On today’s TSX Breakouts report, there are 56 stocks on the positive breakouts list (stocks with positive price momentum), and 16 stocks are on the negative breakouts list (stocks with negative price momentum).
Discussed today is a security appeared on the positive breakouts list earlier this month with the unit price closing at a record high of $45.24 on June 10. Year-to-date, the unit price is up over 23 per cent. In addition, the security provides investors with a stable monthly distribution, currently equating to an annualized yield of 3.1 per cent. In 2018, the payout ratio was 53 per cent, suggesting its distribution is sustainable. The company highlighted below is Richards Packaging Income Fund (RPI.UN-T).
A brief outline is provided below that may serve as a springboard for further fundamental research.
Thursday’s Insider Report: Two sellers of this Big 5 bank stock pocket millions in profits
The Fund
Mississauga-based Richard Packaging is top packaging distributor in Canada and North America’s third largest packaging distributor. Richard Packaging has 17 distribution centres and three manufacturing plants across North America.
In terms of geographical sales breakdown, 45 per cent of sales are derived from the following three U.S. cities: Los Angeles, Reno and Portland. In Canada, four cities, Toronto, Montreal, Winnipeg and Vancouver, account for 38 per cent of sales. Consequently, the Fund has currency risk, benefiting from a declining Canadian dollar relative to the U.S. dollar
Richards Packaging specializes in servicing small and mid-sized companies offering glass and plastic container manufacturing and distribution services. Its customer base is well diversified comprised of over 14,000 companies in industries including food and beverage and other packaging (representing 47 per cent of revenue ), cosmetics (29 per cent of revenue), and healthcare (24 per cent of revenue).
On April 29, the Fund reported its financial results for the first quarter. Revenue was $81.9-million, up 9.8 per cent year-over-year (5.6 per cent organic growth). Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was $11.76-million, up 8.5 per cent from $10.83-million reported during the same period last year. Distributable cash flow per unit was 33.4 cents, relatively unchanged year-over-year.
In March, chief executive officer Gerry Glynn provided the following guidance for the year ahead in the annual report: “The focus for 2019 will be to continue to grow revenue by 2 per cent to 4 per cent if the economic recovery continues. The $6.2-million of cash on hand will be used to pay $1.2-million in taxes and bonuses of $1.8-million leaving $3.2-million for working capital needs. We enter 2019 with enough working capital to fund the growth we’ve experienced and are poised to reset in the likely event that growth will revert to slower, historical levels. Acquisitions will remain part of our strategic direction although locating compelling targets has proved challenging.”
The Fund did not repurchase any units during the first quarter but can buyback up to 500,000 units before March 13, 2020 as part of its normal course issuer bid. Last year, no units were purchased under its previous buyback program that expired on March 13, 2019.
Distribution policy
The Fund pays its unitholders a monthly distribution of 11 cents per unit, or $1.32 per unit yearly, equating to an annualized yield of 3.1 per cent. The monthly distribution has been maintained at 11 cents per unit since early 2017.
Last quarter, the cash flow payout ratio stood at 52 per cent. In 2018, the payout ratio was 53 per cent, suggesting the distribution is sustainable.
Analysts’ recommendations
There is one analyst that covers this small-cap security with a market capitalization of $462-million. Last month, Jim Byrne, an analyst at Acumen Capital, launched coverage on Richards Packaging with a “buy” recommendation. His $44 target price is calculated using a forward enterprise value-to-EBITDA multiple of just under 10 times, suggesting the unit price is almost fully valued in the near-term.
Financial forecasts
Richards Packaging has achieved solid growth. Last year, revenue increased 7.2 per cent (6.1 per cent organic growth) to $318-million. Revenue was $297-million in 2017 (3.5 per cent organic growth), $287-million in 2016 and $249-million in 2015. Adjusted EBITDA was $45.96-million in 2018, $40.56-million in 2017, $37.8-million in 2016 and $29.9-million in 2015. Distributable cash flow per unit was $2.52 in 2018, $2.03 in 2017, $2.02 in 2016, and $1.52 in 2015.
Looking forward, analyst Jim Byrne is forecasting continued growth for the Fund. He expects revenue will climb to $335-million in 2019 and reach $348-million in 2020. He anticipates EBITDA will increase to $49-million in 2019 and rise to $51.5-million the following year.
Insider transaction history
Year-to-date, there has not been any buying or selling activity in the public market reported by insiders.
Chart watch
The long-term price chart is impressive with the unit price in a multi-year uptrend.
The unit price has delivered double-digit price returns (not including the distribution yield) to investors for several years. To illustrate, the calendar returns for the past several years are as follows: 26 per cent in 2017, 29 per cent in 2016, 44 per cent in 2015, 26 per cent in 2014, 23 per cent in 2013 and 14 per cent in 2012. In 2018, the Fund was also on track to deliver a high double-digit return but sold-off with the market meltdown in the fourth quarter.
In terms of key technical resistance and support levels, the unit price has initial overhead resistance around $45. Looking at the downside, the unit price has initial support around $40, near its 50-day moving average (at $40.07). Failing that, there is support around $38, close to its 200-day moving average (at $37.96).
This small-cap security is thinly traded. The three-month historical daily average trading volume is approximately 8,700 units.
The Breakouts file is a technical analysis screen intended to identify companies that are technically breaking out. In addition, this report highlights a company’s dividend policy, analysts’ recommendations, financial forecasts, and provides a brief technical analysis for a security to provide readers with more information.
If a stock appears on the positive breakouts list, this indicates positive price momentum, and that a company may be worthwhile for investors to look at the fundamentals in order to determine if the recent price strength is warranted and will continue. If a security appears on the negative breakouts list, this indicates negative price momentum, and may be indicative of either deteriorating fundamentals or perhaps indicates a buying opportunity.
Securities screened are from the S&P/TSX composite index, the S&P/TSX Small Cap index, as well as Canadian small cap stocks outside of these indexes that have a minimum market capitalization of $200-million.
A technical analysis screen does not replace fundamental analysis, but can help identify companies worth having a closer look at.