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

Key Updates:

• Distribution of Green Hydrogen in Quebec region: The company recently collaborated with Orletto Capital II Inc. and CHARBONE Corporation in order to supply green hydrogen to commercial and industrial customers initially in Quebec, Canada. Both SPB and Charbone will leverage their collective expertise in mobile energy distribution and related logistics and green hydrogen production. As per the management, the group would start its deliveries from Q3FY22. The company is expected to supply hydrogen directly from the Charbone’s facility and is likely to cater to a diversified customers base which includes mining, power generation, transportation and industrial energy segments.

• Increase in 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 ~5.607% on an annualized basis, which looks attractive considering the persisting interest rate scenario.

• 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.

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 performance. Moreover, the company’s operations might witness some setbacks due to the seasonality pressure during the second quarter and third quarters.

Q3FY21 Income Statement Highlights:

• 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 as compared to CAD 120.7 million in pcp. The surge was primarily due 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, as compared to a loss of CAD 26.1 million in pcp.

Q3FY21 Income Statement Highlights (Source: Company Report)

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 significant room for expansion through acquisitions. 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 0.62x and 0.75x, respectively. 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 Gibson Energy Inc, Clean Energy Fuels Corp etc. Considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock of SPB at the last traded price of CAD 12.84 on January 17, 2022.

One-Year Technical Price Chart (as on January 17, 2022). Source: REFINITIV, Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

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