Parkland Corporation (TSX: PKI) is an independent supplier and marketer of fuel and petroleum products and a leading convenience store operator. Parkland services customers across Canada, the United States, the Caribbean region, through three channels: Retail, Commercial and Wholesale.

Key highlights

• Robust operating matrix: Despite the turmoil, the Company maintained its momentum and generated strong revenue, gross profit, and net income. Sales increased by CAD 7,457 million, or 53%, to CAD 21,468 million in FY 2021, thanks to a 12% year-over-year increase in the Canada, USA, and international marketing segments. In addition, the fuel and petroleum volume of 24 billion litres was increased by more than 10% from 2020, showing the impact of acquisitions, strong client demand, and continued COVID recovery. On a year-over-year basis, gross profit and net income both increased by 27% and 13%, respectively, which is remarkable.

Source: Company Filing

• Higher guidance on adjusted EBITDA for 2022: The management expects its adjusted EBITDA for FY 2022 to be around CAD 1.5 billion +/- 5%. Moreover, by 2025 the company has an ambition of clocking robust adjusted EBITDA of CAD 2.0 billion, which is a significant plus.

 Source: Company Presentation

• Elevated distributable cash flow: For the year ended December 31, 2021, the company achieved distributable cash flows of CAD 660 million compared to CAD 480 million in the pcp and cash flows from operating activities stood at CAD 904 million, respectively. This cash generation is due to strong operational performance and effective cost control measures.

• Strong liquidity profile: On a sequential basis, the company's current ratio has been steadily improving, which is a positive indicator. Furthermore, the company's current ratio was 1.39x in Q4 FY21, vs the industry median of 1.04x. This greater ratio as compared to the industry suggests that the company's short-term commitments are growing slowly, than its resources to fulfil them, which is a positive indication. As of December 31, 2021, it has CAD 284 million in cash and cash equivalents, as well as CAD 1,270 million in unused credit facilities.

• Consistent dividend distribution: The Company has an excellent track record of dividend distribution reflecting resilience and healthy cash flow generation. Recently, it announced March 2022 dividend of CAD 0.1083 per share be paid on April 14, 2022. Moreover, at the last closing price of CAD 34.39, the stock is offering a healthy dividend yield of 3.81%, which looks decent considering the current macros and interest rates.

• Acquisition of M&M Food Market: With the acquisition of M&M Food Market, the firm is increasing its food offering and accelerating its convenience growth. M&M is a high-end, restaurant-quality frozen food store that provides Canadians with high-quality, convenient meal options. This is one of several actions the company is taking as part of its retail diversification plan to grow its exclusive food offering, customer base, and innovation pipeline. Over 300 well-located standalone franchise and corporate-owned stores, over 2,000 M&M Express locations, and a well-established rewards program with over two million active members are included in the deal.
  

Risks associated with investment: The company is exposed to many risks, including general economic, market and business conditions, industry capacity, competitive action by the other companies, refining and marketing margins, and the ability of suppliers to meet commitments. 

Financial overview of FY 2021

Source: Company Filing 

• Higher revenue: In FY 2021, the company posted higher sales at CAD 21, 468 million compared to CAD 14,011 million in the previous corresponding period. An increase in revenue was primarily due to higher volume due to the easing of COVID-19 restrictions resulting in increased economic activity and an increase in prices of fuel and petroleum products.

• Rise in cost of sales: The company’s cost of purchases in FY 2021, increased to CAD 18,512 million compared to CAD 11,675 million in pcp. Moreover, in the reported period the cost of sales as a % of revenue also stood higher at 86.2% V/s 83.3% in pcp.

• Marginal increase in earnings before income tax: The company’s earnings before income tax in the reported period stood at CAD 162 million, against CAD 154 million in pcp, partially offset by other losses worth CAD 203 million in FY 2021.

• Increase in net income: Net earnings increased to CAD 126 million compared to CAD 112 million in the previous corresponding period.
  

Top-10 Shareholders 

The top 10 shareholders have been highlighted in the table, which forms around 19.87% of the total shareholding. Fidelity Management & Research Company LLC and Fidelity Investments Canada ULC hold the company's maximum interests at 3.39% and 2.84%, respectively. The company's institutional ownership stood at 34.93%. Higher institutional holding boosts the confidence in the mind of retail investors. 

Valuation Methodology (Illustrative): EV to EBITDA based Valuation Metrics

Analysis by Kalkine Group 

Stock recommendation

In 2021, the company announced a record number of acquisitions, accelerating all parts of its strategy. The company is growing its retail, food, and loyalty businesses, and doubled the renewable fuel output to make considerable progress toward its decarbonization goals. The firm is on track to meet its goal of delivering CAD 2 billion in run-rate Adjusted EBITDA by the end of 2025, which is a substantial bonus. Furthermore, the core business and recent acquisitions are on pace to generate solid cash flow, and the company is yielding a substantial dividend of over 3.81%, which is reasonable given the present macros.

Therefore, based on the above rationales and valuation, we recommend a "Buy" rating on the stock at the at the last closing price of CAD 34.39 as on March 24, 2022. Additionally, the markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

One-Year Technical Price Chart (as on March 24, 2022). Source: REFINITIV, Analysis by Kalkine Group

*Recommendation is valid on March 25, 2022, price as well.

Technical Analysis Summary

Disclaimer

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