Park Lawn Corp T.PLC

Consumer Cyclical Personal Services

Park Lawn Corporation is engaged in providing goods and services associated with the disposition and memorialization of human remains. The Company and its subsidiaries own and operate businesses, including cemeteries, crematoria, funeral homes, chapels, planning offices and a transfer service. Its primary products and services are cemetery lots, crypts, niches, monuments, caskets, urns and other merchandise, funeral services, after-life celebration services and cremation services. Its products and services are sold on a pre-planned basis or at the time of death. It has one stand-alone funeral home located in Durham, North Carolina; one stand-alone funeral home and one on-site funeral home and cemetery located in Abingdon, Virginia; eight stand-alone funeral homes, two stand-alone cemeteries and one on-site funeral home and cemetery located in and around the Savannah, Tennessee area; three stand-alone funeral homes located in Brampton, Woodbridge and Toronto, Ontario and more.

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Park Lawn Corp

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Post by retiredcfon Aug 09, 2022 9:04am

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Post# 34881028

RBC

Their upside scenario target is $66.00. GLTA

August 8, 2022

Outperform

TSX: PLC; CAD 31.90

Price Target CAD 50.00 ↓ 54.00

Park Lawn Corporation

Watering the lawn: Reiterating constructive view ahead of Q2

Our view: Forecasting EBITDA $21.8MM (+17% Y/Y), slightly above consensus $21.0MM (range $19.0-$22.4MM) when PLC reports Q2 on August 11. While Q-to-Q visibility is muddled by the ebb and flow of regional death rates and cadence of M&A, we reiterate our favourable long-term view and recommend investors benchmark valuation against broader attributes, namely: i) defensive, relatively inelastic demand, ii) demonstrated resilience through downturns, iii) demographic tailwind, and iv) industry fragmentation with succession challenges. Reiterating OP rating, PT to $50 (-$4) on multiple tweak.

Key points:

Tweaking Q2 estimates, long-term outlook unchanged and predicated on acceleration of M&A in H2. Assumptions underlying our Q2E include -2% SSS normalizing from +13.1% prior year and reflecting lower volume partly offset by higher revenue per call and pricing. Modest EBITDA margin pressure ~30 bps Y/Y to 25.5% reflects high fixed cost nature of the business.

Forecasts reflect the Farris and Shackelford acquisitions (~US$4.6 MM annual EBITDA) scheduled to close in Q3, and the opening of Westminster Funeral, Visitation and Reception Centre in Toronto that could provide a bump to SSS reflecting previously contracted revenue stream.
Our forecasts incorporate M&A of US$105-$110 MM in 2022, moderating thereafter to average US$65-75 MM to deliver just over US $150 MM EBITDA in 2026. 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. Efficiencies from FaCTS proprietary software could drive modest upward bias to profitability and eventually a new revenue vector if deployed to third parties

Rolling valuation basis forward to Q2/F24 (June 2024) to reflect the passage of time, moderating target multiple from 14.5x to 13.5x EBITDA to reflect the impact of higher long-term rates on valuations, price target to $50 (-$4). Target multiple revision implies 10% discount rate on 2031 valuation, up 50bps. Stock currently trading at ~17.5X NTM consensus EPS, almost two standard deviations below the five-year average (Ex. 4), and at the low-end of the range relative to SCI, staples and discretionary indices (Ex. 5). In our view, moderating valuation reflects: i) flow of funds against the backdrop of rising rates, inflation and related impact on consumer spending, ii) recent pace of M&A, and iii) muddled visibility as death rates normalize. More substantive M&A announcements could be a key catalysts for valuation re-rating, in our view. PLC-hosted investor day and site tour on September 29 could be a catalyst for the stock. PLC is included on the RBC CM Small Cap Conviction List.