ATB Upgrades/ Desjardins Bumps - G&MIn response to a first-quarter earnings beat and guidance raise, ATB Capital Markets analyst Nate Heywood upgraded Superior Plus Corp. (SPB-T +5.06%increase
) to “outperform” from “sector perform,” citing the expectation of increased cash flows from recently acquired Certarus and calling its near-term focus on asset integration and organic opportunities “an appropriate strategy in the defensive environment.”
Shares of Toronto-based Superior Plus jumped 5.1 per cent on Wednesday after it reported quarterly adjusted earnings before interest, taxes, depreciation and amortization of $272-million, up 9 per cent year-over-year and above the expectations of both Mr. Heywood ($258-million) and the Street ($263-million). Earnings per share slid 5 cents year-over-year to 63 cents but also topped estimates (55 cents and 54 cents, respectively).
With the “strong” results, it increased its 2023 EBITDA guidance to a range $620-million to $660-million from $585-million to $635-million. It also raised its expectations for Certarus.
“SPB has meaningfully expanded both its U.S. and low carbon fuel exposure with the announced acquisition of Certarus,” he said. “As the Company realizes incremental contributions from the expected near-term close and integration of Certarus, SPB has established a platform for diversified growth through both compressed natural gas and hydrogen deliveries. We expect the near-term focus will remain on organic growth, balance sheet maintenance and synergy realization. In the long-term, we expect that the higher interest rate environment will favour larger propane distributors like SPB, which could open the door for the future resumption of the tuck-in acquisitions of smaller market participants.
Pointing to “the strong performance and supportive outlook for the Certarus business,” Mr. Heywood modestly increased his estimates, leading him to raise his target for Superior Plus shares by $1 to $13. The average is $13.20.
Elsewhere, Desjardins Securities’ Gary Ho raised his target to $13.50 from $13 with a “buy” rating.
“Our investment thesis is predicated on: (1) SPB is a leading energy distribution consolidator with recession-resistant attributes; (2) Certarus acquisition reduces seasonality and adds a growth angle; (3) its proven M&A playbook; and (4) attractive 7-per-cent dividend yield,” he said.