Bullboard - Stock Discussion Forum 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... see more

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TSX:PLC - Post Discussion

Park Lawn Corp > TD

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Post by retiredcf on Jul 15, 2020 8:18am

TD

Park Lawn Corp.

(PLC-T) C$22.12

Resuming Coverage Following Debenture Issuance Event

We are resuming coverage of Park Lawn following the completion of its $75mm bought deal offering of 5.75% senior unsecured debentures ($86.25mm including over-allotment option).

Impact: NEUTRAL

In our view, the primary rationale behind, and benefit of, the debenture offering is to direct the proceeds towards repayment of Park Lawn's revolving credit facility, providing additional capital with which to fund M&A in H2/20 and F2021. Following the offering and assuming the over-allotment option is exercised, we estimate that Park Lawn now has ~$218mm of available liquidity ($136mm previously).
Management previously expressed optimism that it could resume M&A activity in H2/20. However, we believe that, given current pro-forma leverage of ~2.9x and our forecast that leverage will remain at ~3x for the balance of F2020, M&A targeted in the near-term by Park Lawn is likely to be focused on smaller, bolt-on acquisitions rather than medium- or large-sized platform-type M&A.
Park Lawn has historically been reluctant to exceed 3x leverage (historically targeted 2.0x – 2.5x leverage), with larger M&A typically accompanied by an equity financing. We believe Park Lawn may be willing to extend this comfort level modestly if an attractive opportunity were to present itself in the current environment, but we would note that Park Lawn's leverage covenant of 4.0x will step down to 3.75x at the end of June 2021 and 3.5x at the end of September 2021, making a significant move above 3.0x leverage unlikely.

TD Investment Conclusion

Our BUY rating and $28.00 target price are both unchanged, while we have updated our estimates to account for modestly higher forecasted interest costs as a result of the debenture issuance. We continue to view Park Lawn as a high-quality company in a recession-resistant business with a favourable industry backdrop, a strong medium-term outlook, opportunities for upside to our outlook from M&A, and an attractive valuation relative to comparables. We anticipate a moderate impact on Q2/20 results from COVID-19 (12% organic decline modelled), but expect that results will gradually normalize over the balance of F2020.