Park Lawn Corporation
Monuments Men: Q1/22 Results solid and in line, reiterating constructive view
Our view: PLC delivered solid results despite tough prior year comps and dilutive impact of Q3/21 equity raise on per share metrics. Results are a good beginning to achieving PLC's 5-year target of doubling EBITDA to US$150 MM, implying 5-year EBITDA CAGR of 15%, supported by annual acquisition activity of US$75-125 MM. With the broad sell-off in high- growth, high-multiple SMID cap names, we view current valuation for this M&A driven defensive story to be highly compelling. Reiterating OP rating, $54 price target.
Key points:
Solid start to F22. Revenue +17.5% to $83 MM driven primarily by M&A. Stable SSS +0.6% reflecting +7% average revenue per call, offset by -2% call volumes due to normalizing death rates, and lower cemetery sales reflecting in part lengthening lead times of merchandise in transit. Adjusted EBITDA $21.4 MM (+11%), 25.7% of sales close to forecast 26.0%. EPS $0.32 stable to prior year, moderated by dilution of Q3/21 equity raise of $148.5 MM, the bulk of which has yet to be deployed in M&A. YTD PLC has completed one acquisition, has agreement on a second.
Expect pace of M&A to pick up as we move through 2022. M&A of US$75- $125 MM annually targeting high growth markets is a key component of 2026 aspirational EBITDA target US$150 MM disclosed in conjunction with Q4 results. Organic drivers likely back end loaded and include: i) operational improvements, ii) efficiencies of proprietary software, and iii) development opportunities at existing properties.
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 incorporate M&A of US$105 MM in 2022 to reflect the Q3/21 equity offering, based on cadence YTD a portion could likely shift to 2023. 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.
Strong balance sheet to fund growth: At Q1/22 PLC leverage ratio of 0.87x/1.69x including debentures, with $87 MM outstanding on the C$300 MM credit facility, undrawn balance of $153 MM to fund potential M&A and cash on hand of $31 MM.
Reiterating Outperform rating, target unchanged. PLC valuation looks even more compelling with broad based sell-off in SMID cap growth names, with shares trading at 11.3x our C22E EBITDA, about half a 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) flow of funds, ii) more substantive M&A announcements. PLC is included on the RBC CM Small Cap Conviction List.