Canaccord
Consumer & Retail -- Consumer Products
ANNOUNCES TWO TUCK-IN ACQUISITIONS
Investment recommendation
We are reiterating our BUY rating and C$20.50 target price following the announcement of two tuck-in acquisitions.
Investment highlights
? Parkland announced the acquisition of Sparling's Propane on Tuesday morning. Sparling's is the second largest distributor of propane in Ontario, distributing roughly 120 million litres annually. We estimate that the company generates approximate annual EBITDA of $5 million. While the terms of the transaction were not disclosed, we believe Parkland was comfortable paying at the high end of its 3-5x EBITDA transaction multiple range given the synergy potential available with its recent Elbow River Marketing acquisition.
? Parkland also announced that it has assumed the assets and supply agreements of TMCI, and reached an agreement to be the fuel supplier to Morgan Stanley within Quebec, in a transaction which adds 500 million litres of low margin fuel volumes. We estimate that the EBITDA contribution of these assets is less than $1 million. However, importantly, TMCI represents Parkland's first step into Quebec, and the company's assets should allow for more rapid growth in Quebec by Parkland than was previously attainable. Therefore, while the estimated financial impact of this transaction appears relatively immaterial, it does provide a strong strategic benefit and potential for healthy expansion within Quebec.
Parkland Income Fund is the largest independent fuel
and related products distributor in Canada, supplying fuel
and related products to both retail and commercial
markets, while focusing on non-urban locations. The Valuation company operates retail service stations and
convenience stores throughout western Canada and
Ontario, and serves commercial customers throughout
Canada.
Our 12-month C$20.50 target price represents 8.8x our 2013E EBITDA of $215 million. We believe Parkland's ability to execute on its acquisition targets will reward investors. Furthermore, recent cost cutting initiatives have begun to yield meaningful results, and we expect greater clarity on future initiatives at the company's upcoming Investor Day on April 15.