RBC Take on EarningsSuperior Plus Corp. Quick Take: Q4/23 results and 2024 guidance in line with expectations TSX: SPB | CAD 9.53 | Outperform | Price Target CAD 15.00 Sentiment: Neutral
Our take We believe the in-line Q4/23 results and largely in-line 2024 guidance, and other updates will have a neutral impact on the shares of Superior Plus. On the conference call (February 22 at 10:30 AM ET; click here to register), we expect investors to primarily focus on the Q4/23 performance of Certarus, management's 2024 guidance, and the organic growth opportunities and pace of investment into additional mobile storage units (MSUs).
Details Q4/23 results were in line. Superior Plus posted Q4/23 pro-forma Adjusted EBITDA of $214 million, which was largely in line with our estimate of $211 million and consensus of $213 million. On a segmented basis, Certarus recorded $47 million of EBITDA in Q4/23 (matching our estimate) and the legacy propane business recorded $180 million (+$1 million relative to our estimate). Please see Exhibit 1 for additional details.
2024 guidance is largely in line with consensus. Management is guiding to 2024 Adjusted EBITDA of $675 million (5% growth from the 2023 Pro Forma Adjusted EBITDA of $643 million), which was 3% lower than our 2024 estimate of $694 million and only 1% below consensus of $682 million. We note that the company used known mild weather for January 2024, and assumed that the rest of the year was consistent to the 5-year average. Some other key assumptions to management's guidance include 15-20% EBITDA growth at Certarus and 1-5% EBITDA growth at the legacy propane business, corporate operating costs of US$25 million, capital expenditures (including leases) of US$230 million, and an average MSU count of 790 trailers at the Certarus division (729 MSUs at the end of 2023).
Gradually targeting a more conservative balance sheet. The company is reducing its targeted Net Debt to Pro-Forma Trailing EBITDA to ~3.0x (from 3.5-4.0x) over the next several years. The leverage ratio was 3.8x at the end of 2023, and management expects it will reduce to ~3.6x at the end of 2024. Although we view this as a positive decision, we are not surprised given that after the senior management changes in 2023, the company shifted its focus to organic growth rather than M&A.
Additional management changes. The company indicated that the role of Chief Operating Officer (COO) for the propane distribution business has been eliminated and Andy Peyton, who fulfilled this role, has left the company.
Transitioning to U.S. dollar reporting. The company has decided to transition to U.S. dollar reporting since most of the business activities are denominated is U.S. dollars.