Superior Plus Corp (TSX: SPB) is a diversified business corporation which operates majorly into two divisions, namely Energy Distribution and Specialty Chemicals. The Energy Distribution segment provides distribution, wholesale and services related to propane, heating oil and other refined fuels whereas the Specialty Chemicals segment is a supplier of sodium chlorate and technology to the pulp and paper industries.

Key Updates:

• Stable FY22 Guidance: For FY22, the company expects that the wholesale propane prices are likely to remain in line with FY21, which indicates revenue and cash flow stability and is a key positive. Moreover, the company may realize synergies from its recent acquisitions primarily through supply chain efficiencies, margin improvements and operational expense savings. Additionally, the North American propane market remains highly attractive due to the favorable customer characteristics like sticking to one supplier for a longer time (>10 years), which results in sustainable free cash flow generation. Moreover, the fragmented nature of the industry provides ample opportunities for growth, and the company is highly poised to take advantage of it.

• Impressive Dividend yield: The company distributed a higher dividend of CAD 150.7 million in FY21, which is higher than CAD 125.6 million in FY20. This is impressive as most of the companies are lowering their dividend payment in order to retain liquidity. Moreover, the SPB stock carries a dividend yield of ~6.305% on an annualized basis, which looks impressive considering ongoing the interest rate scenario.

• Recent dividend announcement: Recently, the company announced a quarterly cash dividend of CAD 0.06 per share with a payment date of April 18, 2022.

• Q-O-Q improvement in profitability margins: The company reported its EBITDA margin and operating margin of 14.3% and 2.6%, respectively, in Q4FY21, which has improved from negative EBITDA margin and negative operating margin of 0.8%, and 14.1%, respectively in Q3FY21. Moreover, the company’s pretax margin also improved to 2.6% in Q4FY21, as compared to a negative pretax margin of 14.1% in Q3FY21. This indicates better cost management and improved operational efficiencies.

Risks: The company’s reported a havoc increase in input costs in the recent past, which has hindered overall performance. Hence, a continuation of the above trend would dampen the company’s profitability in the coming quarters. 

FY21 Financial Highlights:

FY21 Income Statement Highlights (Source: Company Report)

• SPB announced its full-year result, wherein the company posted its revenue of CAD 2,392.6 million in FY21, stood higher than CAD 1,806.9 million in FY20. The growth was supported by elevated propane prices coupled with the positive impact from acquisitions completed in the current and prior year.
• Cost of sales surged to CAD 1,479.9 million in FY21 from CAD 893.2 million in FY20, which resulted to a slightly lower gross profit of CAD 912.7 million in FY21, as compared to CAD 913.7 million in FY20.
• The period witnessed a rise in the total expense of CAD 889.8 million versus CAD 786.6 million in FY20 due to an increase in Selling, distribution and administrative costs and a surge in finance costs. This resulted in a lower Earnings before income taxes of CAD 22.9 million versus CAD 127.1 million in
• Net earnings stood higher at CAD 206.7 million, as compared to CAD 86.8 million in FY20, due to lower income tax expense combined with higher earnings from discontinued operations (CAD 189.5 million v/s CAD 24 million in FY20).

  Valuation Methodology (Illustrative): Price to CF-based

Analysis by Kalkine Group

Stock Recommendation:

The company has a strong cash flow conversion rate of more than 70% since FY17, amidst the pandemic, which indicates business resilience and is a key positive for the company, as it supports the overall liquidity. The company expects Adjusted EBITDA in between CAD 410 million to CAD 450 million in FY22, reflecting a ~8% growth over FY21. We have valued the stock using the P/CF based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered peers like Clean Energy Fuels Corp, Bonterra Energy Corp etc. Considering the aforesaid facts, we recommend a ‘Speculative Buy’ rating on the stock at the closing price of CAD 11.42 on March 14, 2022.

One-Year Technical Price Chart (as on March 14, 2022). Analysis by Kalkine Group 

Technical Analysis Summary:

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.