Opinions
Michael Simpson, CFA
Supremex Inc
SXP-T
HOLD
Sep 19, 2008
Stock price when the opinion was issued
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Ranks in the middle of the pack for him. Technically it hasn’t been super strong. Part of that is probably due to some concern over whether or not it will sell off because of the Canada Post strike. He wouldn’t be surprised if they had weaker earnings when they report. Overall the business continues to be fairly strong. They are probably one of the only producers of envelopes that are still out there. Feels the dividend is safe. The stock probably goes higher as they continue to make acquisitions.
EPS was 31c, up from 24c the prior year, but short of estimates of 37c.
Revenue was $78.8M, up 19% and matching estimates.
The dividend was raised 17%.
The company plans to focus on cost savings and integration of its acquisitions this year.
With the stock way up YTD and news of the CFO departing, investors decided to take some profits.
The stock remains very cheap and the dividend news certainly indicates management confidence.
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They make envelopes and have 90% of the market in Canada. It is very profitable with massive pricing power. Although there is a slow decline in envelope use in Canada they have a pretty good share of the market in the U.S. which is growing. It is also diversifying by buying small niche packaging companies. It has huge free cash flow and great margins Trades at 4 to 5 times earnings. A good stock for value players.
EPS of 9c missed estimates of 17.5c; revenue of $72M missed estimates by 2%. EBITDA missed by 11%. SXP is down significantly over the last twelve months by ~42% and recent earnings pointed towards declining profits and revenues. Revenue fell $6M. Earnings and EBITDA margins also fell. It did increase its dividend by 14%. We do not see much need to hold it as results are declining, debt is high and size is small at $100.51M. We think DRX could be a small cap replacement.
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