Superior Plus Corp.

Superior Plus Corp. (TSX: SPB) is a Canada-based corporation, which operates mainly Energy Distribution business. The Company's Energy Distribution segment provides distribution, wholesale procurement, and related services concerning propane, heating oil and other refined fuels.

Key highlights

• Divested speciality chemical business: Recently, the company announced the sale of its speciality chemical business to Birch Hill Equity Partners for total consideration of CAD 725 million. It represents the final step in Superior’s long‐term portfolio transformation into a pure‐play energy distribution company. We believe that this transaction would improve its financial flexibility and allow it to pursue growth through energy distribution acquisitions.

• An Income Play: The group continues with a healthy track record of dividend distribution. The company announced its cash dividend for March 2021 of CAD 0.06 per share payable on April 15, 2021, with a record date of March 30, 2021, which equates to an annual distribution of CAD 0.72 per unit. Moreover, the stock offers a dividend yield of 5.1%, which is lucrative for long-term investors, considering the current interest rate environment.

Source: Refinitiv (Thomson Reuters)

• Guidance on adjusted EBITDA: The management is positive on the performance and expects to demonstrate resiliency, as they remain focused on creating sustainable earnings growth for the future. The company gave guidance on Adjusted EBITDA, which is likely to be in a range of CAD 370 million to CAD 410 million for FY 2021.

• Reducing Debt: The Group's top priorities remain free cash flow generation and debt reduction. As of December 31, 2020, the Company's total debt stood at CAD 1,850.6 million, a decrease of CAD 105.5 million from December 31 2019. Moreover, the company wants to strengthen the balance sheet using proceeds from the sale to reduce debt.

Financial Overview of FY2020

• The company's revenues for FY 2020 stood at CAD 2,394.3 million, a decrease of CAD 458.6 million or 16% from the previous year due to lower revenue in the Canadian Propane Distribution (20% YoY) and the U.S. Propane Distribution (12% YoY) due to lower sales volume and prices.
• The company reported a gross profit of CAD 1,105.7 million, a decrease of CAD 107.3 million or 9% from CAD 1,213.0 million in 2019, primarily due to lower Canadian Propane and Specialty Chemicals gross profit partially offset by higher U.S. Propane gross profit.
• EBT stood at CAD 158.7 million, against CAD 167.6 million in the previous corresponding period despite lower SG&A and finance expenses.
• The company reported a net income of CAD 86.8 million, against CAD 142.6 million in FY2019. The lower net income was primarily due to lower EBT and higher income tax.

Risks associated with investment

The company is exposed to many risk factors that alone or cumulatively can affect its operations and financial health. Some of the risks include the lower demand for crude oil and natural gas, lower production, inflation, interest rates, fluctuations in foreign currency and exchange rates etc. 

Valuation Methodology (Illustrative): Price to Cash Flow

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

Stock recommendation

The Company recently divested its speciality chemical business for total consideration of CAD 725 million as they want to portray themselves as a pure‐play energy distribution company. It also brought down its debt level and the company is further planning to bring its total debt to adjusted EBITDA within a range of 3.0x – 3.5x for FY2021. Based on a few acquisitions made by the Company in recent times and organic growth, the group expects to generate an Adjusted EBITDA in a range of CAD370 - 410 million for the full year 2021. Furthermore, the stock is offering a lucrative dividend yield amid a low-interest-rate environment. Therefore, based on the above rationale and valuation, we suggest 'Hold' recommendation on the stock at the closing price of CAD 14.06 on March 25, 2021. We have considered Parkland Corp, Inter Pipeline Ltd, CES Energy Solutions Corp etc. as the peer group for comparison.

1-Year Price Chart (as on March 25, 2021). Source: Refinitiv (Thomson Reuters)

Absolute Software Corp

Absolute Software Corp (TSX: ABST) is engaged in the development, marketing, and provision of cloud-based endpoint visibility and control platform that provides management and security of computing devices. ABST caters to Education, Healthcare, Government, Professional and Financial services industries. The company primarily derives revenue from two sources i.e., subscription and support revenues.

Key highlights

• Sequential growth in operating matrix: Despite the 2020 turmoil, the company maintained its pace and witnessed the spirited performance across its annual recurring revenue, revenue and adjusted EBITDA. The Company is continuously working closely with customers; thus, its presence is increasing along volume, which is appreciable. 

Source: Company

• Higher guidance on FY2021: The management highlighted strong revenue growth and expects it to be in a range of USD 117-119 million, an increase by 12-14% from 2020. The above guidance looks promising. Furthermore, it expects the adjusted EBITDA margin in between 22-24%.

Source: Company

• Growth strategy: The group believes that due to increased remote working and distance learning, the demand for the security and management of computing devices, applications, and data has been increased. As the company does not want to be solely reliant on network-based security, it expands its focus on securing the actual endpoint devices. As a result, the company sees an opportunity for further growth across North America and in other global regions in each enterprise, government, and education verticals.

• Strong balance sheet: The company is having a strong balance sheet with no debt and sufficient liquidity to support its business objectives in the fiscal year. Liquidity was further bolstered by USD 64 million on October 30, 2020, with the completion of a public offering of common shares. On December 31, 2020, its cash & cash equivalents and short-term investments stood at USD 132.0 million, compared to USD 47.1 million at June 30, 2020.

Financial overview of Q2 2021 (In USD)

Source: Company

• In Q2 2021, the company posted higher revenues at USD 29.8 million, against USD 25.8 million in the previous corresponding period. The rise was represented by a 16% increase in recurring revenue while non-recurring professional services and other revenue remain constant.
• On the back of higher operating expenses, the company posted a lower operating income of USD 3.0 million in Q2 2021, against USD 3.9 million in the previous corresponding period.
• The company reported a net income of USD 2.4 million, against USD 2.7 million in pcp. Higher foreign exchange losses dragged the net income, although it got support from lower-income tax and unrealized gain on derivatives.

Risks associated with investment

The Company is exposed to risks of varying degrees of significance, affecting its ability to achieve its strategic objectives for growth. There is a significant risk of technological changes. Other risks are also there, such as the Company’s business strategy, evolving industry standards, intense competition, Currency fluctuations etc.

Valuation Methodology (Illustrative): EV to Sales

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

Stock recommendation

The company posted strong Q2 2021 numbers, which reflects an increased demand for the Absolute Resilience platform. The group is continuously working closely with customers; thus, its presence increases along volume and registered sequential growth in the operating matrix, which is commendable. We expect that the company’s ARR would continue to provide revenue stability, profitability, and cash flow. Moreover, the management has shared its guidance on FY2021 revenue, which is expected to increase by 12-14% from 2020 levels. The company is increasing their focus on securing the actual endpoint devices, which is a large addressable market. Therefore, based on the above rationale and valuation, we recommend a “Hold” rating at the closing price of CAD 17.30 on March 25, 2021. We have considered Kinaxis Inc, Open Text Corp, Enghouse Systems Ltd. as the peer group for the comparison.

1-Year Price Chart (as on March 25, 2021). 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.