Superior Plus Corp

Superior Plus Corp (TSX: SPB) is a diversified business corporation, incorporated under the Canada Business Corporations Act. The operates in two businesses, i.e., Specialty Chemicals and Energy Distribution. Its Energy Distribution operating segment provides distribution, wholesale procurement and related services in relation to propane, heating oil and other refined fuels. Its Specialty Chemicals operating segment is a supplier of sodium chlorate and technology to the pulp and paper industries and a regional supplier of potassium and chloralkali products.

Key Highlights:

• The company announced that it had acquired the assets of a retail propane and heating oil distribution company based in New Hampshire, operating under the tradename, Rymes Propane and Oil at a price consideration of ~USD 159 million.
• The company declared a monthly cash dividend of CAD 0.06 per common share, payable on October 15, 2020.

Q2FY20 Financial Highlights: SPB announced its quarterly results, wherein the company posted revenue of CAD 450.8 million as compared to CAD 545.8 million in the previous corresponding period (pcp). Gross profit stood at CAD 219.8 million compared to CAD 223.7 million in pcp. EBITDA from the operations stood higher at CAD 76.9 million, reflecting an 8% increase from the previous corresponding quarter, primarily due to improved results from the US and Canadian Propane distribution, partially offset by lower results from Specialty Chemicals segment. The company reported corporate operating and administrative costs at CAD 7.0 million, reporting a decrease of CAD 1.5 million, primarily due to lower discretionary spending and cost reductions related to COVID-19 and lower long-term incentive plan costs. Net earnings, during the second quarter improved significantly to  CAD 7.5 million, as compared to a net loss of CAD 29.3 million in Q2FY19.

Q2FY20 Financial Highlights (Source: Company Reports)

Risks: Any change in the regulations and government policies could affect the overall business of the Company.

Valuation Methodology: Price to CF Based (Illustrative)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The stock of SPB corrected ~6% so far this year. The Management highlighted that FY20 Adjusted EBITDA is likely to remain at par with the previous guidance range of CAD 475 million to CAD 515 million and expects it to be at the lower end of the range. Average weather, an important indicator for Energy production, is expected to remain consistent with the five-year average for Canada and the US for the rest of FY20. The company has reduced debt from the proceeds received from the Brookfield Investment. The company further expects its total debt to Adjusted EBITDA, at the end of December 31, 2020, to remain within the range of 3.0x to 3.5x, from the earlier guidance of 3.6x to 4.0x, which is impressive. Further, the current acquisition of Rymes Propane and Oil is likely to improve the company’s business prospects. The stock soared ~77% in the last six months, as the global equities made a ‘V’ shape recovery. Further, at the last traded price, the stock was offering a dividend yield of ~6.07%, which is lucrative considering the current interest rate environment. We have valued the stock using the Price to CF based relative valuation approach and arrived at a target price, which suggests a single-digit upside potential (in % terms). For the said purpose, we have considered peers like Parkland Corp, Suburban Propane Partners LP and Clean Energy Fuels Corp etc. Hence, we recommend a ‘Hold’ rating on the stock at the closing market price of CAD 11.86 on September 24, 2020.

SPB Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Innergex Renewable Energy Inc

Innergex Renewable Energy Inc (TSX: INE) is a renewable power producer based out of Canada. The group is engaged in the business of developing, acquiring, owning and operating solar farms, wind farms and hydroelectric facilities. The group have operations in Canada, United States, Chile and France.

Recently, the company announced the signing of two 25-year power purchase agreements, which would provide a fixed price with the Hawaiian Electric Company, Inc. for the electricity to be produced at the Barbers Point and Kahana solar and battery energy storage projects.

Q2FY20 Financial Highlights: INE announced its second-quarter results, wherein the company posted higher revenue of CAD 150.513 million, against CAD 144.693 million in the previous corresponding period (pcp). The increase in revenues was mainly driven by the commissioning of the Foard City wind farm and the Phoebe solar facility coupled with higher revenues from the Quebec wind facilities. Further, the business was supported by the acquisition of the Salvador solar farm in Chile. However, the above positives were partly offset by lower revenues from the hydro facilities in British Columbia on account of the production curtailment imposed by BC Hydro. The group reported a higher electricity generation of 2,185,793 MWh, as compared to 1,741,953 MWh in the previous corresponding period (pcp). Adjusted EBITDA stood at CAD 105.336 million, as compared to CAD 144.693 million in Q2FY19. The company’s adjusted EBITDA margin decreased from 72.7% to 70.0% due mainly to a lower margin from the recently commissioned projects coupled with a higher general and administrative expenses. Net loss from the continuing operations stood at CAD 1.566 million, as compared to a net loss of CAD 10.453 million in pcp.

Q2FY20 Income Statement Highlights (Source: Company Reports)

Key Risks: The business might witness setbacks from a change in Government regulations which might dampen the company’s overall performance.

Valuation Methodology: EV to EBITDA Based (Illustrative)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The business has reported decent performance in the recent past, and the stock soared ~46% and ~49% in the last six-months and one-year, respectively. The company is engaged in the electricity-generation business, and the business is immune to the business cycles, as it comes under the essentials. The company has reported improved performance both in terms of top-line and bottom-line, which is impressive. Recent agreements from Hawaiian Electric Company, Inc. is likely to provide improved business prospects to the company. The Group is focusing on expanding its operations in the other markets and is developing 6,871 MW projects, which is impressive. The stock carries a healthy dividend yield of ~3.11% on an annualized basis, which looks decent, considering the current interest rate scenario. The stock of INE closed above the 200-days simple moving average of CAD 19.66, indicating a bullish trend. We have valued the stock using the EV to EBITDA based relative valuation approach and arrived at a target price, which suggests a single-digit upside potential (in % terms). For the said purpose, we have considered peers like Boralex Inc, Algonquin Power & Utilities Corp and Brookfield Renewable Partners LP etc. Hence, considering the above factors, we recommend a ‘Hold’ rating on the stock of INE at the current closing price of CAD 23.05, as on September 24, 2020.

INE Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Disclaimer

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