Globe article Three high-quality companies with growth prospects to watch in 2018
Monday, February 26, 2018
JENNIFER DOWTY
During this time of market volatility, price stability is highly prized by nervous investors. Holding a portfolio of quality stocks - those delivering solid financial results and led by proven management teams - can provide downside protection.
Leon Aghazarian, special situations analyst from National Bank Financial, stresses the importance of owning high-quality companies. In a recent conversation with The Globe and Mail, he discussed three such companies he believes will deliver attractive returns in 2018.
Park Lawn Corp. is your final stock recommendation. What is your investment thesis?
It's the only publicly traded provider of cemetery, cremation and funeral services on the Toronto Stock Exchange. They have been quite acquisitive in the U.S., I don't expect that to stop. Management had a goal to triple EBITDA to $25-million by the end of 2019, that was set out three years ago. My expectation is that they are going to comfortably achieve that.
Approximately 80 per cent of their revenues are from cemeteries and about 20 per cent are from funeral homes. Cemeteries have the highest barriers to entry. They expect to see cemetery organic growth in the high single-digits and, for funeral homes, organic growth of 1 [per cent] to 2 per cent, so over all, you get mid-tohigh single-digit organic growth, plus M&A that they are working on. I think there is a tremendous amount of growth and potential in this company and it should be on everyone's radar.
Can they fund this growth?
Their balance sheet is something that is noteworthy - it's debt-free.
There is no debt despite all these acquisitions, they have raised equity.
Your target price is $25. How do you arrive there?
We get to the number by applying 11 times 2019 EV/EBITDA. The publicly traded peers [trade] around 12.1 times, and they are not growing nearly as fast.
Any closing remarks, Leon?
These are three quality names that aren't necessarily on the inexpensive side, but I do think that they all have their merits in terms of growth and I do feel that each one of them has good opportunities in 2018.
This interview has been edited and condensed.
Globe Unlimited subscribers can read an extended version at tgam.ca/inside-the-market.
STELLA-JONES (SJ) CLOSE: $48.20, UP 3¢ PREMIUM BRANDS (PBH) CLOSE: $104.57, UP 63¢ PARK LAWN (PLC) CLOSE: $23.03, UP 13¢
