Superior Plus Corp (TSX: SPB) is a diversified business corporation which operates three reportable operating segments: Energy Distribution and Specialty Chemicals. 

Key Updates:

• Higher dividend payment: The group reported a higher dividend payment of CAD 113 million in 9MFY21, versus CAD 87.6 million in pcp. Additionally, the stock of SPB carries a dividend yield of ~5.556% on an annualized basis, which looks attractive considering the persisting interest rate scenario.

• Improved liquidity: The company reported improved working capital management and posted its quick ratio and current ratio of 0.71x and 0.92x, respectively in Q3FY21, versus the industry median of 0.63x and 0.80x, respectively. This suggests better liquidity of the company.

• Positive macros: The company operates as a propane distributor and propane across the North American Market, and the demand for the above chemical is attractive due to customer characteristics, sustainable free cash flow and ample opportunities for growth. Customers tend to attach to the supplier for long periods, which indicates a stable topline.

• Result Update: The company would disclose its Q4FY21 and FY21 results on February 17, 2021.
  

Risks: Factors like sluggish economic scenario, decline in production profile due to lower demand, interest rate fluctuations, etc. would have a negative impact on the company’s operations. Moreover, the company’s the group reported increase in input costs which has resulted to higher net losses. Continuation of the above trend would dampen the company’s profitability in the coming quarters. 

Q3FY21 Income Statement Highlights:

Q3FY21 Income Statement Highlights (Source: Company Report)

• SPB announced its quarterly result, wherein the company posted its revenue of CAD 6 million, stood higher from CAD 256.8 million in the previous corresponding period (pcp). The growth was aided by higher revenue from both U.S. Propane Distribution and Canadian Propane Distribution segments.
• Gross profit surged to CAD 6 million from CAD 120.7 million in pcp. The growth was primarily supported to the higher revenue, partially offset by an increase in cost of sales (CAD 230 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), partially offset by a lower finance expense (CAD 16.6 million v/s CAD 22.5 million in pcp).
• The company reported a net loss from continuing operations of CAD 9 million, versus a loss of CAD 26.1 million in pcp.

   Valuation Methodology (Illustrative): Price to Cash Flow

Analysis by Kalkine Group

Stock Recommendation:

The propane market in North America remains highly fragmented in nature and hence, provides considerable room for expansion through acquisitions. We have valued the stock using 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 Bonterra Energy Corp, Gibson Energy Inc etc. Considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock of SPB at the last traded price of CAD 12.96 on February 03, 2022.

One-Year Technical Price Chart (as on February 03, 2022). Source: REFINITIV, Analysis by Kalkine Group

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