TD and RBCboth reduced their 'targets' BY .50 after release of the y/e report.
TD Newcrest
Parkland Income Fund
(PKI.UN-T) C$12.40
Q4 Below Expectations / Announces Conversion Plans
Event
Parkland Income Fund (“PKI”) reported Q4/09 EBITDA of $13.7mm vs. our
estimate of $24.6mm and consensus of $19.4mm. The payout ratio during the
quarter was 102% vs. 90% in Q4/08 (76% in F2009 vs. 91% in F2008). PKI
acquired privately held Bluewave Energy for $214.0mm in Q4/09 which
represents ~6.3x trailing normalized EBITDA of $34.0mm or closer to 5.5x
including $5.0mm in expected synergies. The company also confirmed it will
convert to a corporation by January 2011 with an expected dividend of 75-
110% of the current $1.26/unit distribution level. The company stated that on
a proforma taxable basis for F2009 (including Bluewave), they could have
comfortably paid the annual distribution of $1.26/unit.
Impact - NEGATIVE
We are reducing our price target to $12.50 (from $13.00) while maintaining
our HOLD recommendation on the units. We are fine tuning our F2010
estimates while introducing our new F2011 estimates.
Details
Fuel Marketing Segment
PKI’s aggregate fuel volumes rose 10% to 728mm litres in Q4/09 from
664mm litres in Q4/08 primarily driven by acquisitions over the past year.
Total retail fuel increased to 223mm litres in Q4/09 vs. 197mm litres in
Q4/08. Diesel demand was weak throughout F2009 with refiners’ margins for
both gasoline and diesel falling from Q1/09 levels. Total net sales and
operating revenue was up 3% to $542.4mm in Q4/09 vs. $524.4mm in Q4/08
with fuel marketing revenues increasing 6% and commercial sales decreasing
6% yoy. The rise in fuel marketing revenues was due to a 9% increase in fuel
volumes partially offset by a 3% drop in pricing yoy. Parkland’s participation
in refiners’ margins resulted in a decline of approximately $18.9mm yoy. In
addition, PKI received a non-recurring contract cancellation fee of $5.0mm in
Q4/08 that was not received this quarter.
RBC
Parkland Income Fund (TSX: PKI.UN)
Q4/09 Results; Pump Primed for Corporate Conversion
Sector Perform
Average Risk
Price: 12.40
Units O/S (MM): 51.4
Distribution: 1.26
BVPS: 4.07
Float (MM): 33.3
Institutional Ownership: 33%
Price Target: 13.00 ¯ 13.50
Implied All-In Return: 15%
Market Cap (MM): 637
Yield: 10.2%
P/BVPS: 3.0x
Avg. Daily Volume (MM): 0.12
Event
Parkland reported year-end results.
Q4/09 Results
• Parkland reported Q4/09 EBITDA of $13.7 million, -45% from Q4/08 and
-31% to our estimate of $20 million. The sharp reduction from Q4/08 reflected
the absence of a one-time contract cancellation payment received in Q4/08 and
lower average fuel margins (
.054/litre versus
.063/litre), which were
partially offset by acquisition-related growth in fuel volumes.
• Lower fuel margins reflected weakness in refiners margins, which has
continued through Q1 (see Exhibit 2). Retail margins were solid, as expected,
and have continued their stable trend into this quarter. Volumes in the
commercial segment have been weaker than expected due to economic
conditions and warm weather on the West Coast (heating oil).
Conversion Plans
• PKI intends to convert to a corporation no later than January 2011.
Management expects that on conversion it will pay a dividend between 75%
and 110% of the current annualized distribution of $1.26/unit, and expects to
continue its growth through acquisition strategy. The door has been left open to
an earlier conversion should an acquisition arise that would require equity in
excess of PKI's remaining Safe Harbour limit of $62 million.
• We remain comfortable with our dividend per share estimate of $1.08 for
2011, representing a 14% cut from the current distribution rate.
Investment Opinion
• We maintain our Sector Perform rating and have trimmed our target to $13
(down
.50) to reflect the lower than expected results in the commercial
segment and continued weakness in refining margins through the early part of
2010.
• We continue to view PKI as a well run business with a strong competitive
position in its gasoline retailing operation (due to its non-urban focus) and a
solid balance sheet. A decline in the unit price, sustained recovery in the
commercial segment, or improvement in refiners margins would cause us to
become more bullish on the units