Parkland Corporation

Parkland Corporation (TSX: PKI) distributes and markets fuels and lubricants, which are delivered to motorists, businesses, consumers, and wholesalers in the United States and Canada.

Key Highlights:

• An Income Play: The group has an excellent record of consistent dividend payment, backed by stable cash flows. The stock carries a dividend yield of ~3.4%, which looks attractive considering the ongoing interest rate scenario.
  

Five years dividend distribution, Source: REFINITIV, Analysis by Kalkine Group

• Improved liquidity: The company reported improved liquidity, wherein it reported a quick ratio and current ratio of 0.92x and 1.39x, respectively, in Q2FY21, higher than the industry median of 0.81x and 0.98x, respectively.
• Strong growth in key financial metrics: In the recent past, the group reported strong growth in its major financial metrics. The group reported sales and operating revenue of CAD 9,254 million in H1FY21, higher than CAD 7,007 million in pcp. Adjusted EBITDA jumped to CAD 636 million in H1FY21 from CAD 382 million in pcp. Distributable cash flow also climbed to CAD 769 million in H1FY21, from CAD 364 million in pcp.

Q2FY21 Financial Highlights:

• PKI announced its quarterly result, wherein the company posted sales and operating revenue of CAD 5,021 million, jumped from CAD 2,691 million in the previous corresponding period (pcp).
• Adjusted EBITDA soared to CAD 322 million, significantly higher than CAD 191 million in pcp, supported by elevated top-line, partially offset by an increase in the cost of purchases, operating costs and marketing, general and administrative etc.
• The group reported a net loss of CAD 50 million, as compared to a net gain of CAD 31 million in Q2FY20, due to an increase in total expenses.

Q2FY21 Income Statement Highlights (Source: Company Report)

Risks: The income and the cash flows are related to demand and price of crude oil. Hence, volatility in the crude prices would dampen the overall performance.

Valuation Methodology (illustrative): Price to Cash Flow

Stock Recommendation:

The company reported strong momentum from its Supply segment, wherein Adjusted EBITDA stood at CAD 290 million in H1FY21, considerably higher than CAD 77 million in pcp, supported by increased crude utilization and bio-feedstock throughput. Moreover, the above segment witnessed strong margins within its integrated logistics business driven by the partial rebound in volumes in the second quarter of FY21, which is noteworthy. We have valued the stock using the P/CF-based relative valuation method and have arrived at a single-digit (in percentage terms) upside. Considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock at the closing price of CAD 35.92 on October 04, 2021.

One-Year Technical Price Chart (as on October 04, 2021). Source: REFINITIV, Analysis by Kalkine Group

Taiga Building Products Ltd.

Taiga Building Products Ltd (TSX: TBL) is a Canadian based company which is engaged in the production and wholesale distribution of building products. The company’s products range includes composite decking, engineered wood, flooring, insulation, lumber, moduling, panels, polyethylene, preserved wood, roofing, and siding.

Key Highlights:

• Sequentially improved margins: The company reported improved profitability margins, as compared to the previous quarter, which indicate better operational efficiency on q-o-q basis. Notably, gross margin and EBITDA margin stood at 18.8% and 10.8%, respectively in Q2FY21, higher than 16.9% and 8.4%, respectively, reported in Q1FY21.
• Improved financial metrics: For H1FY21, the company posted sales of CAD 1,322.7 million, significantly higher than CAD 677.2 million in pcp. The above was primarily supported by strong export demand coupled with favorable commodity prices. EBITDA jumped to CAD 129.597 million from H1FY21, from CAD 37.005 million in pcp. The group also reported a tremendous surge in net earnings of CAD 87.644 million in H1FY21, as compared to CAD 19.761 million in pcp.
• Bullish Industry outlook: The company’s operation is directly co-related to the housing market within the North America. In Canada, housing starts are forecasted within the range from 221,100 to 230,000 units in the CY21, which is higher than 217,802 starts in CY20. Additionally, housing market in U.S. is also expected to remain positive in 2021, wherein housing starts are forecasted at 1,643,000 units in CY21, higher than 1,380,000 units in the previous calendar year.

Q2FY21 Financial Highlights:

• TBL announces its quarterly resulted, wherein the company posted sales of CAD 786.732 million, jumped from CAD 356.894 million in the previous corresponding period (pcp). The increase was primarily due to improved commodity prices for the building material on account of a surge in housing construction during the period.
• Gross margin stood significantly higher at CAD 147.903 million, versus CAD 42.741 million in Q2FY20, thanks to elevated revenue, while a higher cost of sales (CAD 638.829 million v/s CAD 314.153 million in Q2FY20) remained a drag.
• The quarter was marked by increase in distribution cost (CAD 6.820 million v/s CAD 6.238 million pcp) and an elevated selling and administration expense (CAD 58.938 million v/s CAD 18.384 million in pcp), coupled with a surge in finance expense.
• Net earnings for the period stood at CAD 58.468 million, as compared to CAD 13.148 million in pcp.

Q2FY21 Income Statement Highlights (Source: Company Report)

Risks: The company reported significantly higher selling and administrative expenses during the quarter, which is a reason for concern and continuation of the above trend would dampen the company’s profitability.

Stock Recommendation:

The company posted encouraging performance in both Q1FY21, and H1FY21, supported by a direct result of the increased demand for detached housing, record high commodity prices and low borrowing rates experienced during the pandemic. We expect the above momentum to continue in the coming quarters, which would further support the company’s performance. On the valuation front, the stock is available at a price to earnings multiples of 2.0x on TTM basis, as compared to the industry (Paper & Forest products) average of 6.0x. Considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock at the closing price of CAD 2.58 on October 4, 2021.

One-Year Technical Price Chart (as on October 04, 2021). Source: REFINITIV, Analysis by Kalkine Group

*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.