Superior Plus Corp.

Superior Plus Corp. (TSX: SPB) is a Canada-based diversified business corporation which operates two separate businesses: Energy Distribution and Specialty Chemicals. The Company's Energy Distribution operating segment provides distribution, wholesale procurement, and related services concerning propane, heating oil and other refined fuels. The Specialty Chemicals segment is a supplier of sodium chlorate and technology to the pulp and paper industry.

Key highlights

• Focusing on inorganic growth: In October, the company acquired Central Coast Propane and Petro Home Services for a total consideration of CDN 16.8 million and CAD 8.1 million, respectively. The group paid the purchase price primarily with cash from its credit facility.

• Reaffirmed guidance: The management is positive on the performance and expects to continueto demonstrate resiliency and remain focused on creating sustainable earnings growth for the future. The company reaffirmed the guidance regarding forecasted Adjusted EBITDA, which is likely to be in a range of CAD 475 million to CAD 515 million for the full year 2020.

• Focus on debt reduction: The group’s top priorities remain free cash flow generation and debt reduction. The company’s Total Debt as of 30^th September 2020, was CAD 1,849.0 million, a decrease of CAD 107.1 million from 31^st December 2019.

Financial overview of Q3 2020

Source: Company

• In Q3 2020, the company posted revenue of CAD 399.4 million, down 11% as compared to CAD 450.1 million in the previous corresponding period, as the company generated lower revenues from all operating segments.

• In Q3 2020, Gross profit decreased by 15% to CAD 166.3 million, as compared to CAD 195.0 million in Q3 2019, primarily due to low generation of gross profit from Canadian Propane and Specialty Chemicals based on lower sales volumes and weaker market fundamentals, partially offset by slightly higher U.S. Propane gross profit.

• The company posted a net loss of CAD 21.4 million, in Q3 2020, as against a net loss of CAD 59.3 million in the previous corresponding period due to an unrealized gain on derivative financial instruments and lower operating expenses.

Risks associated with investment

The company is exposed to many risk factors which alone or in a cumulative manner can affect the company’s 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 brought down its debt level with the help of procced received from Brookfield Investments. The company further expects its Total Debt to Adjusted EBITDA, at the end of 31st Dec 2020, to remain within a range of 3.0x – 3.5x. Based on a few acquisitions made by the company in recent times along with organic growth, the group also expects to generate an Adjusted EBITDA in a range of CAD 475 million to CAD 515 million for the full year 2020.

The company declared a monthly dividend of CAD 0.06 per share, payable on 15th Dec 2020. Moreover, at the last traded price, the stock was offering a dividend yield of 6.32%, which is lucrative amid the low-interest-rate environment.

Therefore, based on the above rationale and valuation, we have given a ‘Hold’ rating at the closing price of CAD 11.39 on November 19, 2020. We have considered Superior Plus Corp, Parkland Corp, and ARC Resources Ltd etc. as the peer group for the comparison.

Daily technical chart. Source: Refinitiv (Thomson Reuters) 

GDI Integrated Facility Services Inc

GDI Integrated Facility Services Inc (TSX: GDI) is engaged in providing commercial facility services. The company's operating segments include janitorial services, technical services, and complimentary services. The janitorial services segment provides a range of daily or weekly commercial cleaning services that include cleaning and dusting desks and tables, vacuuming carpets, cleaning floors, sanitizing kitchens and washrooms etc. Technical services segment provides building system controls, repairs and services across Canada and the United States. 

Key highlights

• Cleaning and disinfection will become a healthy practice: We feel that disinfection and cleaning service will not be limited until this COVID-19 pandemic spread. The clients will start taking these services regularly, and many more will fall in this category. It will boost the business of the company as they are the most prominent player having all the technical know-how and expertise of this segment.

• Increase in Net cash flows: In Q3 2020, the company generated CAD 30.6 million of net cash flows by operating activities, compared to CAD 2.3 million in Q3 2019, an increase of CAD 28.3 million.

• Reducing long term debt: The company managed to bring down the long‐term debt by CAD 52.1 million from CAD 241.2 million on June 30, 2020, to CAD 189.1 million on September 30, 2020, mainly based on the conversion of convertible debentures for a total amount of CAD 25.7 million, as well as higher debt repayments made from the increase in cash flow. 

Financial overview of Q3 2020 (In thousands of Canadian dollars, except for earnings per share)

Source: Company

• In Q3 2020, the company reported revenue of CAD 365.4 million, an increase of CAD 42.5 million, or 13.1%, over CAD 322.8 million in the previous corresponding period. Organic revenue declined by only 1.1%, offset by revenue growth coming primarily from the acquisitions.
• The company reported Adjusted EBITDA of CAD 30.2 million, an increase of CAD 10.0 million, or 49.3%, compared to CAD 20.2 million in Q3 2019, due to additional incremental services performed at a higher margin rate than recurring janitorial services.
• In the reported quarter, the Net income was CAD 13.2 million or CAD 0.59 per share compared to net income of CAD 4.1 million or CAD 0.19 per share in Q3 2019. 

Segment information

For the third quarter of 2020 and 2019, the business segments performance is as follows:

Risk associated with investments

Due to the COVID‐19 pandemic, the second quarter of 2020 was extremely challenging for commercial real estate. The company’s business segments were affected differently based on both region and market sector. The risk persists as there can be a shortage of workforce performing these services. Other risks include the decline in commercial real estate occupancy levels, deterioration in general economic conditions, increase in competition, increase in costs which cannot be passed to customers etc.

Valuation (Illustrative): Price to Earnings

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

Stock recommendation

While several Janitorial Canada’s clients were operating facilities at lower than average capacity levels, many clients required higher frequency cleaning, disinfection services and additional services due to the COVID‐ 19 pandemic. We expect that as long as the COVID‐19 virus remains as a risk, the clients of the company will require enhanced support; therefore, the Janitorial business segments will continue to perform well.

Therefore, based on the above rationale and valuation, we have given a ‘Hold’ rating at the closing price of CAD 41.23 on November 19, 2020. We have considered Boyd Group Services Inc, Park Lawn Corp, Winpak Ltd etc. as the peer group for the comparison.

Daily Technical Chart. Source: Refinitiv (Thomson Reuters)

Disclaimer

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