Superior Plus Corp T.SPB

Scotia comments on results

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Q2 Miss; Certarus Margins Slip; Warm Weather Challenges Continue

OUR TAKE: Negative. Q2 EBITDA of $43M missed the Street by 18%, largely off volume weakness. First, While SPB continues to acquire MSUs for Certarus, margins were under pressure from increased competition in some markets. Second, unseasonably warm weather continues to impact propane demand both in Canada and the US. Despite this, SPB delivered stronger-than-expected margins, given success passing on cost inflation to customers. Third, leverage was unchanged at 3.8x. SPB intends to bring this down by ~0.2x in ‘24, towards a long-term target of ~3.0x. Fourth, management reiterated its ‘24 guide, and still expects to see EBITDA grow by 5% y/y, given organic growth, a return to average weather, and progress on SPB’s cost-saving initiatives. Model adjustments and conference call highlights to follow.

Q2 Highlights

• Certarus. EBITDA of $27M was driven by delivery of 7,012 mmbtu (~83% of volume was sold in the U.S.). On a per MSU basis, Certarus generated ~$35k/unit, down from ~$68k/unit in Q1, although there is some seasonality. Certarus saw increased competition in West Texas, though noted that Q4/Q1 should see seasonal demand pick up. Certarus added 17 units during the quarter, bringing the total MSU count to 770. SPB now expects to end the year with about 780 MSUs.
  • SPB recently appointed Natasha Cherednichenko to CEO of Certarus. She had previously been COO since ‘20. Prior to Certarus, she spent 20+ years in operational and functional leadership roles in the energy industry, including a 16-year career with Schlumberger.
• Canadian Propane. EBITDA of $11M was up 4% y/y, despite volume slightly down 4% y/y. Volume was light, driven by warmer-than-expected temperatures (+9% warmer than the 5-Yr avg.). As a reminder, Q2/Q3 see lower seasonal demand for propane. Margins improved sequentially, as SPB continues to benefit from inflationary price increases.
• U.S. Propane. EBITDA of $10M was down nearly 30% y/y, given weather-related volume weakness. Volume declined 16% y/y, although it was partially due to divestments of less profitable distillate assets, and warmer weather. Specifically, the average weather across SPB’s U.S. markets was 15% warmer both y/y and vs. the 5-Yr avg. SPB expects that average weather (vs. 5-Yr avg), optimized customer pricing, and cost-saving initiatives should offset the downward impacts of a prior divestiture.
• Wholesale Propane. EBITDA of $3M was down 30% y/y, due to weaker market fundamentals in California and Canada, in addition to weather-related volume weakness. SPB expects ‘24 EBITDA to decline on lower margins.
• Leverage was in line at 3.8x q/q. SPB expects a ~0.2x reduction in leverage by the end of ‘24, eventually reaching ~3.0x on a through-cycle basis.