Park Lawn Corporation
Picking daisies: PLC Q4 22 results solid and in line, remains committed to targets
Our view: Although normalizing death rates continue to weigh on Y/Y performance, PLC Q4/22 results, in line with forecast, point to stable results on which to build in F23 and beyond. As we move past the 2020-2022 COVID distortions and PLC executes on its M&A strategy, the company should move towards its 5-year target of doubling EBITDA to US$150 MM/ EPS $2.00+, supported by annual M&A of US$75-125 MM, implying 5-year EBITDA CAGR of 15%. Reiterating OP rating, PT unchanged at $41.
Key points:
Flower buds: Q4 showed a flower stem of sequential improvement in organic performance and a sustained step-up in M&A activity during and post-quarter, reinforcing our view of PLC as a stable, defensive name with above-average (largely) self-funding M&A driven growth. Adjusted Q4 EBITDA $19.8 MM (RBC CM: $19.4 MM), adjusted EPS $0.24 (RBC CM: $0.24), both a blade of grass above consensus. Notably despite the challenging 2020-22 period, PLC exceeded its PF CAD$100 MM EBITDA target by year-end 2022. Based on 2022 results and cadence of M&A, PLC is building a strong base as it pursues its 5-year EBITDA target US$150 MM.
Q4 revenue growth +9% driven by M&A, with comparable operations -2% Y/Y. Revenue per call in comparable operations and call volumes both down modestly Y/Y due to lower death rates as we lap COVID peaks, offset by higher pre-need property sales as PLC moved quickly to address Q2 softness. Detailed results in exhibit 1, conference call 9:30 am ET, (888) 506-0062, Conf ID: 934271. Expect key discussion items to be: i) anticipated cadence of normalization of at-need sales, ii) current pre-need sales and initiatives to drive higher sustained levels, iii) update on M&A pipeline.
Pace of M&A accelerated in H2, as expected: In 2022 PLC closed 11 acquisitions, 6 in Q4. 2022 M&A $94 MM, close to mid-point of $75-$125 MM/year target. PLC targeting high growth markets for this key component of 2026 aspirational EBITDA target $150 MM.
Forecasts largely unchanged, potential upside if annual M&A is toward the middle/higher end of the annual $75-125 MM level. Assuming PLC can continue to do M&A at the targeted average of 6-8x LTM EBITDA on larger transactions, there is arguably upside to forecasts if cadence is closer to mid-point or upper end of the range. PLC well positioned to fund growth with Q4 EBITDA leverage 1.83x/2.59x including debentures, undrawn balance of $88.1 MM on C$300 MM credit facility and cash on hand of $30 MM.
Return to more favourable growth and more substantive M&A key to re-rating, in our view. Shares trading > 1 st. dev. below 5-year average (Ex. 8) despite stronger FCF, B/S, earnings. PLC on the RBC CM Small Cap Conviction List.