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

• An Income Play: The group continues with a healthy track record of dividend distribution. The company announced a monthly dividend of CAD 0.06 per unit payable on 15th January 2021, with a record date of 31st December 2020, which equates to an annual distribution of CAD 0.72 per unit. The stock offers a dividend yield of 5.9%, which is lucrative, considering the current interest rate environment.

• Bullish stance of the management: The Group's 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 reaffirmed the guidance regarding forecasted adjusted EBITDA, which is likely to be in a range of CAD 475 million to CAD 515 million for FY 2020.

• Curtailing Debts:The Group's top priorities remain free cash flow generation and debt reduction. As on September 30, 2020, the Company's total debt stood at CAD 1,849.0 million, a decrease of CAD 107.1 million as compared to December 31, 2019.

Financial overview of Q3 2020 (Amount In millions of CAD)

Source: Company

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

• In Q3 2020, Gross profit decreased by 15%, to CAD 166.3 million, 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 against a net loss of CAD 59.3 million in the previous corresponding period. The company managed to decrease the net loss with an unrealized gain on derivative financial instruments and lower operating expenses.

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 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 December 2020, to remain within a range of 3.0x – 3.5x. Based on a few acquisitions made by the Company in recent times and 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 is a positive factor. Moreover, the stock offers a dividend yield of 5.9%, which is lucrative amid a low-interest-rate environment. Therefore, based on the above rationale and valuation, we recommend a 'Hold' rating at the closing price of CAD 12.18 on December 31, 2020. We have considered Superior Plus Corp, Parkland Corp, ARC Resources Ltd etc. as the comparison's peer group.

1-Year Price Chart (as on December 31^st, 2020). Source: Refinitiv (Thomson Reuters)

Brookfield Renewable Partners L.P. 

Brookfield Renewable Partners L.P. (TSX: BEP.UN) is a renewable power generating company, which owns a portfolio of renewable power generating facilities, situated across North America, Latin America, and Europe. The company operates renewable power generating assets, which include conventional hydroelectric facilities and wind facilities located in North America, Latin America, and Europe.

Key Updates:

• Consistent Dividend Pay-out: The company has consistently distributed dividend, which indicates business resiliency and stable cash flow generation and is a key positive. From 2000 to 2020, the company reported a 6% CAGR in dividend, which is commendable. At the last closing price, the stock was offering a dividend yield of ~2.76%.
• Acquisition of 360 megawatts of solar generation: Recently, the company announced the acquisition of Exelon Generation Company which has distributed generation development platform comprising 360 megawatts of operating distributed solar across nearly 600 sites within the US coupled with an addition of 700 megawatts of projects under development. Currently, with the above acquisition, the company has more than 2,000 megawatt portfolio with stable recurring revenue and a diversified customer- base.

Q3FY20 Financial Highlights:

• UN announced its quarterly results, wherein the company reported revenue of USD 867 million, as compared to USD 897 million in the previous corresponding period (pcp). Long-term average generation stood at 13,446 Gwh, higher than 12,332 Gwh in Q3FY19.
• The quarter was marked by lower direct costs, a slightly lower interest expense, while an increase in management service costs, depreciation and other costs remained a drag.
• The company reported a net loss of USD 119 million, as compared to a net loss of USD 18 million in Q3FY19.
• The company reported cash and cash equivalent of USD 482 million, while total assets were reported at USD 44,123 million.

Q3FY20 Income Statement Highlights (Source: Company Reports)

Risks: The company is exposed to various market risks in the ordinary course of operations that could impact its earnings and cash flows. Some important risk factors include lower demand, lower production, adverse weather conditions etc. There is also a risk that its contract counterparties could fail to meet their obligations.

Stock Recommendation:

The business model falls under the utility category and is immune to economic cycles. The group has solid liquidity of more than USD 3.3 billion, and do not have any maturities in the next five years, which is a key positive. The company reported higher funds from operations of USD 606 million for 9MFY20, compared to USD 590 million, a year ago. As the entire world is focusing on cleaner fuel generation, we believe the group has the upper hand as it consists of high-quality assets within the category. 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. Hence, considering the aforesaid facts, and price levels, we recommend a ‘Hold’ rating on the stock at the closing price of CAD 54.95 on December 31, 2020.

BEP.UN 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.