On The Road With PKI
Our Conclusion
We had the opportunity to host PKI for a day of marketing and with us from
the company were Bob Espey (President & CEO), Marcel Teunissen (CFO),
Dirk Lever (VP Capital Markets), Valerie Roberts (Director, Investor
Relations) and Matthew Atwood (Senior Analyst, Investor Relations). With
the company having recently hosted its Investor Day, management
reinforced many of the key themes it laid out during its presentation (please
refer to our note with our key takeaways from the Investor Day). Below we
summarize the highlights from our group lunch.
Key Points
Capital Discipline – Avoiding Long-cycle Capex: PKI looks for quick
paybacks and mid-teen % IRRs (unlevered) from its investments and
acquisitions. As the energy industry is in the midst of a transition, the
question PKI is often asked is why not make large investments accelerating
the transition in its portfolio (i.e., rapidly expand its EV network, pursue
renewable diesel production). It is clear that PKI looks to remain disciplined
and conservative in its capital deployment and prefers to avoid long-cycle
capex projects. We view this as a prudent strategy. PKI has shown
propensity to test out new services and operating models to ensure it is
creating the right mouse trap. This strategy also aligns with PKI’s shift to
running a more conservative balance sheet with the goal of moving its
leverage ratio to the low-2x range by 2025.
For opportunities that will pay off over a longer time horizon, PKI looks to find
partners to help de-risk these investments. For example, PKI announced that
it has secured up to $210MM of financing from Canada Infrastructure Bank
(CIB) to support the continued multi-year growth of its EV charging network.
CIB noted its financing agreement with PKI paves the way for up to 2,000
public fast charging ports to come online across Canada. CIB has provided
an 18-year financing facility including principal repayments which are tied to
utilization of the installed EV chargers. CIB will fund up to 80% of capital
deployed to install the chargers over four years. PKI has created a specific
project finance entity for this CIB financing, which is non-recourse to the
company.
Larger Platform Can Drive Additional Cost Savings: PKI is implementing
a new ERP systems as it looks to homogenize its tech stack. Given the
number of acquisitions it has done over the past decade, there are multiple
technology platforms across its enterprise. This new system will help drive
improved information flow, which will provide better insight into the customer
and help improve operational efficiency. PKI has a target of $100MM in
MG&A savings. Looking at it simplistically, PKI sells ~28B L of fuel today and
if it can extract an incremental penny per L, that is creates significant value