Park Lawn Corp.
(PLC-T) C$33.91
Solid Q4/21 to Close Out Impressive Year; Robust New 5-year Plan Event
Q4/21 adjusted EBITDA of $25.2mm (up 4.0% y/y), was in line with our estimate/ consensus of $25.0mm/$25.5mm. Both margins and revenues were in line. The company also provided in-line 2022 guidance and a new five-year aspirational growth target.
Impact: SLIGHTLY POSITIVE
Consolidated Q4/21 net revenue increased 10.1% y/y to $99.5mm (0.7% organic, -3.2% FX and 12.6% M&A). Organic growth was above our estimate of -2.0%, with the y/y decline in COVID-19-related deaths more than offset by higher average revenue per call (+9% given relaxed social distancing and expanded services) and continued strong pre-need sales. The adjusted EBITDA margin of 25.3% was effectively in line with our estimate of 25.5%.
Guidance: Management expects to modestly exceed its 2018 aspirational target of $100mm of EBITDA by the end of 2022, before considering any further acquisitions. Beyond this, PLC is targeting US$150mm of EBITDA in 2026 and adjusted net earnings exceeding US$2.00/share (implies ~15% and >11% CAGRs basis 2021, respectively). Management anticipates that M&A will drive the bulk of near- term growth, with organic growth tempered while lapping the elevated COVID-19 comparables. However, thereafter organic growth is expected to re-accelerate alongside demographic trends (i.e., aging baby boom generation), as well as from market share wins and an expanded service offering. Additionally, possible upside exists if the current elevated non-COVID-19-related death rates continue, potentially mitigating any pull-forward impacts from COVID-19.
With leverage at 1.8x ND/EBITDA (~1.0x excluding debentures), we view PLC as well-positioned to embark on its 2026 target. Management indicated that, theoretically, it believes it could fund the growth internally, assuming a smooth/ measured cadence of acquisitions (anticipate deploying $75mm-$125mm annually). However, the timing of acquisitions is highly unpredictable, and if multiple desirable targets become available simultaneously, then PLC may need to consider some form of additional liquidity. Additionally, we anticipate that leverage may trend towards 3.0x-3.5x over the course of the five-year plan, bringing PLC towards the lower end of its public peers.
TD Investment Conclusion
We continue to view PLC as a high-quality company in a recession-resistant business with a favourable industry backdrop (including long-term demographic tailwinds) and ample opportunities/capacity to grow through M&A.