Superior Plus Corp. (TSX: SPB) is a Canada-based diversified business company. The company primarily works under diversified key segments: Energy Distribution, and Speciality Chemicals.

Key highlights

• Strong earnings in FY21 and improved Guidance: On February 17, 2022, the company announced its Q4FY21 and FY21 results, stating the FY21 Adjusted EBITDA increased by 5% to CAD 398.4 million as compared to the CAD 379.4 million in pcp. This surge was a result from the realized gains on the foreign currency hedging contracts, which reported a loss in the previous year, and the improved business operations, which were partially negated by the higher corporate costs. Further, for FY22 the company gave strong guidance for its Adjusted EBITDA in the range of CAD 410 million to CAD 450 million, an increase of 8% from the FY21, supported by the recent acquisitions.

• Recent acquisitions and strategic ties:On December 21, 2021, a completely owned subsidiary of SPB, acquired a retail propane distribution company, Mountain Energy Gas for a total of CAD 2.6 million, along with the  Hopkins Propane for CAD 20.9 million, which also operates under a retail propane distribution segment. Both the acquisitions have been targeted based out of the USA, showing the expansionary plans of the company to strengthen its supply chain operations across the USA. Further on January 10, 2022, the SPB announced its collaboration with Charbone Corporation with a mission to provide the uninterrupted supply of Green Hydrogen to industrial and commercial customers in Quebec, Canada. With this step, the SPB aims to offer the Canadian industries an alternative clean energy solution.

• Industry beating margins: The company improved on the profitability threshold in Q4FY21 on a sequential basis, thereby reporting a positive EBITDA margin of 3% for Q4FY21 as compared to a negative 0.8% in the previous quarter. To gain traction, it's worth mentioning the company turnaround its operating margins to a positive 2.6% in Q4FY21 from a negative 14.1% in the previous quarter.
  

Source: REFINITIV, Analysis by Kalkine Group 

Risks associated with investment

The company recently went on an acquisition spree, which pushed the management to revise the target leverage for the company, bringing a burden of interest expenses, especially in the given scenario of rising interest rates. Other risks revolve around the adverse movement in the foreign exchange rates, inadequate insurance coverage, counterparty risks, compliance with environmental laws and regulations, along operational risks of any Catastrophic Events and natural disasters, which can cause the company to suffer losses. 

Financial overview of Q4 FY 2021 (Expressed in millions of CAD)

Source: Company Filing 

• Increase in Revenues: The company posted tremendous revenue growth of  CAD 824.9 million, up by 47%  in Q4FY21 as compared to CAD 561.9 million in pcp. This increase was on account of improved revenues in both the US and Canadian Propane segments. The Canadian propane resulted in an increase of 61% and the US segment reported an increase of 34% in revenues, as compared to pcp in the reported period.

• Improved Gross Profit: The Gross profit for Q4FY21 stood at 281.9 million, an increase of 2% from the CAD 277.5 million in pcp. The gross profit was supported by the improved USA and Canadian segments but neutralized because of the negative impact from the appreciation of the Canadian dollars for the reported period.

• Net Income:  For Q4FY21 the company reported Net Earnings from continuing operations of CAD 13.8 million, which declined from CAD 87.9 million in pcp.
  

Valuation Methodology (Illustrative): Price to Cash Flow Based

Analysis by Kalkine Group 

Stock recommendation 

The company showed a positive turnaround in the Q4FY21 by improving its Net margin to 1.7% from the negative 9.9% in pcp. The strategic expansion by growing inorganically, and further plans of spending CAD 200 million to CAD 300 million on acquisitions in FY22, would have a positive impact of company’s inorganic revenue.  On the valuation front, the stock still shows the headroom left to catch with its peers, leaving the scope for the investors to match the industry valuations.

On the technical front, the stock rallied from the lows of CAD 5.97 in March 2020 to the recent highs of CAD 16.24 on July 21 and sold off gradually. Currently, the stock is revolving around strong support levels of CAD 10 to CAD 11 levels. The relative strength Index (RSI) recently printed the reading of 30.52, which is sustaining above the oversold zone and the slightest pull back and take the stock towards the near-term resistance of CAD 13 levels.

Therefore, based on the above rationale and valuation, we recommend a “Speculative Buy” rating at the closing market price of CAD 11.32 on March 1, 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. We have considered Clean Energy Fuels Corp, ARC Resources Ltd., Crestwood Equity Partners LP as the peer group for the comparison.

One-Year Technical Price Chart (as on March 1, 2022). Source: REFINITIV, 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.