Parkland Corp T.PKI

RBC Raise Target

[retiredcf]

Their upside scenario target is $60.00. GLTA

November 15, 2023

Outperform

TSX: PKI; CAD 44.42

Price Target CAD 54.00 ↑ 53.00

Parkland Corp
2023 Investor Day – Continued Discipline

Our view: We attended Parkland's 2023 investor day in Toronto where management outlined an updated 5-year outlook, key strategic priorities, and a prescriptive capital allocation framework. In our view, the team did a good job underscoring historical execution, the benefits of an integrated and nimble supply network, and continued tailwinds from years of investment in key geographies. While we expect a near-term focus on leverage reduction, management re-opened the door for M&A, which likely remains a key facet of the long-term business model.

Key points:

• Five-year plan underscores continued focus on capital discipline. Management expects a ~6% CAGR in adjusted EBITDA (3-5% historical target), reaching $2.5B by 2028. This is underpinned by continued synergy capture and tailwinds from several years of prior investment across the platform. With respect to M&A, management noted a willingness to pursue accretive opportunities over time, driving potential upside to $3B in EBITDA by 2028 (Exhibit 1).

• Capital allocation focused on leverage reduction and enhanced shareholder returns. Parkland outlined a disciplined capital allocation framework with 25%/25%/50% of ‘available cash flow’ ($6B through to 2028) split across shareholder returns/organic growth/deleveraging to the low-end of 2-3x target by 2025. We forecast D/EBITDA ratios of 3.0x/2.6x/2.3x in 2023E/24E/25E, broadly in-line with management’s targets. Parkland’s return of capital program is supported by the base dividend (C$1.36/share) and NCIB, through which management intends to return $1.5B to shareholders between 2024-2028.

• Customer advantage central to corporate strategy. Parkland remains focused on providing a strong customer experience centered on convenience, quality food offerings, rewards and loyalty benefits, along with frictionless interactions. Continued investment into proprietary brands and site rebranding/conversions continues to support organic growth. The company also continues to build out its EV network in BC and is on track to reach 50 active sites by 2024.

• Supply advantage positions Parkland as a leader in key markets. Management outlined the company’s unique supply advantage in servicing four key geographies (Exhibit 5); the common traits of each being that they are illiquid and difficult to supply, allowing Parkland to capture incremental value through its integrated supply network. The company owns and operators a mix of trucks, rail cars, vessels, pipelines, and storage facilities to source fuels and distribute to end-users in an efficient manner that is not easily replicated.

• Reiterating Outperform rating. Despite strong relative performance, we believe Parkland offers a favourable risk-reward profile, particularly in the context of the updated outlook. We maintain our Outperform rating and bump our target to $54/share, mapping to 7.4x/7.0x 2024E/25E EBITDA; Parkland currently trade at 6.8x/6.5x 2024E/25E EBITDA, in-line with diversified peers (Exhibit 9).