Park Lawn Corporation
Spring flowers: Q1/23 results in line, reiterating constructive outlook
Our view: Q1/23 results in line with forecast/consensus and reflect normalizing death rates. As we move past the 2020–23 COVID distortions and PLC executes on its M&A strategy, the company should move toward 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 Outperform rating and $41 price target.
Key points:
Timing is everything: Q1 results negatively impacted by Omicron-related increase in death rates Q1/22, offset by benefits of M&A. Adjusted Q1 EBITDA $20.5 MM (RBCe: $20.1 MM) -4.1%, adjusted EPS $0.25 (RBCe: $0.25) -22.4%. As we move through 2023 and past the demand distortions of 2020–22, and as PLC reaps the benefits of FaCTS, executes on M&A, and surfaces benefits of scaling, the company is well positioned as it moves toward its 2026 EBITDA target of US$150 MM.
Q1 revenue growth +4.3% driven by M&A, with comparable operations -5.6% Y/Y, ahead of forecast -7%. As expected, call volumes down Y/Y (-11.3%) due to lower death rates as we lap COVID peaks, but revenue per call +1.5%. As expected, sales from cemetery operations down Y/Y due to timing/chunky nature of pre-need sales. Detailed results in Exhibit 1; conference call at 9:30AM ET on May 12; dial-in (888) 506-0062, ID 462890. 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; and iii) update on M&A pipeline.
Steadily pursuing M&A. YTD in 2023, PLC has closed two acquisitions of well-respected operators, building on the 11 acquisitions closed in 2022 for total consideration $94 MM, close to midpoint of $75–125 MM/year target. PLC targeting high-growth markets for this key component of 2026 aspirational EBITDA target of $150 MM.
Forecasts largely unchanged, potential upside if annual M&A is toward the middle/higher end of annual $75–125 MM level. Assuming PLC can continue to do compelling M&A at multiples in line with historical ranges, there should be upside to forecasts relative to our assumptions. PLC well positioned to fund growth with Q1 EBITDA leverage 1.95x/2.74x including debentures, undrawn balance of $127.6 MM on $300 MM credit facility; during Q1, entered into interest rate swaps to fix rates at 3.9–4.52% vs. effective 5.6% for Q1.
Potential catalysts to re-rating: i) normalization of organic growth; ii) more substantive M&A; iii) improving investor sentiment around small- cap, M&A-driven growth names. Shares trading > 1 st. dev. below 5-year average despite stronger FCF, B/S, earnings. PLC on the RBC CM Small Cap Conviction List.