NYSEAM:ITP - Post by User
Post by
retiredcfon Nov 13, 2021 3:22pm
304 Views
Post# 34123599
RBC
RBCTheir upside scenario target is $48.00. GLTA
November 12, 2021
Intertape Polymer Group Inc.
Valuation looks attractive following unwarranted sell-off as LT fundamental drivers remain unchanged
Our view: We view the move in the ITP stock today as puzzling following in- line Q3/21 results and a reaffirmed 2021 guide. Importantly, we attribute the reaction in the shares today to a combination of: 1) optically softer margins despite effective price pass-through; and 2) elevated expectations heading into the print following back-to-back beat and raise quarters. With strong demand-driven fundamentals still in place and a return to normalized raw material pricing expected sometime in 2022, we believe today's knee-jerk reaction overcorrects for the above and would be buyers on weakness. Reiterate OP rating, target multiples and $37 PT.
Key points:
Q3 largely in line. Adj. EBITDA of $63MM (down 2% Y/Y) was in line with consensus of $64MM (RBC $65MM) - which excluded $4MM of share- based compensation during the quarter. Revenues were notably strong at $396MM (9% higher than our $362MM estimate), driven primarily by price (+17% Y/Y) which was passed through from higher raw materials pricing and led to (mathematically) lower EBITDA margins of 15.9% (vs. our 18.1% estimate) during the quarter.
2021 guidance effectively reaffirmed. Mgmt increased its revenue guidance range for 2021, though left its EBITDA and FCF ranges unchanged. The higher revenue guidance is simply a function of the higher pricing used to offset the higher input costs in the quarter, and thus we view the 2021 outlook as effectively a reiteration of prior guidance.
Demand remains very strong, which bodes well for long-term outlook.
On the call, mgmt noted that the volume growth seen during Q3/21 would have been $12MM-$14MM higher if it were not for supply chain and labor constraints that impacted ITP's ability to meet orders. Said differently, the +4% Y/Y volume/mix growth this quarter would have doubled to +8% Y/Y had supply chain issues normalized.
Fundamental drivers in place despite margin noise. We believe optics surrounding the lower margins played a role in the share price declines today, though would highlight that this is how the math behind ITP's price pass-through mechanism works. Further supporting this, mgmt highlighted on the call that normalizing for the large price increases implemented during Q3, EBITDA margins would have been 18.5% and nicely ahead of our forecast for the quarter.
Adjusting estimates; price target unchanged. We have adjusted our estimates to reflect the Q3/21 actuals and mgmt’s 2021 guidance. Overall, changes are modest, though we have reflected expectations for elevated raw materials pricing (and the associated pass-through impact) to persist across our forecast horizon, with our outer-year revenues increased, our margins lowered, but our EBITDA effectively unchanged. As such, with no changes to our 7.5x target multiple, our price target is maintained at $37