Upslope Capital Q2 newsletter Winpak (WPK-TSE) - New Long
Winpak is a Canada-based manufacturer of packaging materials and machines, primarily serving the food, beverage, and healthcare industries across North America (sales: 79% US, 14% Canada, 7% Mexico). Major products include various specialty cups, plastic films (e.g. for wrapping fresh meat and cheese), pouches, and plastic liners. Generally, this is a business that looks similar to packagers Upslope has long followed - e.g. Amcor, Bemis, and Sealed Air.
However, the company is highly unusual in a few respects: (1) Winpak is massively under-levered, carrying about 2.3x net cash(vs. typical leverage for packagers of ~2x net debt at the low end to ~6x for private packagers), and (2) the company has a majority shareholder (54%) that also owns a highly complementary business (Wipak - yes, the spelling is too close!). While this is interesting on its own, let's be clear: Winpak is not a "high-quality" business - it's a slow grower focused on defensive end markets (food) exposed to secular headwinds and change (single use plastics = bad). While the headwinds are very real, they aren't new and WPK isn't oblivious. The company is as well positioned as anyone to change course and move with the market.
So, why bother with shares now? Three simple reasons: (1) earnings have likely stabilized and should inflect due to recent investments, (2) the balance sheet presents significant optionality - e.g. the company recently announced its first-ever major buyback program (up to 6.5% of float), and (3) shares are very cheap (13x NTM EPS, ~8% normalized FCFF yield).
Key risks include ongoing secular headwinds and uncertainty in the company's ability to adapt, FX, uncertainty re: controlling shareholder, and more limited transparency into the company's operations (the company does not conduct regular earnings calls).