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 operating matrix: Despite the turmoil environment, the Company maintained its pace and witnessed spirited performance across its fuel and petroleum product volume, sales and operating revenue and net earnings. The Company is continuously working closely to carry this winning momentum and has witnessed higher scale on the sequential basis, which is appreciable.

    Source: Company Filing, Analysis by Kalkine Group

• Higher 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 Filing 

• Sequentially rising Distributable cash flow on TTM basis: The company achieved distributable cash flows of CAD 724 million. for the trailing twelve months ended March 31, 2022. This cash generation is due to a strong operational performance and effective cost control measures.

    Source: Company Filing, Analysis by Kalkine Group

• Consistent dividend distribution: The Company has an excellent track record of dividend distribution reflecting resilience and healthy cash flow generation. In Q1 2022, the company paid a higher dividend at CAD 0.3141 per share against CAD 0.3053 per share in pcp. At the CMP of CAD 35.60, the stock is offering a healthy dividend yield of 3.469%, 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 Q1 FY 2022

Source: Company Filing

• In Q1 FY 2022, the company posted higher sales at CAD 7,606 million compared to CAD 4,226 million in the previous corresponding period. An increase in revenue was primarily due to higher volumes driven by ongoing economic recovery and new customer growth in our commercial and wholesale business 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 6,563 million compared to CAD 3,523 million in pcp.
• The company’s earnings before income tax in the reported period stood at CAD 81 million against CAD 42 million in pcp, partially offset by loss on risk management worth CAD 194 million.
• Net earnings increased to CAD 68 million compared to CAD 36 million in the previous corresponding period.

Valuation Methodology (Illustrative): Price to Cash Flow based

Analysis by Kalkine Group

Stock Recommendation 

The company’s first quarter results demonstrated the strength of its strategy. Moreover, it grew its marketing business by integrating recent acquisitions and leveraging the supply advantage. The group continue to prioritize its organic growth initiatives, integrate, and capture synergies from recent acquisitions and is confident in achieve the high end of the 2022 Adjusted EBITDA guidance, which is a significant plus.

Additionally, it witnessed spirited performance across its fuel and petroleum product volume, sales and operating revenue and net earnings. It is also continuously working closely to carry this winning momentum and has witnessed higher scale on the sequential basis, which is appreciable. Moreover, the company is delivering a substantial dividend yield of 3.469%, which is reasonable given the present macros.

Therefore, based on the above rationales and valuation, we recommend a "Hold" rating on the stock at the at the closing price of CAD 35.60 as on May 5, 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 May 05, 2022). Source: REFINITIV, Analysis by Kalkine Group

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

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.