IPL Plastics: Post-IPO Setbacks Create Inflection Opportunity

Kyle Mowery of GrizzlyRock Capital presented his in-depth investment thesis on IPL Plastics (Canada: IPLP) at Best Ideas 2020.

Thesis summary:

IPL Plastics is a leading plastic packaging manufacturer that sells specialty products used in the food, consumer, agricultural, logistics, and environmental end-markets. IPL has no exposure to single use plastics and serves markets that should secularly grow over time.

The company IPO’d in 2018 and has since encountered a series of setbacks such as raw material inflation and declining volumes due to temporary end market challenges. These issues have sent the stock price down nearly 60%, and the shares recently traded at 6.0x 2020E EV/EBITDA with a 17% free cash flow to equity yield.

Kyle believes the issues are behind IPL, and 2020 is setting up to be an inflection year for the business. A large multi-year growth capital expenditure plan was finished in 2019 which will lead to strong cash generation and considerable de-leveraging from 3.0x to roughly 2.1x in 2020, increasing penetration of end markets will help the top line return to ~5% growth, and optimization initiatives will lead to stable margin performance going forward.

As the company executes, Kyle believes the shares will re-rate and close the large valuation gap between publicly traded competitors. At a conservative 8.0x EV/EBITDA and 9.5% free cash flow yield on 2020E numbers, IPL would be worth $14 CAD per share and 75% upside to recent prices.

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About the instructor:

Kyle Mowery is the founder and managing partner of GrizzlyRock Capital. Kyle holds an MBA from the University of Chicago Booth School of Business and a BA in Economics from UCLA. GrizzlyRock Capital is an alternative asset management firm seeking to deliver risk-managed returns to investors via opportunities across equity markets. The firm takes a value-investing approach to security selection, relying on rigorous fundamental analysis to identify dramatically mispriced corporate securities from the entire capital spectrum. GrizzlyRock Capital is headquartered in Chicago, Illinois.