TD's Notes
This morning, SPB announced that the previously announced acquisition of Freeman
Gas has now closed.
Alongside this, management has updated its full year 2021
guidance to include the contribution from Freeman.
Impact: NEUTRAL
2021 guidance increased ~3% for Freeman acquisition close:
Superior has increased its 2021 adjusted EBITDA guidance by ~3% (at the
midpoint) to a range of $380mm to $420mm ($370mm to $410mm previously)
reflecting the expected contribution from Freeman for the remainder of the year.
The midpoint of the new guidance is approximately 4% below the current
consensus of $416mm and TD at $414mm. We note that 2021 consensus includes
a wide-range of estimates from $404mm to $429mm, which we believe reflects
varying degrees of unannounced acquisition modelling by analysts.
Although the mid-point of guidance is a touch light compared with TD
and consensus, we expect limited share price response as investors are
focused on 2022 when much of the acquisition synergies from Freeman will
be realized. Furthermore, we anticipate SPB could complete several more tuckunder acquisitions between now and year-end, and based on the wide range of
estimates in consensus, we believe several analysts are baking those in already.
Recall, at the investor day in May, SPB management had downplayed the extent
of the contribution from Freeman in 2021 and the possible guidance upside,
reflecting the seasonality in the business and the fact that little to no synergies
would be realized until 2022 on the acquisition.
Freeman acquisition summary (see full discussion here): Freeman Gas,
founded in 1936, is an independent, family owned/operated retail distributor with
23 branch offices, 38 bulk plants and ~7mm gallons of storage capacity across
Georgia, North Carolina, South Carolina, and Tennessee. SPB acquired Freeman
at a valuation of ~9.7x (7.7x post synergies). Freeman is expected to generate
pro forma run-rate EBITDA of ~C$28mm (US$22mm) including synergies. The
synergy opportunity is expected to be at least 25% of the adjusted EBITDA of the
assets acquired, but will take ~24 months to be realized following the close of the
acquisition. We note that SPB has a history of realizing synergies above guidance.