Parkland Corporation (TSX: PKI) is a Canada-based company, that distributes and markets fuels and lubricants. Refined fuels and other petroleum products are among the variety of offerings the company delivers to motorists, businesses, consumers, and wholesalers in the United States and Canada. 

Key Highlights:

• Increased revenue: During Q1FY22, the group reported an increase in the total sales and operating revenue to CAD 7,606 million as compared to the sales and operating revenue of CAD 4,226 million in Q1FY21. The sales from fuel and petroleum products rose to CAD 7,252 million during Q1FY22 against CAD 3,945 million in Q1FY21. Maximum sales were from the Canadian region which stood at 3,645 million in the same period (Q1FY22) against the sales of CAD 2,307 million in Q1FY21.

• Building British Columbia’s largest renewable diesel complex: On May 9, 2022, the group announced its expansion plans in terms of increasing renewable fuel production as it Burnaby Refinery in British Columbia. This will help in co-processing overall 5,500 barrels of diesel per day and the group will be able to produce approximately 6,500 barrels per day of renewable diesel. The project will require an investment of close to CAD 600 million, where the majority of the investment will be allocated in 2024 and 2025.

• Higher adjusted EBITDA: The company reported an increase in the adjusted EBITDA to CAD 387 million in Q1FY22 as compared to the adjusted EBITDA of CAD 314 million in Q1FY21. The company’s well-managed and articulated acquisition strategy, accompanied by the organic growth in the marketing business helped the group to see a surge in the adjusted EBITDA.

Source: Company presentation

• Sequentially improving profitability margins: During Q1FY22, the company reported increased revenues which were supported by the efficient cost management system and various acquisitions, which helped the company to attain higher profit margins as compared to the previous quarter of Q4FY21.

Source: Refinitiv, Analysis by Kalkine Group 

Risks associated with investment

The group is exposed to many risks, including the economic slowdown, rising interest rates, 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 Q1FY22 (Expressed in thousands of CAD)

Source: Company Filing

• During Q1FY22, the group reported an increase in total sales and operating revenues to CAD 7,606 million as compared to CAD 4,226 million in Q1FY21. The sales from fuel and petroleum production especially across the USA and other international locations contributed a majority of the incremental sales growth in Q1FY22.

• The cost of purchases rose significantly in Q1FY22 to CAD 6,563 million against CAD 3,523 million in Q1FY21, on account of the increased cost of raw materials the cost of purchases saw an uptick.

• The group reported net earnings of CAD 68 million in Q1FY22 which is higher than the net earnings of CAD 36 million in Q1FY21.

Valuation Methodology (Illustrative): Price to Cash flow-based

Analysis by Kalkine Group

Stock Recommendation:

The company reported an increase in the revenue to CAD 7,606 million during Q1FY22 against CAD 4,226 million in Q1FY21, the majority of the sales from the increase in the fuel and petroleum products especially across the USA and international locations, also the group was successful in raising its adjusted EBITDA  to CAD 387 million in Q1FY22 against the adjusted EBITDA of CAD 314 million in Q1FY21. The management is optimistic for FY22 and stated the adjusted EBITDA to be between CAD 1,500 million within the +/- 5% range.  On the valuation front, the stock is measured on the Price/ Cash flow-based multiple and we have considered Keyera Corp., MEG Energy Corp., etc. as the peer group for the comparison.

Therefore, based on the above rationale and valuation, we recommend a “Hold” rating on the stock of PKI at the last closing price of CAD 36.26 on May 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 of May 24, 2022). Analysis by Kalkine Group

Note- The reference data has been partly sourced from REFINITV

Disclaimer

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