CCL Industries Inc.

Company DescriptionCCL2
CCL Industries is the world’s largest converter of pressure sensitive and film material for label applications, selling to large multinational customers. CCL provides innovative solutions to the Home & Personal Care, Premium Food & Beverage, Healthcare & Specialty, Automotive & Durables and Consumer markets worldwide. The company has 150 manufacturing facilities located on six continents.

Investment Thesis
CCL is the global leader in a niche business with high barriers to entry. The company is extremely well-managed by a dynamic management team, and the company has a very strong, entrepreneurial and cost-effective culture.

CCL focuses on premium value-added, highly customized label applications that require specific knowledge, technology and expertise. The company looks for growing niche markets that have high barriers to entry, and where CCL believes it can become the largest and best producer. Management is continually looking for opportunities to broaden its end market exposure by geography and industry.

The company has grown both organically and through acquisition. Capital expenditures are relatively modest and the company generates significant free cash flow, which it reinvests into the business. CEO Geoffrey Martin has established an excellent track record as a patient and disciplined acquirer and the company has completed a number of accretive acquisitions (> 30 since 2012) of varying sizes under his leadership. In the 2013 – 2015 timeframe, the company deployed more than $1 billion towards growth initiatives at an incremental fully-taxed return on capital of 17 – 18%. CCL typically pays 4 – 7 times EV/EBITDA, making acquisitions highly accretive. Management has created significant value by integrating acquired operations, extracting synergies, implementing best practices, and optimizing assets. With a strong balance sheet and significant liquidity CCL is well positioned to continue its strong track record of accretive growth in a market that remains fragmented.

Financial Performance
CCL grew revenues and EBITDA at compound annual growth rates of 32% and 34% respectively over the 2013 – 2015 timeframe, while EPS grew at a CAGR of 44%. The company’s share price appreciated from $42.99 to $224.37 during that three-year period.

Going forward, we believe low- to mid- single digit organic revenue growth is very achievable on a sustained basis. Management has a robust pipeline of acquisition targets and has indicated that it is reasonable to expect that bolt-on acquisitions could provide incremental top-line growth of 3-4% per annum. On top of that, the company typically completes a large, transformational acquisition approximately every two years. All told, we believe the company’s attractive business model positions it to generate double-digit earnings growth on a sustainable basis.

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