CIBC Raises TargetEQUITY RESEARCH
November 15, 2024 Earnings Update
CCL INDUSTRIES INC.
Re-labeling Estimates Higher With A Weaker Loonie
Our Conclusion
CCL remains our top pick across our packaging/forestry coverage universe.
Despite the cautious Q4 guide, we reiterate our Outperformer rating and
raise our price target to $96 (from $93) on increased medium-term estimates
(reflecting a weaker CAD since we last revised our forecast). While the
company’s outlook was notably more subdued than in prior quarters, we
understand this did not factor in the stronger-than-expected October
performance. We are now projecting organic growth of 5.3% this year (vs.
our prior forecast of +6.2% and 2023 comps of -2.5%), with continued
healthy annual growth of 5.6% in 2025E/2026E given momentum across the
core CCL segment and Checkpoint (RFID). With leverage of only 1.1x, CCL
is well positioned to be opportunistic with M&A and buybacks (~10% NCIB).
Key Points
Increasing 2025/2026 EBITDA Estimates By 3%/4%: While our Q4/24
EBITDA projection moves 1% lower to $353MM given the company’s
somewhat cautious near-term commentary for the CCL segment, our 2025
estimate moves 3% higher to $1.56B (when we have 5.6% organic growth
and 20.2% EBITDA margins). We see further EBITDA growth in 2026 to
$1.67B (+7% Y/Y). Our estimates for the next two years move higher as we
have re-aligned our FX forecast for CCL with CIBC Economics’ latest update
(post-U.S. election) for CADUSD to be weaker at 0.72/0.73 in 2025/2026.
For the CCL segment (~64% of LTM EBITDA), we estimate Y/Y organic
growth of 1.5% in Q4 (year ago +1.8%). CCL Label results are expected to
face higher hurdles in Q4, consumer stresses are weighing on demand
(particularly in China), while CCL Design will lap a lengthy period of easy
comps and is now facing a slowing auto industry. Although CCL Secure will
likely still have near-term reduced profitability, levels are expected to improve
sequentially. We forecast segment EBIT will remain flat Y/Y, with margins
declining by ~60 bps to 14.4% given new plant start-up costs and tough
comps.
For Avery (~16% of LTM EBITDA), we expect organic growth of 2.4% in the
fourth quarter (year ago -2.8%) supported by stable performance, with DTC
businesses outpacing legacy categories. We see a similar increase in EBIT
contribution (+2% Y/Y), with margins down ~60 bps Y/Y.
For Checkpoint (~13% of LTM EBITDA), we forecast organic growth of
10.0% Y/Y (year ago +8.9%), with continued benefits from RFID tailwinds,
albeit at a slower comparative pace due to high prior-year hurdles. In terms
of EBIT contribution, we see a 2% increase from the segment, given lower
margins than a year ago (-170 bps) at 16.5%.
We expect Innovia (~7% of LTM EBITDA) to see 12.0% organic growth in Q4
(year ago -21.1%) given rebounding demand. We expect Innovia EBIT to
more than double on 460 bps of margin expansion with the company
capturing more of the benefits of improving demand and cost savings