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Paper Co. Remaining Strong Despite Rising Costs
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Q4 2022 EBITDA exceeds expectations, noted an April 24, Echelon research note.

Redishred Capital Corp. (RDCPF:OTCMKTS;KUT:TSXV), also referred to as KUT, is expecting to experience significant growth through cost execution and mergers and acquisitions this year. In an April 24, 2023 report, Amr Ezzat of Echelon Capital Markets wrote that the company "reported strong Q422 results, reflecting double-digit organic growth, considerable M&A contribution, and strong paper pricing. Specifically, sales and EBITDA were ahead of our forecast."

Despite higher fuel costs and driver wages, KUT's corporate locations experienced significant margin growth, which leads Echelon to believe that the company presents optimistic risk-reward characteristics for investors. Due to the company's intention to continue re-investing into new acquisitions, Ezzat predicts, "We expect management to go cherry-picking and deploy more capital into accretive tuck-ins."

Review of Results

Ezzat presented the key points of Redishred's latest reports.

Redishred experienced sales growth of 47.8% y/y compared to the same quarter the previous year, leading to a record high of US$15.4 million. Part of this success is due to the relaxation of COVID-19 restrictions in the business industry and increased demand for shredding, disposal, or scanning of documents. Shredding has proven to be the company's biggest area of growth, followed by e-waste disposal and scanning.

With its hold in the recycling sector, Redishred was able to take advantage of increased recycling prices last year.

KUT's EBITDA for Q422 was US$3.1 million, exceeding expectations. While the company ended last quarter with a raised debt, up from US$16.4 million to US$25.1 million, Echelon points out that this increase is due to the acquisition of Proshred Philadephia in November 2022 at the cost of US$9.7 million. This purchase was financed through cash and borrowing, but the company is expected to recoup its losses with this merger.


Ezzat reiterated Redishred's previous Buy rating and proposed a target price of US$8.25 per share, saying that, "Redishred remains one of Echelon's Top Picks."

He argues that the company is undervalued compared to its competitors even though it is experiencing higher growth rates. "KUT trades at a steep discount to the aforementioned peer groups on an NTM EBITDA basis (~6.0x versus ~13.2x for the peer group) despite its healthier growth profile (revenues/EBITDA expected growth rate of 6.5%/8.9% versus the peer group's 6.3%/8.3%)," Ezzat writes.

Structure and Predictions

Ezzat's research report shares recent rating and target price information as well as current market data on the company:

Rating: Buy

Price: US$3.90, with a 52-week range of US$3.15-US$4.50

Price Target: US$8.25

Market Cap: US$70.90 million

The company carries an enterprise value of US$96.1 million and a net debt of US$25.1 million. Redishred's share structure breaks down to 18.2 million basic shares and 18.2 million fully diluted shares.

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Disclosures for Echelon Capital Markets, Redishred Capital Corp., April 24, 2023

Echelon Wealth Partners Inc. is a member of IIROC and CIPF. The documents on this website have been prepared for the viewer only as an example of strategy consistent with our recommendations; it is not an offer to buy or sell or a solicitation of an offer to buy or sell any security or instrument or to participate in any particular investing strategy. Any opinions or recommendations expressed herein do not necessarily reflect those of Echelon Wealth Partners Inc. Echelon Wealth Partners Inc. cannot accept any trading instructions via e-mail as the timely receipt of e-mail messages, or their integrity over the Internet, cannot be guaranteed. Dividend yields change as stock prices change, and companies may change or cancel dividend payments in the future. All securities involve varying amounts of risk, and their values will fluctuate, and the fluctuation of foreign currency exchange rates will also impact your investment returns if measured in Canadian Dollars. Past performance does not guarantee future returns, investments may increase or decrease in value and you may lose money. Data from various sources were used in the preparation of these documents; the information is believed but in no way warranted to be reliable, accurate and appropriate.

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Canadian Disclosures: To make further inquiry related to this report, Canadian residents should contact their Echelon Wealth Partners professional representative. To effect any transaction, Canadian residents should contact their Echelon Wealth Partners Investment advisor.

U.S. Disclosures: This research report was prepared by Echelon Wealth Partners Inc., a member of the Investment Industry Regulatory Organization of Canada and the Canadian Investor Protection Fund. This report does not constitute an offer to sell or the solicitation of an offer to buy any of the securities discussed herein. Echelon Wealth Partners Inc. is not registered as a broker-dealer in the United States and is not be subject to U.S. rules regarding the preparation of research reports and the independence of research analysts. Any resulting transactions should be effected through a U.S. broker-dealer.

Company: Redishred Capital Corp. | KUT:TSXV

I, Amr Ezzat, hereby certify that the views expressed in this report accurately reflect my personal views about the subject securities or issuers. I also certify that I have not, am not, and will not receive, directly or indirectly, compensation in exchange for expressing the specific recommendations or views in this report.


During the last 12 months, Echelon Wealth Partners Inc. provided financial advice to and/or, either on its own or as a syndicate member, participated in a public offering, or private placement of securities of this issuer. During the last 12 months, Echelon Wealth Partners Inc. received compensation for having provided investment banking or related services to this Issuer.

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