Park Lawn Corp.
(PLC-T) C$33.02
Solid Start to 2022; M&A Outlook Remains Robust Event
PLC reported Q1/22 adjusted EBITDA of $21.4mm (up 11.8% y/y), in line with TD/ consensus of $21.4mm/$21.8mm, reflecting the net impact of slightly weaker-than- expected revenues, offset by stronger-than-expected EBITDA margins of 25.7% (TD: 24.7%, consensus: 26.5%).
Impact: NEUTRAL
In our view, Q1/22 was a solid result, with consolidated Q1/22 net revenue increasing 17.5% y/y to $83.2mm, driven almost entirely by acquisitions. Encouragingly, the decline in COVID-19-related deaths continues to have a less significant impact, consistent with management's previous commentary.
Organic growth was 0.6% in the quarter, which we view as impressive, considering the very strong comparative period in Q1/21 (21.4% organic growth). The results included a strong +7% increase in average revenue per call (price plus expanded service offering and desire of customers to engage in celebrations of life), offset by a modest 2% decline in comparable call volumes y/y, reflecting the impacts of fewer COVID-19-related deaths and a 13.4% y/y decrease in cemetery merchandise sales due to supply-chain challenges (6-8-month delivery time lag on monuments due to supply-chain headwinds). However, it is important to note that the decline in merchandise sales is purely a timing issue and not a deterioration in demand, as the sales were made but are not able to be recognized as revenue until product delivery. Management reiterated that pre-need sales activity remains strong and the headwinds from supply chain will roll off shortly as orders are delivered.
Looking forward, management provided an optimistic outlook for the rest of 2022, reiterating its expectations of flat organic growth y/y, reflecting the net impact of normalizing COVID-19-related deaths, offset by higher average revenue per call. In our view, it is possible that PLC's organic results will outperform management's guidance, given continued elevated deaths from non-COVID-19-related drivers currently (excluding the impacts of deferred medical treatments during COVID-19). On the M&A front, management reiterated that it continues to expect to deploy $75mm-$125mm on acquisitions this year, with a very full pipeline in the works currently.
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.