Post by
retiredcf on May 18, 2022 8:40am
CIBC
EQUITY RESEARCH
May 17, 2022 Earnings Update
PARK LAWN CORPORATION LIMITED
Post-quarter Wrap-up And USD Model Conversion
Our Conclusion
PLC’s Q1/22 results, its first as a USD reporter, were in line with our
estimates and a bit above consensus, following on a solid Q4/21. The
operating environment continues to stabilize as the company is seeing a
decreasing impact from the pandemic; the positive long-term outlook remains
intact. Thus, our USD estimates are essentially unchanged from our previous
CAD model. We continue to rate PLC Outperformer with a C$43.00 price
target.
Key Points
Q1/22 Recap: Adjusted EBITDA of $21.4MM was right around our estimate
and consensus on in-line revenues of $83.2MM. The adjusted EBITDA
margin of 25.7% was light of our 26.1% estimate, but met consensus; the
margin declined 150 bps Y/Y due to sales mix and general cost inflation, an
ongoing theme. While PLC is not seeing supply chain issues on most types
of merchandise, snags are slowing down revenue recognition on cemetery
monuments that have already been sold; what used to take six to eight
weeks to deliver now may take six to eight months. This has been going on
since the latter part of 2021, so the impact on Y/Y comps will lessen over the
rest of the year.
Industry Update: The deathcare market is stabilizing. Of PLC’s 17.5% Y/Y
revenue increase, organic growth accounted for only 0.6% in a heavy
pandemic comp quarter; 7% higher Y/Y average revenues per call were
offset by lower volumes. Pre-need sales remain strong due to the
heightening of consumer awareness for end-of-life planning needs. While
management expects to see a leveling off of the pandemic mortality spike,
lingering effects, combined with the demographics of aging Baby Boomers,
will likely put upward pressure on U.S. mortality into the endemic stage. PLC
has seen increasing non-covid but pandemic-related deaths since the
beginning of the pandemic. Further, the mortality rate had already been rising
over the past ~10 years (2010=0.80%, 2015=0.85%, 2019=0.87%,
2020=1.03%, 2021=1.03%; source: U.S. Census Bureau). See our industry
note on takeaways from Service Corp. International’s (SVI US) investor day.
Transactions Remain A Growth Driver: The acquisition pipeline remains
robust, including numerous inbound inquiries. PLC still sees deals as being
the best use of capital. Management is confident that it can achieve its
$75MM-$125MM annual acquisition target; activity will likely be lumpy,
weighted towards the latter part of the year. The balance sheet is in good
shape with ~$184MM of liquidity and ~1.4x total leverage as of Q1/22.
Company Growth Outlook Is Unchanged: PLC retains its five-year
aspirational growth targets of US$150MM of pro forma adjusted EBITDA
(~15% CAGR) and US$2.00+ of adjusted EPS (~11% CAGR). This outlook
may well prove to be conservative.