Park Lawn Corporation

Park Lawn Corporation (TSX: PLC) provides goods and services associated with the disposition and memorialization of remains in Canada and the United States. 

Key Highlights:

• Rising Aged Population to support future growth: The revenue generation of the company depends upon the ongoing death rate, and a rising aged population provides scope for higher funeral activities. Notably, as per the studies, population of aged people above 75 increased in the recent past across North America and is expected to grow in the coming years. The growing nuclear family, along with a decline of cultural traditions, has remained as the key tailwinds for a higher cremations rate.

• Consistent growth in profitability margin: Over the years, the group has evolved as a key player within the Death Care Industry. Moreover, the group has unlocked new sources of revenue for existing businesses and subsequently increased the useful life of Park Lawn’s existing portfolio, which has resulted in higher margin supported by increased scale and operating efficiencies. Notably, the company introduced services like new funeral and cemetery technology solution and also provided premium offerings like pre-need services etc, which has contributed to the company’s overall margins. Adjusted EBITDA margin continued to improve since FY16, which is encouraging.

Q1FY21 Financial Highlights:

• Q1FY21 net revenue stood at CAD 89.577 million, significantly higher than CAD 71.263 million in pcp. The growth of 25.7% on y-o-y basis was primarily due to elevated demand for at-need funeral and cemetery services and pre-need property sales. Additionally, strong sales growth from recent acquisitions made in FY20 also supported the topline.
• Earnings from operations stood higher at CAD 15.072 million, as compared to CAD 7.885 million in pcp.
• The company posted its net earnings of CAD 9.831 million, surged from CAD 0.806 million in Q1FY20.

Q1FY21 Income Statement Highlights (Source: Company Report)

Risks: The operations might be hindered due to any change in the rules and regulation, which might lead to a decline in the demand for the company’ services.

Stock Recommendation:

The North American Death industry offers ample scope for business expansion as the industry is highly fragmented in nature. Moreover, the group has enhanced its presence across dense population markets like Toronto, Denver, St. Louis, Nashville, Houston, New York/New Jersey etc. and also focused on several growth projects like remodeling of existing funeral homes, construction of new stand-alone funeral homes and construction of new funeral homes on cemeteries. Free cash flow from the operation stood at CAD 16.382 million in Q1FY21, significantly higher than CAD 9.452 million in Q1FY20. On the valuation front, the stock is available at an EV to Sales multiple of 3.1x on an NTM basis, as compared to the industry (Personal & Household Products & Services) mean of 5.2x. Hence, considering the above rationale, we recommend a ‘Hold’ rating on the stock at the last traded price of CAD 33.58 on June 15, 2021.

One-Year Technical Price Chart (as on June 15, 2021). Analysis by Kalkine Group

AirBoss of America Corp

AirBoss of America Corp (TSX: BOS) is a Canada based manufacturer of rubber-based products for the resource, military, automotive and industrial markets. The group is mainly operating in three segments: Rubber Compounding, Engineered Products and Automotive.

Key highlights

• Robust financial matrix:The Company is continuously showing a spirited performance across the revenues, gross profit, and EBITDA. In FY2020, it registered a growth of 52.7% in revenue, 183.3% in the Gross margin and 231.3% in EBITDA, respectively. AirBoss Defense Group – major healthcare contracts have been a game-changer for the company as it helped the company to post record numbers.

Source: Company

• Outlook for continued strong growth: Based on the strong outlook and healthy orderbook, the management reiterated full-year 2021 guidance, which includes revenues in the range of USD 630 to USD 710 million, representing growth of approximately 25% to 41%, an Adjusted EBITDA margin of 15.0% to 15.5%, and EPS of USD 1.80 to USD 2.19, representing growth of approximately 24%.
• Increase in dividend distribution: Despite the adverse situation, when most firms are restricting their dividend payout to maintain solid liquidity, the company boosted its dividend payout by 43% to CAD 0.10 per share from CAD 0.7. This demonstrates the group's financial strength.
• Strong financial position: On March 31, 2021, the Company's financial position remained robust, with a USD 150 million credit facility and a net debt to TTM EBITDA ratio of 0.01x. We believe it would allow the company to pursue organic and inorganic growth possibilities even more effectively. It can also manage its operations using internal resources, which is commendable.

Financial overview of Q1 2021

Source: Company

• In Q1 2021, the company’s consolidated net sales increased by 13.9% to USD 107.3 million compared to USD 94.1 million in Q1 2020. The increase in revenue was mainly due to the substantial completion of the HHS contract, supported by the continued integration of CSI into the AirBoss Defense Group segment.
• Operating income in the reported period increased to USD 9.7 million against USD 3.2 million in the previous corresponding period, based on high revenues and gross profit, partially offset by higher operating expenses.

• Total comprehensive profit in Q1 2021 stood at USD 6.3 million against USD 0.78 million in the previous corresponding period mainly due to higher operating profit and lower finance cost, although it registered higher income tax.
  

Risks associated with investment

The Company is exposed to a significant risk in commodity prices. Commodity price risk has the potential to adverse impact on its business, operations, and financial results. Other risk factors include economic conditions, dependence on key customers, cyclical trends in the tire & automotive and other vital industries, and sufficient availability of raw materials at economical costs. 

Valuation Methodology (Illustrative): EV to Sales

Stock recommendation

When compared to the same quarter in 2020, the company had a solid quarter, and is on track for continuing growth in the second half of 2021. Despite the fact that global difficulties are evolving at a quick pace, the firm has maintained its record year of change, solidifying its position in the PPE, health care, and survivability sectors. Furthermore, the business confirmed its expectation for full-year 2021, predicting solid revenue, adjusted EBITDA, and EPS growth based on the strong outlook and large orderbook. Therefore, based on the above rationale and valuation, we recommend a “Hold” rating on the stock at the closing price of CAD 35.85 as on June 15, 2021. We have considered Neo Performance Materials Inc, Algoma Central Corp, Chemtrade Logistics Income Fund, etc., as the peer group for the comparison.

One-Year Technical Price Chart (as on June 15, 2021). Analysis by Kalkine Group

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

Disclaimer

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