Investors are eyeing tape manufacturer Intertape Polymer Group Inc. to see if its turnaround story sticks and leads to more dividend increases down the road.
The Montreal and Florida-based company, which makes duct and double-coated tapes, shrink wrap and protective coverings, is gaining increased attention after announcing a 50-per-cent dividend hike in July. The stock is also trading near a 10-year high.
Two analysts picked up coverage of the company in recent weeks with "buy" recommendations and price targets about 20 per cent above where the stock is currently trading, just below $15.
All three analysts who now cover Intertape say it's a "buy," citing a drop in manufacturing costs and a new product mix that's helping to revive the once high-flying company.
"It's a spectacular turnaround story," says Jennings Capital analyst Dev Bhangui, who recently initiated coverage with an $18 target.
Since 2010, the company has closed and sold plants, discontinued low-margin products and brought in new higher-margin specialty tapes and water-retention fabrics used for industrial wastewater. Intertape has also slashed its debt and increased gross margins to around 22 per cent, up from 11 per cent in 2010.
"We still have some things we need to fix, but we're through turning the business around," said chief executive officer Greg Yull, son of company founder Melbourne Yull.
"Now the business is taking a different approach to the future – and that's around growth."
Mr. Yull, who became CEO in 2010, expects much of that growth to come from its tape and woven products businesses, as well as through acquisitions.
About 65 per cent of Intertape's revenues are from its tape division, which includes its own brand-name products as well as Central and Crowell. About 19 per cent of its revenues come from film brands such as SuperFlex and Exlfilm. The rest is from woven coated fabrics that go around lumber and other industrial and agricultural products.
The company was founded in 1981 and has been publicly traded since 1992. Investors have seen a number of ups and downs since then. The stock was trading above $45 in the late 1990s, but fell below $20 in 2000 and continued to fall amid growing debt and lower margins as well as a failed takeover battle. The stock fell to around $1 during the 2008 recession, but has increased steadily since, boosted by the restructuring results.
The company started paying a semi-annual dividend of eight cents per share in mid-2012 and changed that to quarterly payments in U.S. dollars a year later, totalling 32 cents (U.S.) annually. In July, the company bumped that to 48 cents per year, paid quarterly.
Analysts believe the dividend, now yielding about 3.5 per cent, will keep growing if business stays on track. Risks for the company include an economic downturn and increased competition from rivals such as 3M Co., Berry Plastics Corp. and AEP Industries Inc., to name a few.
TD Securities analyst Damir Gunja, who recently initiated coverage with an $18.50 (Canadian) price target, says Intertape has "a more pristine balance sheet and a higher dividend yield," compared with its peers.
He also expects growth in the U.S. market, which today accounts for about 80 per cent of revenues.
"Intertape offers investors a unique play on the U.S. recovery in the industrial and manufacturing base as well as consumer markets," he said in a note.
Cormark Securities analyst Sarah Hughes has a $16 target on the stock, forecasting strong earnings and cash flow ahead as the company continues to cut costs and shake up its product mix.
"We continue to believe there still remains plenty of upside," she said in a note.