Superior Plus Corp.

Superior Plus Corp (TSX: SPB) is a diversified business corporation that operates three reportable operating segments: US Propane Distribution and Canadian Propane Distribution. 

Key Updates

• An Income Play: The company has a solid track record of consistent dividend distribution, backed by stable cash flows. In 9MFY21, the company reported a higher dividend payment of CAD 113.0 million, compared to CAD 87.6 million in pcp. Notably, the stock of SPB carries an annualized dividend yield of ~5.369%, which looks lucrative considering the ongoing interest rate scenario.

Ten-year Dividend History (Source: Refinitiv)

• Lucrative Macros: The company operates as a propane distributor across the North American market. The demand for the above is abundant due to customer characteristics, sustainable free cash flow and ample growth opportunities. Customers tend to attach to the supplier for long periods, which indicates a stable topline. Moreover, the propane market remains highly fragmented and provides a significant opportunity for expansion through acquisitions.

• Ample Liquidity and No Near-Term Maturity: At the end of Q3FY21, the company reported its available cash balance of CAD 32.7 million and has an undrawn revolving credit option of CAD 644.4 million, which is sufficient to fund its working capital and CAPEX requirements. Moreover, the company does not have near-term maturity before 2026, indicating prudent capital management.

Q3FY21 Income Statement Highlights

• SPB announced its quarterly result, wherein the company posted its revenue of CAD 6 million, a climb from CAD 256.8 million in pcp. The increase was driven by higher revenue from both segments.
• Gross profit surged to CAD 6 million from CAD 120.7 million in pcp, supported by higher revenue generation, partially offset by the increased cost of sales (CAD 230.0 million v/s CAD 136.1 million in pcp).
• The quarter was marked by slightly higher selling and administrative costs (CAD 5 million v/s CAD 165.8 million in pcp).
• The company reported a net loss from continuing operations of CAD 9 million, compared to CAD 26.1 million in pcp.

Q3FY21 Income Statement Highlights (Source: Company Report)

Risks Associated with Investment

Factors like sluggish economic scenario, decline in production profile due to lower demand, interest rate fluctuations, etc., can negatively impact the company’s performance. Moreover, SPB’s operations might witness some setbacks due to the seasonality pressure during the second quarter and third quarters.

Valuation Methodology (Illustrative): Price to Cash Flow

Stock Recommendation

The company reported consistent growth in its profitability and posted a 26.5% CAGR growth in EBITDA since 2016 to date and ~83% free cash flow conversion, which it achieved by reducing its exposure to cyclical segments like oil & gas end markets and focusing on high-margin segments. SPB aims to increase its EBITDA to CAD 700 - 750 million by 2026 (from CAD 402 million in FY20).

We have valued the stock using the Price to CF-based relative valuation method and have arrived at a single-digit upside (in percentage terms). For the said purposes, we have considered peers like Suburban Propane Partners LP, Bonterra Energy Corp, etc. Considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock of SPB at the last traded price of CAD 13.41 on December 02, 2021.

One-Year Technical Price Chart (as on December 02, 2021). Source: REFINITIV, Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

Disclaimer

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