New Rating!!!!! GLTALongs TD Summary notesEvent
Last night, Parkland announced an agreement to acquire 156 Husky-branded retail locations from Cenovus Energy for $156mm. The deal increases our 2022E/2023E adjusted EBITDA estimates by ~1%/2%. Our DCPU estimates increase to reflect the acquisition, as well as adjusting our forecasts to conform with management's presentation of DCPU.
Note that Q4/21E EBITDA does not yet reflect the impact of the ongoing Trans Mountain Pipeline shutdown or implications from the emerging Omicron variant. Impact: SLIGHTLY POSITIVE
Parkland states that the $156mm purchase price reflects a post-synergy multiple of ~5x, implying post-synergy EBITDA of ~$31mm (~2% of Parkland's adjusted EBITDA). We expect this type of retail acquisition — i.e., assets in geographies where PKI has existing supply advantage, allowing it to get meaningful immediate synergies — to generate synergies near the top of its 30-50% target, implying a pre-acquisition EBITDA of ~$21mm (~7.5x multiple).
The acquisition offsets a portion of Parkland's growth capex tied to new-to-industry sites, though maintenance capex should rise a little and we assume that capex will be required to convert a significant number of the company-owned sites to ON the RUN, accelerating Parkland's plan to reach over 1,000 by 2025. Consequently, our total capex assumptions decline only modestly.
Parkland is acquiring 109 company-owned sites and 47 dealer locations (adding ~400 million litres in total) in Greater Vancouver, Vancouver Island, Calgary, and the GTA, filling in white space in these markets.
The deal is expected to close in mid-2022 and requires Competition Bureau approval, though typically companies are mindful of overlap when splitting assets in a joint bid. So although we expect minimal required divestitures, PKI may choose to prune weaker locations and/or sell some with high real-estate values.TD Investment Conclusion Management has delivered/exceeded on earnings and announced several strategic acquisitions, yet valuation keeps falling (now 7.0x NTM EBITDA vs. ~8.4x long-term average). With expectations of 13% EBITDA growth and a 9% FCF yield in 2022, as well as the more respectable ESG strategy now in place, we struggle to explain the share-price weakness and expect meaningful upside in 2022.
Target Price $53.00