Parkland Corporation

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

• Change in management: Recently, the group announced an appointment of Marcel Teunissen as Chief Financial Officer, effective December 1, 2020. 

• Developing a growth strategy with two US acquisitions: Recently, the group has entered a series of transactions to acquire the assets of Story Distributing Company and its affiliates and Carter Oil Company, Inc. and its affiliates. On a combined basis, the acquisitions include 13 quality company retail sites with a robust non-fuel contribution, approximately 40 retail dealers, and commercial fuel and lubricant distribution capabilities. The acquisitions are expected to add annual fuel and petroleum product volume of roughly 275 million litres to the USA segment.

• Boosted capex plans: The management feels optimistic on its diversified & resilient business model and has raised its capital expenditure guidance, by CAD 50 million to CAD 325 million for 2020, supported by the strong cash flow generation.

Source: Company

• Maintaining Healthy Liquidity: As on September 30, 2020, the company had cash and cash equivalents worth CAD 356 million and Unused credit facilities of CAD 1.2 billion. The current liquidity position seems to be enough to meet the near-term requirements.

Source: Company

Financial Overview of Q3 2020

Source: Company

• In Q3 2020, the company reported revenue of CAD 3.5 billion, as compared to CAD 4.6 billion in the previous corresponding period, primarily due to volume declines because of lower product demand due to COVID-19 and lower oil and gas industry activity.

• Adjusted EBITDA stood at CAD 338 million, an increase of 12% in Q3 2020, compared to Q3 2019. Reasons behind the rise in Adjusted EBITDA were healthy cost controls, geographical diversification and the strong performance shown by convenience stores in Canada, achieving 10.7% same-store sales growth in the reported quarter.

• Net earnings reported by the company in Q3 2020 was CAD 91 million, an increase of CAD 65 million, as compared to CAD 26 million in the previous corresponding period. 

Risk associated with investment

The company is exposed to many risks, including general economic, market and business conditions, including the duration and impact of the Covid-19 pandemic; ability to execute its business strategies, industry capacity, competitive action by the other companies, refining and marketing margins, and the ability of suppliers to meet commitments.

Valuation Methodology (Illustrative): EV to EBITDA

Note: All forecasted figures and peers have been taken from Thomson Reuters

Stock Recommendation:

Despite COVID-19 restrictions and the closure of the tourism industry, which significantly impacted aviation and retail volumes, International's performance was sustained by geographical diversification, executing profitable supply initiatives, and implementing healthy cost controls. Recently the group acquired two U.S companies which would scale the group’s performance in retail segment as well as in oil & lubricants segment. The convenience stores in Canada have shown resilience by achieving 10.7% same-store sales growth in Q3 2020. The company is also focusing on expanding margins across its fuel and non-fuel categories, which is admirable. Therefore, based on the above rationale and valuation, we have given a "Hold" rating at the closing price of CAD 39.61 as on January 26, 2021. We have considered Canadian Tire Corporation Ltd, Alimentation Couche-Tard Inc, Metro Inc, etc. as the peer group for the comparison.

Source: Refinitiv (Thomson Reuters)

Tourmaline Oil Corp.

Tourmaline Oil Corp. (TSX: TOU) is a Canadian energy company engaged in natural gas and crude oil acquisition, exploration, development, and production in the Western Canada Sedimentary Basin. The company produces light and medium crude, natural gas liquids, and conventional and shale natural gas.

Key Updates:

• Strong Bullish Indicator: The recent upsurge in crude oil prices has resulted in improved investor’s sentiments and oil stocks made an impressive recovery. The stock closed above the long-term support levels of 100-days, 150-days and 200-days simple moving average (SMA), indicating a bullish price trend.
• Impressive Sequential Performance: The performance of the group was impacted due to the weak sectoral scenario on account of lower crude oil prices. However, in Q3FY20, the company reported a recovery in demand and reported an increase in the revenue and operating income to CAD 472.9 million and CAD 18.2 million, respectively, as compared to CAD 342.5 million and CAD 12.9 million, respectively in Q2FY20. We expect the same trend to persist in the coming days driven by higher demand dynamics and improved commodity prices.
• Issuance of Senior Unsecured Notes: Recently, the group confirmed its issued CAD 250 million, with an interest rate of 2.077% per annum. As per the management guidance, the net proceeds will be used to repay the company’s debt component and for general corporate purposes.

Q3FY20 Financial Highlights:

• TOU announced its quarterly results, wherein the group reported total revenue of CAD 472.891 million, slightly higher than CAD 462.276 million in the previous corresponding period (pcp). The increase was due to a higher income from commodity sales from production, partially offset by a loss on risk management activities amounting CAD 38.180 million versus a profit of CAD 78.688 million in pcp. Moreover, unrealized loss on financial instruments stood at CAD 58.843 million versus an unrealized gain of CAD 14.117 million in Q3FY19.
• Total expenses stood at CAD 454.642 million, higher than CAD 422.455 million in pcp. The increase was majorly attributable to higher transportation costs (CAD 125.114 million versus CAD 102.173 million in Q3FY19) and a higher operating cost (CAD 89.370 million versus CAD 82.904 million in pcp.), partially offset by lower depletion, depreciation, amortization and impairment expense (CAD 209.588 million versus CAD 212.177 million in pcp.)
• Income from operations stood at CAD 18.249 million, lower than CAD 39.821 million in pcp.
• The group reported a net income of CAD 3.753 million versus CAD 15.691 million in Q3FY19.
• The company reported cash and cash equivalents of CAD 14.801 million, while total assets stood at CAD 11,246.517 million.

Q3FY20 Income Statement Highlights (Source: Company Reports)

Risks: The group’s performance is correlated with the prices of oil & gas. Volatility in oil & gas prices or change in demand dynamics would affect the group’s performance.

Valuation Methodology (Illustrative): Price to CF based

Note: All forecasted figures and peers have been taken from Thomson Reuters

Stock Recommendation:

The group is one of the largest natural gas producers in Canada and has the lowest capital cost operator in the basin. This is beneficial for the group’s margin. For FY21, the group expects a cash flow of CAD 2 billion. The group expects its production for FY21 at 400,000 boe/day and E&P Capital Program of CAD 1,100 million. 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 ARC Resources Ltd, Prairiesky Royalty Ltd and Parex Resources Inc etc. Considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock at the closing market price of CAD 19.07 on January 26, 2021.

TOU Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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.