Park Lawn Corp.
(PLC-T) C$33.51
Pre-need, Market Share Wins, and M&A to Offset Weaker Volumes Event
Park Lawn reported adjusted EBITDA (PLC shareholders) of $24.2mm, up 41.5% y/ y and 7.9% above TD/consensus at $22.5mm/$22.8mm, reflecting slightly stronger revenue and margins. Note: PLC adopted net revenue reporting in Q1/21, shifting its contributions to care and maintenance trust funds out of COGS. This results in an ~100bps increase in EBITDA margins and enhances comparability with U.S. peers.
Impact: SLIGHTLY POSITIVE
Q1/21 was another strong result, reflecting a continuation of the elevated death rates associated with COVID-19, which drove strong at-need and pre-need demand. Looking forward, death rates have begun normalizing across the U.S. alongside vaccine distribution. We anticipate that this will be a near-term headwind, but are encouraged by commentary from management, and its public peers, that it continues to see elevated pre-need sales activity and higher average revenue/call alongside the relaxation of gathering restrictions, which are expected to continue across 2021. In our view, these factors, combined with recent M&A and market- share wins, should support modest y/y revenue growth in 2021. Furthermore, PLC continues to pursue growth through building of new mausoleums and funeral homes, such as the Waco Memorial Funeral Home in Texas started this quarter (target completion: April 2022).
Gross revenue of $92.7mm was up ~25% y/y and ~4.5% above our estimate/ consensus of $88.6mm/$89.4mm. PLC reported 21.4% organic growth, above TD's estimate of ~18%. Growth was seen across both the cemetery and funeral businesses, driven largely by at-need sales early in the quarter and solid pre-need sales throughout. Note, the U.S. CDC data indicates that deaths were ~19% above expected levels in Q1/21.
Adjusted EBITDA margins of 26.3% (27.2% net revenue basis) were 80bps above TD's 25.5%, reflecting operating leverage and sales mix. We anticipate modest near-term margin compression as pandemic-driven volumes subside, but see PLC as having structurally higher margins than pre-pandemic, given operating improvements and a greater mix of funeral business from recent acquisitions.
TD Investment Conclusion
We are reiterating our BUY recommendation and $38.00 target price. We continue to view Park Lawn as a high-quality company in a recession-resistant business with a favourable industry backdrop (including demographic tailwinds) and ample opportunities/capacity to grow through M&A.