TOP IDEAS: New contract wins in its intelligent fabrics business are adding to
the expected record revenue growth, and iFabric Corpís (TSX: IFA) shares are still
trading near the Company's book value. The stock is appointed to Investorfileís list of Top
Ideas as a small cap value investment opportunity.
started out as an intimate apparel company back in the 1990s (a division which
continues to operate profitably today), the main driving force behind iFabricís
future growth and expansion is the Companyís intelligent fabrics business. This
includes the development, testing and distribution of specialty textiles, as
well as chemicals suitable for application to textiles on apparel that improves
the safety and well-being of the wearer.
Based in Markham, Ontario, iFabric
Corp.ís (TSX: IFA Ė C$0.55) wholly owned subsidiary, Intelligent Fabric
Technologies (IFT), has exclusive worldwide distribution rights consisting of a
number of proprietary chemical formulations that can be applied to textiles in
order to kill bacteria and viruses, repel insects, absorb odours, repel and
wick moisture, block ultraviolet light and help encourage a healthy skin
environment, amongst others, the Company says. These treated textiles become
finished performance apparel, medical apparel and protective products, as well
as swimwear, which integrate one or more chemical enhancements in order to
achieve the performance characteristics demanded by the Companyís customers and
As described by iFabric, IFT current
product offerings include Protx2® (anti-microbial and anti-viral formulations),
Enguard® (insect repellant technology), Dreamskin® (skin polymer), UVtx
(ultraviolet light blocker), FreshTx (odour-absorbing technology), RepelTX
(durable water repellant) and DryTx (moisture-wicking technology), among others. The Company anticipates that several new formulations and new
generations of existing formulations will be added to its pipeline in the
The IFT division has
two key supply centres in Asia (namely China
which service the Asian market. This market represents the main production
region for manufactured textiles supplied to North America
and internationally, and is the Companyís main market area for the distribution
of intelligent textile technologies. That being said, it is also exploring
production options outside of Asia, too.
These supply centres
offer technical support for IFT customers regarding the integration of the IFT
chemical formulations in their apparel products when they are manufactured by
the customer directly. Because the parent company IFabric has textile
expertise, IFT also supplies finished performance and protective apparel
products (treated with one or more of its formulations) on behalf of its customer
brands or under its own brands.
Today, many major brands have finished apparel which
integrates one or more chemical enhancements developed by IFT. According to the
Company, Under Armour, Lululemon, Walmart, Target, TUMI, The North Face, Roots,
Hanes, Kohlís and Amazon are all top customers of IFT.
According to iFabric, the technology-enhanced textile
market is growing rapidly. The Company says that the Global Smart Textiles
Market is projected to reach US$13.6 billion by 2027. The Global Antimicrobial
Textiles Market is projected to reach US $11.5 billion by 2027 and the Global
Cooling Textiles Market US$3.4 billion.
About six months ago,
IFT was the beneficiary of a number of major developments. First, IFT announced
the execution of a license agreement with the famous Canadian apparel brand, Roots.
This license provides IFT with the right to use Roots' trademarks in connection
with the manufacturing and distribution of menís, womenís and children's
swimwear to retailers and other approved distribution channels, including Roots
stores. The Company says this deal will bolster revenues in its fiscal Q2 &
Q3 quarters, which historically have been weaker due to some seasonality of its
The second major
development was a new license agreement with The North Face. This agreement
provides The North Face with the right to use IFTís RepelTX and ecoPEL chemical
formulations in its outdoor apparel, footwear and equipment manufactured and
distributed by The North Face. The Company has said that The North Face becomes
the first major customer to adopt the use of RepelTX and ecoPEL in a wide range
To date, in the first nine months of fiscal 2022, the Company reported revenues
of C$13.7 million, which is down somewhat from 2021. But, revenues in fiscal Q3
2022 rose 26% year-over-year to C$5.24 million, with 32% of the growth coming
from the IFT business division and 19% from iFabric's legacy business division,
which produces intimate apparel. About two thirds of total revenue is derived
from the IFT division. Blended gross margins are around 40%. iFabric earned
C$360,469 in Q3 with earnings per share of C$0.01. In Q3, adjusted EBITDA was
C$536,778, representing a margin of 10% on revenues.
has good balance sheet with a strong current ratio. As of June 30, 2022 the
Company had C$2.6 million in cash and an undrawn operating bank loan. We note at that time the inventory value was high at C$10.8 million. According to the Company,
inventory was brought in early this year to
avoid shipping issues in China
and was required for confirmed customer programs for the remainder of 2022. We
expect that a sizable portion of inventory will be converted into cash during
the first half of fiscal 2023 and inventory levels will begin to normalize more.
iFabricís stock price is currently
trading at 52-week lows and what we believe are discounted levels, given that
todayís market valuation is near the Companyís tangible book value and working
capital levels. But, beyond the balance sheet, we see value, too. Recent contract
wins suggest to us that revenue momentum is building inasmuch that iFabric
could report record annual sales (C$20 million plus) in fiscal 2022 and beyond.
Given the growth profile our forecast calls for the Companyís revenue run rate
to reach C$30 million exiting fiscal 2024.
historical data and improved operating leverage on the estimated higher sales
levels, we forecast that the Company can earn adjusted EBITDA margins of 10% or
higher on its revenues in fiscal 2023 and beyond with positive
Given that iFabricís stock valuation is trading at its book
value per share range and at Enterprise Value (EV) to Sales ratio of 0.75 (for
fiscal 2022), there is tremendous value in this stock today. That said,
Investorfile is recommending the purchase of the shares. We suggest that small
cap investors should accumulate this stock up to a price of $0.85 from its
current trading price of C$0.55. For investors who own theses shares with average
cost-base of about C$0.70, they are paying a valuation less than 6.5x EV/EBITDA
based our above forecast for fiscal 2024. This is still inexpensive, especially
if our assumptions prove to be conservative for this growth story. We note that
this stock traded as high as C$3.60 earlier in 2022. As always, investors in small cap stocks should have a
minimum investment horizon of 24 months to realize the capital appreciation
Not incorporated in our
forecasts are several possible catalysts that may come to fruition in 2023.
First, the Company is still waiting for a US Environmental Protection Agency
(EPA) submission process for next-level efficacy claims for its ProTX2
anti-bacterial and anti-viral, fabric-treatment technology. Approvals by the
EPA would provide IFabric with enormous new market opportunities.
In an investor
presentation, the Companyís CEO had suggested that its proprietary chemical
formulations have applications on alternative surfaces; therefore it is in
discussions with significant manufacturers outside of the apparel market to
realize these new product opportunities... thus another potential major
on iFabricís balance sheet (recorded as a current asset) is a C$4.73 million
prepaid expense and deposit which is subject to dispute claim for non-delivery
of a textile product by a China-based supplier. While Company Management still
feels it will recover some or all such funds, we have not included this amount
in our valuation calculations and thus in our opinion it maybe deemed a
write-off on future audited statements. On a positive note, the book value
amount on iFabricís balance sheet may significantly understate the true market
value of the Companyís warehouse property it owns in Markham, Ontario.
that iFabricís CEO has 35 years of experience in the textile market and the
President of the Intelligent Fabric Technologies division has been with the
Company for over 15 years. Combined, Management owns 64% of the Companyís
outstanding shares and iFabricís CEO is by far the largest shareholder.
Last reported, iFabric has about
29.8 million shares outstanding and 34.4 million on a fully diluted basis. The
most recent public filings indicate most of all the option and warrant strike
prices are significantly out-of-the-money and, therefore, are currently anti-dilutive
for our valuation calculations.
Corp. website: www.ifabriccorp.com
Disclosure: TSX: IFA Ė Yes
This article is for informational purposes only. This article is based on the
author's independent analysis and judgment and does not guarantee the
information's accuracy or completeness. The information contained in this
article is subject to change without notice, and the author assumes no
responsibility to update the information contained in this article. The
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Investorfile.com is not engaged in an investor
relations agreement with iFabric Corp. nor has it received any compensation
from iFabric Corp. for the preparation or distribution of this article.
The author of this article has acquired and may
trade shares of iFabric Corp. through open market transactions and for
investment purposes only.