Supremex Inc. (SUMXF) research, news, and more from GeoInvesting

Company description

Thu, 24 Feb 2022 13:50:42 GMT

Supremex Inc is engaged in manufacturer and marketer of a broad range of custom envelopes and packaging products. The company operates in two business segments that are Manufacturing and Sale of Envelopes, and the manufacturing and sale of paper-based packaging solutions and specialty products. The majority of the revenue is generated from the Envelope segment. Its product portfolio consists of translucent envelopes, custom envelopes, stock envelopes, poly mailers, enviro-Logix flat mailers, board mailers, custom labels, affixing, repositionable notes and others. The majority of its revenue is derived from its business in Canada.

Research

Wed, 10 May 2023 15:23:50 GMT

Supremex Inc (OTC:SUMXF) ($4.60 $119.4M market cap) (SXP.TO) manufactures, markets, and sells envelopes, and paper packaging solutions and specialty products in North America announced Q1 2023 results:

Sales of $88.4 million vs $63.3 million in the prior year
EPS of $0.38 vs $0.24 in the prior year

“For the balance of 2023, our focus remains on integrating recent acquisitions with a priority on capturing all sales and cost synergies. Looking to the immediate future, both segments we operate in are experiencing a slowdown in new orders as customers throughout the supply chain focus on reducing inventory levels built in 2022. Beyond this temporary ebb, we believe our solid position in the North American envelope market combined with a greater presence in the growing folding carton and e-commerce fulfillment packaging markets should drive further earnings and cash flow growth,”

SUMXF has risen 69% since we published our RFT on February 24, 2022. The stock is not currently in any of our model portfolios. However, we would love to see a nice pullback in the stock as the result of short-term investors bailing on the company due to short term weakness and maybe consider it as a model portfolio candidate. We will reach out to management to see if they would be interested in taking part in a Fireside Chat session.

Research

Thu, 23 Feb 2023 05:00:00 GMT

Supremex Inc (OTC:SUMXF) ($5.44 $141.3M market cap) (SXP.TO) manufactures, markets, and sells envelopes, and paper packaging solutions and specialty products in North America announced Q4 2022 results:

Sales of $78.8 million vs $66.2 million in the prior year
EPS of $0.31 vs $0.24 in the prior year

“2022 was a banner year for Supremex with strong revenue growth, Adjusted EBITDA margin expansion and a robust cash flow generation despite working capital investments. The fourth quarter was the twelfth consecutive period of year-over-year improvement in Adjusted EBITDA, a significant achievement given the expected disruption caused by the wind down of the Durabox corrugate operations and the relocation of one of our folding carton businesses in the Montreal area. We are pleased that these initiatives were successfully completed according to plan, making Supremex a more efficient and focused player in the growing specialty packaging market,”

Recent highlights:

Acquisitions of Royal Envelope Corporation (“Royal Envelope”), on November 1, 2022, and Impression Paragraph Inc. (“Paragraph”), on January 16, 2023.
On February 22, 2023, the Board of Directors declared a quarterly dividend of $0.035 per common share, representing a 16.7% rise over the previous dividend paid. This represents the second increase, for a cumulative rise of 40.0% since reinstating dividend payments at the beginning of 2022.

With full year EPS of $1.15, shares are trading at a P/E of 4.7

You can read our RFT (Reasons for Tracking) note from February 2022 here.

Research

Fri, 11 Nov 2022 15:24:57 GMT

Supremex Inc (OTC:SUMXF) ($3.42; $97.9M market cap) (SXP.TO) manufactures, markets, and sells envelopes, and paper packaging solutions and specialty products in North America announced Q3 2022 results:

Sales of $67.9 million vs $54.8 million in the prior year
EPS of $0.31 vs $0.13 in the prior year

“We expect the fourth quarter to be strong but anticipate the rate of revenue and EBITDA growth to moderate, excluding the added contribution of Royal Envelope. Over the longer term, both our Envelope and Packaging operations are very-well positioned for growth. Finally, our strong balance sheet will provide flexibility for further strategic initiatives to create shareholder value”

You can see our RFT (Reasons for Tracking) note from February 2022 here.

Research

Thu, 12 May 2022 17:39:51 GMT

Supremex Inc (OTC:SUMXF) ($2.44; $64.3M market cap) (SXP.TO) manufactures, markets, and sells envelopes, and paper packaging solutions and specialty products in North America announced Q1 2022 results:

Sales of $63.3 million vs $53.6 million in the prior year

EPS of $0.24 vs $0.15 in the prior year

“We had a very strong start to the year. Revenue increased 18%, adjusted EBITDA improved 27% and net earnings were up more than 50%. This solid growth was driven by improved margin and mix, increased volume across all lines of business, as well as benefits from ongoing operational improvements and a relatively resilient supply chain. These factors helped to mitigate the impact of a tight paper market, which constrained growth in the quarter

In the first quarter, we deployed our cash to make a tuck-in acquisition, invest in capital expenditures and provide a return to shareholders in the form of dividends and share repurchases...

...Looking ahead, we still expect revenues and profitability for 2022 to be ahead of 2021 in the aggregate, however, the quarterly distribution of results is contingent on paper availability. We anticipate increased tightness in the second and third quarters and are actively seeking alternative sources of paper to alleviate this effect. That said, we are well-positioned to continue to grow given strong demand fundamentals, full backlogs, broad product offering, geographic diversification and solid relationships with suppliers"

The company continues to post very strong results, however, comments about the supply chain could negatively impact Q2 and Q3 of this year. With a $0.24 quarter, even if Q2 and Q3 are slightly impacted due to supply chain, the stock seems to be selling at a very low P/E multiple. We will listen to the conference call at 11 AM EST to see if management sheds more light on the potential impact of supply chain constraints.
You can see our RFT (Reasons for Tracking) note from February 2022 here.

Reasons For Tracking

Thu, 24 Feb 2022 15:40:27 GMT

Supremex Inc. Supremex Inc (OTC:SUMXF) (SXP.TO) ($3.35; $89.4M market cap (CAD)) manufactures, markets, and sells envelopes, and paper packaging solutions and specialty products in North America. The company is the number one envelope manufacturer in Canada and Top 5 in North America.

SUMXF was one the recent stocks added to our research funnel we mentioned on February 14, 2022.

This morning, the company reported record Q4 and full year 2021 results (figures in CAD)

Q4 sales of $66.2 vs $54.6 million in the prior year and well ahead of analyst estimates of $55.6 million
Q4 Non-GAAP EPS of $0.24 vs $0.13 in the prior year and doubled analyst estimates of $0.12
Full year sales of $226.4 million vs $204.6 million in the prior year
Full year non-GAAP EPS of $0.64 vs $0.41 in the prior year

The company’s conference call will be today at 11 AM EST.

Comments from management:

“We finished the year on a very strong note with our top line reaching a historic record of $226 million. Year-over-year, revenue was up over 10% and net earnings more than doubled. All of our lines of business contributed to this improved performance. We are reaping the benefits of the foundational work laid in the past few years, successfully implementing our cost optimization plan and leveraging our strong supply chain and resilient workforce…

In 2021, we generated $26 million of free cash flow, which we used to deleverage the balance sheet, make the Vista acquisition, invest in the growth of the business and provide a return to shareholders in the form of share repurchases. More recently, we also announced the reinstatement of the quarterly dividend.”

Outlook:

“We anticipate our revenue to increase further next year and our profitability to remain strong, particularly in the back half of the year.”

While the company does not operate in exciting industries and has basically fully penetrated its primary target envelope markets in Canada, we still think the company is worth tracking and has multibagger potential. Below are some quick highlights on why we are digging further into Supremex’s story.

Reasons For Tracking

Recently reinstated dividend (had suspended it in Q1 2020 due to Covid)
Buying back stock

“Year-to-date, the company purchased a little over one million common shares for a total consideration of two point three million dollars, subsequent to the end of the period, an additional one hundred and fifty thousand three hundred shares were purchased for cancellation for total consideration of three hundred forty seven thousand eight hundred and fifty five dollars.”

The company has reported top line year over year growth in 29 of the last 30 quarters
EPS has been range-bound between $0.40 to low $0.50s until this break out year
Entering the higher growth packaging markets

“Our long term strategy remains intact. Leverage our Canadian envelope capacity, knowhow and cash flow to fund the pivot to packaging. Recall that our target is to generate fifty percent of our revenue from the packaging segment by twenty twenty five and our last twelve months revenues in packaging are at thirty percent of consolidated revenues. To accelerate this shift, we are intensifying our search for strategic acquisitions. Given our scale in the envelope segment and our strong financial position, We are well positioned to execute on our growth strategy.” (Q3 CC Transcript)

Exploring growth opportunities in under-penetrated U.S. markets (currently only has less than 3% market share in the U.S)
- Envelope business - broad range of stock and custom envelopes
- Packaging - diverse range of packaging and specialty products

“The volume of units sold increased by 53.7% from efforts dedicated to increasing penetration of the U.S. envelope market and from the rebound in demand in recent quarters from certain channels that were more affected by the pandemic and lockdown measures. The Company’s strong supply chain and dedicated workforce, on both sides of the border also played in its favor.”

While the envelope business markets are in decline, the Package and Parcel business segment is growing in Canada and the U.S at 11% and 15% CAGR
Integrated its recent acquisition of Vista (printing and packaging company) and is exploring other acquisition opportunities
Paying down debt - Total debt decreased to $44.5 million at Dec 2021 from $56.8 million at Dec 2020.

Valuation:

Applying a conservative trailing P/E of 10 would equate to a price target for of $6.40 or 90% higher than yesterday’s closing price of $3.35 (Again, prices in CAD). (It’s unclear where the stock will open today based on the strong report. However, major Index futures were off at least 2.5% to over 3%% due to the Russia/Ukraine conflict).

The company’s book value based on the Q3 balance sheet was $3.49 with tangible book of $0.93.

Caveats:

The overall North American envelope segment is in secular decline; U.S market is declining slower than Canada and where Supremex is continuing to grow market share
Estimates call for minimal growth in ‘22 and ‘23; However, the company shattered ‘21 estimates, so there may be some revisions.
We still need to interview management.