2019 revenue was up 17% to US$277.9 million. Adjusted EBITDA increased 26.7% to US$38.3 million. Adjusted earnings per share (EPS) decreased to $0.21 from $0.22 in the previous year. The decrease in earnings was the result of increased SG&A, interest and income tax expenses.
Over the past 3 full years, revenue and EBITDA increased at an average rate of 10.6% and 11.5%, respectively, and adjusted EPS has grown by 3.1% per year on average.
On a trailing twelve-month basis, Intertape reported adjusted EPS of $1.04 and adjusted EBITDA of $149.0 million.
BALANCE SHEET/DEBT LEVERAGE – Debt levels relatively high, but manageable.
Intertape ended the most recent quarter with total debt of $574.2 million and cash of $10.3 million. The company has a debt-to-equity ratio of 2.2 and debt-to-adjusted EBITDA ratio of 3.9 times.
Outlook
Intertape has undertaken several growth investments over the past 2 years which are close to completion. These include commissioning a new woven products facility in India and the company’s second water-activated tape line at the Midland, North Carolina facility. ITP reports that it continues to achieve its cost synergy targets for its Cantech and Polyair acquisitions. The final major capital project is a new tapes facility in India which is on track for completion before the end of Q2. Management expects free cash flow growth from its recent investments which will be used to pay down debt.
2019 guidance is for US$1.18 to US$1.22 billion in revenue (growth of ~14%) and US$164 to US$174 million in adjusted EBITDA (growth of ~20%).
Conclusion
VALUATION
Price-to-earnings of 17.8 times and EV-to-EBITDA of 11.1 times.
Intertape is primarily a tape and protective packaging manufacturer – benefitting from growth in online shopping (due to the high packaging requirements of shipped products). Growth in revenue and adjusted EBITDA has been reasonably strong; however, adjusted earnings growth has been relatively flat over the past several years.
The company has invested heavily in growth initiatives over the past 2 years and the plan is to start to see the benefits from this investment in 2019/20. We like the growth of catalysts currently in place but we need to see the company demonstrate the ability to increase earnings per share. In addition, the debt leverage is relatively high and we will be looking for the company to reduce debt as free cash flow increases. We monitor it closely and the stock made it on our Top Tier list from over 350 dividend paying stocks reviewed in Canada in a report issues this week to KeyStone Dividend Stock Clients.
Weekly Star
Transat A.T. Inc. (TRZ:TSX)
Current Price: $13.47
Market Cap: $505.51 million
Star Performance:
Transat shares have risen 134% since the end of April and, in the last week, are up 15%.
What does the company do?
Transat A.T. Inc is a Canadian company which specializes in the organization, marketing and distribution of holiday travel in the tourism industry. The company’s core business consists of tour operators based in Canada and Europe which are vertically integrated with its other services of air transportation, distribution through a dynamic travel agency network, value-added services at travel destinations and accommodations.
What is driving the stock?
On April 30, 2019, the company announced it was in preliminary discussions with more than one party concerning a potential transaction involving the acquisition of Transat – the stock subsequently from $5.60 to just under $10.00.
On May 16, 2019, Transat announced that it has agreed to a 30-day period of exclusive negotiations with Air Canada pursuant to a letter of intent contemplating a transaction by which Air Canada would acquire all of the shares of Transat at a price of $13.00 per share.
On June 4, 2019, Group Mach Inc., the largest independent real estate developer and owner in Quebec proposes the acquisition of Transat, at a price of $14.00 cash per Share. The Offer Price represents a premium of approximately 168% over the 20-day weighted average trading price prior to the announcement of Transat on April 30, 2019, and a premium of 24% over the 20-day weighted average trading price for the period ended June 3, 2019.
Financial Results
Q1 2020 compared to Q1 2019
- Revenue remained at approximately $648 million.
- Net income was a loss of $49 million compared to a loss of $2 million.
- On a diluted per share basis, a loss of $1.32 compared to a loss of $0.09.
- Adjusted EBITDA was a loss of $37 million compared to a loss of $28 million.
Conclusion:
Negative Earnings
P/EBITDA: 47.46
Current Ratio: 1.21
The Air Canada proposal was a “friendly deal” with management support, but it has been criticized by some shareholders and the Quebec government.
The announcement adds a twist to a deal that has been under close scrutiny by the Quebec government, which wants to ensure Transat’s headquarters stay in the province. The offer is conditional on Quebec providing about C$120 million in financing, and Mach pledged that no jobs would be lost in the deal. Transat investors including Letko Brosseau & Associates have expressed concerns about the sale to Air Canada.
According to the terms of the Air Canada offer last month, Transat would be able to withdraw from the exclusive negotiations if it received an unsolicited proposal at least C$1 a share higher than the Air Canada bid and wasn’t matched by the Montreal-based airline.
We will watch with interest, but the gains in the past month and week give Transat the coveted status of our Star.
Weekly Dog
InPlay Oil Corp. (IPO:TSX)
Current Price: $0.83
Market Cap: $54.4 million
Dog Performance:
InPlay Oil shares have fallen 27% in the last month, 15% in the last week, and 10% in the last day.
What does the company do?
InPlay Oil Corp is an oil development and production company based in Calgary, Alberta. It is engaged in the acquisition, exploration, and development of petroleum and natural gas properties, and the production and sale of crude oil, natural gas, and natural gas liquids.
What is driving the stock?
The company released its Q1 results on May 8th, showing revenue and earnings beginning to fall.
Financial Results
Q1 2019 compared to Q1 2018
- Revenue was $19 million compared to $20 million, down 4%.
- Net income was $1.0 million compared to $1.4 million, down 26%.
- On a diluted per share basis, income remained at $0.02.
- Adjusted EBITDA of $9.5 million compared to $7.8 million, up 21%.
- On a diluted per-share basis, $0.14 compared to $0.12, up 20%.
We had a very successful first quarter where we spent capital efficiently with strong results as evidenced by our two 100% ERH wells brought on production in March being in the top three average daily performingCardium oil wells of the month. These wells produced an average of 885 boe/d ( 88% light oil and liquids) and 895 boe/d (87% light oil and liquids) respectively during the twenty days they were on production in March.
Conclusion:
Negative Earnings
P/EBITDA: 2.11
Current Ratio: 0.55
D/E: 0.27
Inplay Oil has been on a gradual decline for the last year. Management seems pleased with the Q1 performance despite a somewhat negative shareholder reaction. With a Price to trailing EBITDA multiple of 2.11 it appears to offer some level of value, but earnings are negative for the last 12 months. The declines in energy prices over the last month including a 21% decline in oil prices since the end of April contribute to InPlay Oil’s share drop.
The losses give InPlay Oil, the not so coveted status of our Dog of the Week.
