Write Up of Today's Analyst Actions Inside the Market’s roundup of some of today’s key analyst actions
Following the release of “solid” fourth-quarter 2022 financial results, appointment of a new CEO and seeing early contributions from recently acquired Certarus Ltd. trending ahead of forecast, iA Capital Markets analyst Matthew Weekes raised his recommendation for Superior Plus Corp. (
) to “buy” from “hold” on Tuesday.
“SPB offers investors (a) a low-beta propane distribution business, with the leading position in Canada and the fourth-largest market share in the U.S.; (b) the acquisition of Certarus at an attractive forward multiple, diversifying SPB’s business, providing a parallel platform for organic growth, and reducing overall seasonality; (c) an improved balance sheet outlook with pro forma Debt/EBITDA expected to be within SPB’s target range post acquiring Certarus; (d) solid cash flow with an 11-per-cent 2023 estimated AFFO [adjusted funds from operations] yield; and (e) a sustainable dividend yield of nearly 7 per cent (60-65-per-cent AFFO payout ratio),” he said. “Based on these factors, we are upgrading our rating to Buy despite our more conservative estimates.
“While SPB’s propane business is sensitive to weather and we expect unseasonably warm Q1 weather to weigh on 2023 results, we believe the outlook on a pro forma, normalized basis is solid.”
On Friday, shares of the Toronto-based company rose 1.5 per cent after it reported adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $183-million, a record for the fourth quarter and ahead of both Mr. Weekes’s $162-million forecast and the consensus estimate on the Street of $171-million. Adjusted operating cash flow of 66 cents per share also topped the analyst’s estimate (57 cents).
He attributed the beat, in large part, to the benefits from acquisitions, particularly the $1.05-billion deal for Certarus, a Calgary-based compressed natural gas, renewable natural gas and hydrogen distributor, which he said is “trending well.”
“Certarus achieved record monthly Adj. EBITDA in both December 2022 and January 2023,” said Mr. Weekes. “Pro forma Certarus adjusted EBITDA of $140-150-million compares to 2022 estimated adjusted EBITDA of $124-million disclosed at the announcement of the acquisition and implies a purchase multiple of 7.5 times or lower.”
Superior also announced the appointment of Allan MacDonald as President and CEO effective in April. He was most recently VP and COO at Canadian Tire Corp. Ltd.
“The Chair of SPB’s Board conveyed confidence in Allan’s ability to strengthen SPB by focusing on internal growth, operational improvements, and accretive tuck-ins,” the analyst said.
While he trimmed his forecast after the company’s 2023 guidance fell below his expectations, including a “cautious outlook” on first-quarter weather, Mr. Weekes maintained a $12 target for Superior Plus shares. The average on the Street is $12.73, according to Refinitiv data.
Elsewhere, ATB Capital Markets’ Nate Heywood cut his target to $12 from $12.50 with a “sector perform” rating.
“Looking to 2023 we continue to expect the U.S. propane division to benefit from recent M&A and the associated synergy realization; however, warmer weather in Q1/23 to date, seasonally the strongest quarter, remains a modest headwind for 2023,” said Mr. Heywood. “Management is currently guiding to 2023 Adjusted EBITDA of $585-million-$635-million, including a full year contribution from Certarus. We have estimated 2023 EBITDA of $557-million, to include a contribution from Certarus after the acquisition’s close (estimated mid-Q2/23). Overall, our thesis for SPB remains unchanged following the recent transformative Certarus announcement as we expect M&A to slow near-term for SPB to focus on balance sheet maintenance, modest organic growth opportunities, and synergy.”