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Unpacking Winpak: A growing company, a pricey stock

Consumers' increasing appetite for convenience foods is driving growth at packaging materials company Winpak Ltd., but some analysts warn the stock is getting pricey at current levels.

Shares in Winpak, which makes plastic food containers, lids and blister foil packaging for pills, are trading near record highs as the Winnipeg-based company reports a strong and steady rise in revenues.

While analysts believe the company will continue to grab a growing share of the packaging market, and could boost its dividend, there is some trepidation about its valuation.

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"I think they've done a great job and investors have rewarded them with a higher stock price. … At this point, it's just got a bit ahead of itself," said PI Financial analyst Jason Zandberg, one of three analysts that cover the stock.

Mr. Zandberg lowered his recommendation to "neutral" from "buy" in late March, when the stock was up 88 per cent from the start of 2013. He kept his $27 price target.

The shares hit a record $29 on April 15, but have since slipped after Winpak reported flat earnings per share growth in the first quarter, due in part to higher raw material costs.

Raymond James analyst Kenric Tyghe has a "hold" on Winpak and a $27.50 target price, citing its "full valuation" relative to peers such as CCL Industries Inc., Bemis Co. Inc. and Sealed Air Corp.

Still, he believes Winpak will continue to boost sales of its materials used to package pharmaceuticals, food and beverages.

Scotia Capital analyst Mark Neville has a "sector outperform" on the stock and recently hiked his price target to $33, saying in a note that he believes Winpak is a "niche/high barrier-to-entry business with considerable growth potential."

The company has a goal to reach $1-billion in annual revenue by 2016, up from $715-million in 2013.

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"There are so many opportunities in the market that will allow us to achieve that number," said Bruce Berry, Winpak's chief executive, in an interview.

He said the company is counting on growth in products such as vacuum pouches used to wrap meat and cheese, which helps to increase their shelf life.

Most of Winpak's sales are in North America, with about 80 per cent coming from the United States and 14 per cent from Canada. It has 10 plants across North America, five in the U.S., four in Canada and one it recently opened in Mexico. Mr. Berry said the company is interested in increasing its market share outside this continent, particularly in South America.

Winpak is aligned with European packaging company Wipak, which is controlled by Wihuri International Oy of Finland. Wihuri International owns about 52 per cent of Winpak and is controlled by Antti Aarnio-Wihuri, who is also Winpak's chairman.

Mr. Berry said the company's largest shareholder is interested in making acquisitions and investing in the business to grow the company. This does not preclude maintaining, or possibly growing, its dividend; Winpak announced in February a one-time, $1 dividend to complement its regular three-cent quarterly dividend.

Mr. Berry said the board has also discussed increasing its regular dividend, which currently yields less than 1 per cent, given that the company has no debt and more than $100-million in the bank. "I think it's safe to say that in the future you'll see some movement in the dividend," he said. Stephen Takacsy, chief investment officer at Lester Asset Management, likes Winpak and the packaging business, but his company holds CCL Industries instead. He prefers its more global growth profile and cheaper valuation.

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About the Author

Brenda Bouw is a freelance writer and editor based in Vancouver. She has more than 20 years of experience as a business reporter, including at The Globe and Mail, The Canadian Press, the Financial Post and was executive producer at BNN (formerly ROBTv). Brenda was also part of the Globe and Mail reporting team that won the 2010 National Newspaper Award for business journalism. More


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