Parkland Corporation

Parkland Corporation (TSX: PKI) distributes and markets fuels and lubricants. The group has a product which includes refined fuels and other petroleum products.

Key Updates:

• Closing of Unsecured notes: The group announced the closing of its previously announced private offering of USD800 million aggregate principal amount of 4.50% senior unsecured notes due 2029. Parkland would use the net proceeds of the offering to redeem senior notes due 2025 and 2026.

• Recent Acquisitions: In April 2021, the group has completed the acquisition of Conrad & Bischoff Inc. and its related companies (collectively, “C&B”). This acquisition establishes fourth U.S. ROC, strengthens supply advantage, and adds a high-quality retail network to PKI’s portfolio.

• Agreement on Aviation Business: In April 2021, PKI signed an agreement for the purchase of an aviation business and associated infrastructure with operations in Puerto Rico. The acquisition includes operations at two International airports in Puerto Rico. This acquisition expands company’s presence in the well-diversified Puerto Rico market and unlocks the aviation portfolio. The transaction is expected to close by the end of the second quarter of 2021.

• Impressive Guidance: For FY21, the company expects its Adjusted EBITDA at around CAD 1,200 million, higher than CAD 1,057 million in FY20. The improvement is expected through several Cost savings synergies adopted by the company in the recent past. Burnaby Refinery utilization is anticipated at ~85% of the total capacity. Growth capital expenditures attributable to Parkland of CAD 175 million to CAD 275 million and maintenance capital expenditures attributable to Parkland of CAD 225 million to CAD275 million.

Q1FY21 Financial Highlights:

• PKI announced its quarterly result, wherein the group posted sales and operating revenue of CAD 4,233 million, v/s CAD 4,316 million in the previous corresponding period (pcp). The decline was primarily attributable to a lower fuel and petroleum product volume.
• Adjusted EBITDA including, non-controlling interest stood at CAD 337 million, increased from CAD 214 million in pcp, representing an increase of 64%. Improvement in adjusted EBITDA was driven by continued growth in non-fuel sales attributed to advancement of C-Store improvement initiatives followed by stronger unit margins, and cost reduction initiatives.
• The company reported net earnings of CAD 38 million v/s net loss of CAD 74 million in Q1FY20, representing an increase of CAD 112 million. The increase was primarily due to the increase in Adjusted EBITDA, in addition to net changes in non-cash valuation gains related to Sol Put Option, Redemption Options followed by lower acquisition, integration and other costs.

 Q1 FY21 Financial Highlights     

Q1 FY21 Financial Highlights (Source: Company Report)

Risks: Some of the key risks includes recessionary economic cycles and downturns in the business cycles of the industries, which might dampen the consumer confidence and might lead to lower demand.

Stock Recommendation:

The Burnaby Refinery realized a strong utilization rate of 87.9% during Q1FY21, despite lower product demand associated with COVID-19. The above produces low-carbon renewable fuels by co-processing renewable feedstock with crude feedstock, which helps the company to achieve output with a renewable component.  Also, the recent acquisition of Conrad & Bischoff Inc. would support the company to expand its retail portfolio. Moreover, the purchase of new aviation business in Puerto Rico helps in expanding footprint in the regional aviation business. On the valuation front, the stock of PKI is trading at a forward EV/EBITDA multiple of 8.1x as compared to the peer mean of 9.6x. Thus, based on the aforesaid facts, we recommend a ‘Hold’ stance on the stock of PKI at the closing market price of CAD 39.94 on May 06, 2021.

One-Year Price Chart (as on May 06, 2021). Source: Refinitiv (Thomson Reuters)

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.