SXP (SXP.TO) Supremex: Undervalued packaging company taking advantage of growing ecommerce trend

SXP (SXP.TO) – What’s so exciting about a packaging company? Supremex is undervalued and is taking advantage of growing e-commerce trends through strategic acquisitions. Idea Summary There has been a steady increase in parcel volume due to online shopping Supremex, a leading north America supplied of packaging, has made recent strategic acquisition to take advantage op this growing market segment SXP is significantly undervalued, and analysts have a price target upside of 85% Thought Process Online shopping has grown significantly during the pandemic and will continue in the future as people shift their shopping habits. Physical items are shipped in envelopes, boxes, and require packaging (I know – pretty obvious) Well positioned packaging suppliers will be able to take advantage of this growth, and Supremex is taking advantage through strategic acquisitions and focus on growing market segment. A more detailed analysis is provided below    Market Outlook – parcel volume is expected to grow at ~15% (CAGR) The report forecasts parcel volume is most likely to more than double and reach 220 to 262 billion parcels by 2026, with a 14.8 percent compound annual growth rate (CAGR) for 2020-2024. This CAGR is significant. Canada’s parcel shipments reached 1.1 billion, up eight percent from the year prior. The United States generated $130 billion revenue in parcel revenue, the highest of all 13 countries studied and an increase of 11 percent year-over-year. The market shipped 14.7 billion parcels, up from 13.2 billion in 2018. Source Company – Supremex (SXP.TO) The company overview is summarized here “Supremex is a leading North American manufacturer and marketer of envelopes and a growing provider of paper-based packaging solutions for large national and multinational customers, solutions providers and e-tailers.” Growth Strategy Current Business They are seeing a decline in the need for envelopes. This makes sense considering most of the information delivered via envelops is now available online (i.e. bills, statements, notices etc.) Their objective is to Maintain EBITDA and strong cash flow generation for this segment of business They are shifting gears and focusing on paper-Based packaging which is a market segment experiencing double digit growth. Objective is to diversify into high-value growth markets and maintain strong cash flow generation Growth by Acquisitions March 9, 2021 - Supremex Announces Expansion into US Packaging Market to Support E-Commerce Packaging Growth source This is a solid acquisition that aligns with their strategic growth plan and helps them capture the US market. Feb 25, 2021 - Recent Investors Presentation here Management Team Essentially Supremex has a management group with significant industry experience. The CEO gets mixed reviews on Glassdoor and 2.6/5 stars in terms of a place to work so that might be a more accurate representation of the company culture. Most of their team have over 25 years of industry experience. The CEO has been highlighted below – also important to note the recent departure of the CFO. Seems to be under agreeable terms but something to be aware of. STEWART EMERSON: President & CEO, 30 years industry experience, Started at predecessor to Supremex in 1990. Previously VP and GM Central Region and Buffalo Envelope. Responsible for leading many successful M&A integrations. GUY PRENEVOST (Just left the company on March 4 2021 to pursue other opportunities – SXP is looking for a new CFO) FY2020 Results To summarize their 2020 results vs 2019, Revenue was up, EDBITA is up, net earnings are up and EPS improved significantly. These are all good signs for the business. Envelope segment revenue was up 6.8% to $146.5 million, from $137.1 million in 2019. Packaging and specialty products segment revenue was up 6.5% to $58.1 million Adjusted EBITDA was up 27.9%, or $7.1 million, to $32.4 million Net were $7.5 Earnings million (or $0.27 per share), which include the above mentioned non-recurring items, increased $0.4 million from $7.1 million (or $0.25 per share) in 2019. Adjusted Net Earnings1 at $11.3 million (or $0.40 per share), up from Adjusted Net Earnings of $7.1 million (or $0.25 per share) in 2019. Net cash flows from operating activities, before working capital adjustments, reached $24.5 million, an increase of $5.0 million versus 2019. Link to the press release is here Analyst Coverage and Price Target 4 analysts currently cover Supremex They have a price target of $4.25 This represents a ~85% upside from current price Fair Value Using tracktak DCF with conservative value drivers I came up with a fair value price of $4.17. This indicates that SXP is decently undervalued.

back

SXP (SXP.TO) Supremex: Undervalued packaging company taking advantage of growing ecommerce trend

Mar 10, 2021

bullish

general Analysis

[3 min Read]

SXP (SXP.TO) - What's so exciting about a packaging company? Supremex is undervalued and is taking advantage of growing e-commerce trends through strategic acquisitions.

Idea Summary

  • There has been a steady increase in parcel volume due to online shopping
  • Supremex, a leading north America supplied of packaging, has made recent strategic acquisition to take advantage op this growing market segment
  • SXP is significantly undervalued, and analysts have a price target upside of 85%

Thought Process

  • Online shopping has grown significantly during the pandemic and will continue in the future as people shift their shopping habits. Physical items are shipped in envelopes, boxes, and require packaging (I know - pretty obvious)
  • Well positioned packaging suppliers will be able to take advantage of this growth, and Supremex is taking advantage through strategic acquisitions and focus on growing market segment.
  • A more detailed analysis is provided below

Market Outlook - parcel volume is expected to grow at ~15% (CAGR)

The report forecasts parcel volume is most likely to more than double and reach 220 to 262 billion parcels by 2026, with a 14.8 percent compound annual growth rate (CAGR) for 2020-2024. This CAGR is significant. Canada's parcel shipments reached 1.1 billion, up eight percent from the year prior. The United States generated $130 billion revenue in parcel revenue, the highest of all 13 countries studied and an increase of 11 percent year-over-year. The market shipped 14.7 billion parcels, up from 13.2 billion in 2018. Source

Company - Supremex (SXP.TO)

The company overview is summarized here “Supremex is a leading North American manufacturer and marketer of envelopes and a growing provider of paper-based packaging solutions for large national and multinational customers, solutions providers and e-tailers.”

Growth Strategy

Current Business

  1. They are seeing a decline in the need for envelopes. This makes sense considering most of the information delivered via envelops is now available online (i.e. bills, statements, notices etc.) Their objective is to Maintain EBITDA and strong cash flow generation for this segment of business
  2. They are shifting gears and focusing on paper-Based packaging which is a market segment experiencing double digit growth. Objective is to diversify into high-value growth markets and maintain strong cash flow generation

Growth by Acquisitions

March 9, 2021 - Supremex Announces Expansion into US Packaging Market to Support E-Commerce Packaging Growth source This is a solid acquisition that aligns with their strategic growth plan and helps them capture the US market.

Feb 25, 2021 - Recent Investors Presentation here

Management Team

Essentially Supremex has a management group with significant industry experience. The CEO gets mixed reviews on Glassdoor and 2.6/5 stars in terms of a place to work so that might be a more accurate representation of the company culture. Most of their team have over 25 years of industry experience. The CEO has been highlighted below - also important to note the recent departure of the CFO. Seems to be under agreeable terms but something to be aware of.

  • STEWART EMERSON: President & CEO, 30 years industry experience, Started at predecessor to Supremex in 1990. Previously VP and GM Central Region and Buffalo Envelope. Responsible for leading many successful M&A integrations.
  • GUY PRENEVOST (Just left the company on March 4 2021 to pursue other opportunities - SXP is looking for a new CFO)

FY2020 Results

To summarize their 2020 results vs 2019, Revenue was up, EDBITA is up, net earnings are up and EPS improved significantly. These are all good signs for the business.

  • Envelope segment revenue was up 6.8% to $146.5 million, from $137.1 million in 2019.
  • Packaging and specialty products segment revenue was up 6.5% to $58.1 million
  • Adjusted EBITDA was up 27.9%, or $7.1 million, to $32.4 million
  • Net were $7.5 Earnings million (or $0.27 per share), which include the above mentioned non-recurring items, increased $0.4 million from $7.1 million (or $0.25 per share) in 2019.
  • Adjusted Net Earnings1 at $11.3 million (or $0.40 per share), up from Adjusted Net Earnings of $7.1 million (or $0.25 per share) in 2019.
  • Net cash flows from operating activities, before working capital adjustments, reached $24.5 million, an increase of $5.0 million versus 2019.

Link to the press release is here

Analyst Coverage and Price Target

  • 4 analysts currently cover Supremex
  • They have a price target of $4.25
  • This represents a ~85% upside from current price

Fair Value

Using tracktak DCF with conservative value drivers I came up with a fair value price of $4.17. This indicates that SXP is decently undervalued.

page loading card

SXP.TO

Supremex Inc.

3.33

-0.15
-4.31%

Return

52.75%
Change % Since Posting
1.15
Change Since Posting
2.18
Price When Posted

Metrics

2.62
Target Price
7/ 10
Confidence
2-6 Months
Timeframe
catalyst icon
Earnings Release
catalyst icon
News
catalyst icon
SEC
Filing
catalyst icon
Sentiment
catalyst icon
Other Catalyst

Access the latest tools and discussion channels with an account

reddit-sentiment

Reddit Sentiment
Analysis

portfolio-balancer

Portfolio Balancer
with brokerages

sec-dashboard

SEC Dashboard
with NLP

aiodd-ad
next