Park Lawn Corporation
Planting flowers: Solid Q4 results, 2026 EBITDA target consistent with forecast, above consensus
Our view: PLC exited 2021 on solid footing, adjusted EBITDA for the year $96 MM, a blade of grass away from the $100 MM 2022 target, consistent with our investment thesis. As of 2022 PLC is moving to USD reporting, and today provided a 5-year target to double EBITDA to US$150 MM, implying 5-year EBITDA CAGR of 15%, supported by annual acquisition activity of US $75-125 MM. EBITDA target is consistent with the long-term view we laid out in our 2020 initiation, supported by annual M&A at the lower end of the range. Price target to $53 (+$3).
Key points:
2026 targets and high level commentary around cadence of M&A should drive consensus upward: The new 2026 EBITDA target of US$150 MM is largely consistent with our modeling but looking at the range of forecasts for 2022 and 2023 suggests that the analyst community had adopted varying approaches around M&A. Those (like us) who have modeled M&A into forecasts have substantially higher expectations than those who model M&A as announcements are made. Range of EBITDA forecasts for 2023 is C$113 MM - $154 MM, with consensus at C$130 MM. Assuming that today's disclosure results in more consistent modeling methodology, we would expect consensus to move upward toward the upper end.
Given actual results/commentary, forecasts essentially unchanged; potential upside if PLC annual run rate on M&A is toward the middle/ higher end of the annual US$75-125 MM level. Our forecasts had already incorporated M&A of US$105-$110 MM in 2022 to reflect the Q3/21 C $148.5 MM equity offering, moderating thereafter to average $75-80 MM. Assuming PLC can continue to do M&A at the targeted average of 6-8x LTM EBITDA on larger transactions, there is arguably upside to forecasts if cadence is closer to mid-point or upper end of the range.
Q4 highlights: Consolidated revenue +10% in line with forecast, revenues from comparable operations better than expected at +0.7%, margins in line. Total revenue essentially in line at $99.5 MM, +10% YtY/+39.6% on a 2- year stacked basis, 8% driven by M&A, and solid SSS +0.7% ex-FX, -2.5% as reported. Adjusted EBITDA $25.2 MM +4% Y/Y, +31.6% on a 2-year stacked basis. EBITDA margin 25.3% close to forecast 25.9%. EPS $0.37 in line with RBC forecast, $0.03/share above consensus.
Strong balance sheet to fund growth: At Q4/21 PLC leverage ratio of 0.98x/1.78x including debentures, with $110 MM outstanding on the $300 MM credit facility, undrawn balance of $190 MM to fund M&A.
Reiterating Outperform rating, tweaking target to $53 on updated B/S, roll-forward. PLC valuation remains compelling, in our view, with shares trading at 11.5x our C22E EBITDA, one turn below the industry average and SCI and at the low end of the five-year range, notwithstanding stronger FCF, B/S and earnings. Key catalysts for valuation re-rating likely, in our view: i) upward revision to consensus, ii) more substantive M&A announcements. PLC is included on the RBC CM Small Cap Conviction List