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 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

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

• Strong Liquidity: The company maintained strong liquidity position, with cash and cash equivalents of CAD 284 million and unused credit facilities of CAD 1,270 million as on December 31, 2021. The company continued to enhance its financial strength by taking advantage of favourable conditions to refinance senior notes. Moreover, it has no debt maturities until 2026.
  

• Consistent dividend distribution: The Company has an excellent track record of dividend distribution reflecting resilience and healthy cash flow generation. Recently, the company declared a monthly dividend of CAD 0.1029 per share, to be paid on March 15, 2022. At the CMP of CAD 31.32, the stock is offering a healthy dividend yield of 3.94%, which looks decent considering the current macros and interest rates.
  

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

• 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.
• On the back of higher sales, the company’s cost of purchases increased to CAD 18,512 million compared to CAD 11,675 million in pcp.
• 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.
• Net earnings increased tp CAD 126 million compared to CAD 112 million in the previous corresponding period.

Valuation Methodology (Illustrative): Price to Cash Flow based

Analysis by Kalkine Group

Stock recommendation

In 2021, the company announced a record number of acquisitions, accelerating all parts of its strategy. They grew its retail, food, and loyalty businesses, and doubled the renewable fuel output to make considerable progress toward their 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 3.9 percent, 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 closing price of CAD 31.32 as on March 3, 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 3, 2022). Source: REFINITIV, Analysis by Kalkine Group

Technical Analysis Summary

Disclaimer

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