Post by
incomedreamer11 on Aug 14, 2024 10:34am
TD down target price
Event: Superior reported Q2/24 results.
Impact: NEGATIVE
Q2/24 Results: Superior reported adjusted EBITDA of $43.3 million, 11% below our estimate of $48.8 million, and 14% below consensus of $50.5 million. Recall that we reduced our Q2/24 estimate by 18% from $59.6 million in our Q2/24 preview (full report).
Noteworthy differences relative to our estimates are as follows:
Certarus: The Certarus segment EBITDA of $27.2 million was 12% below our estimate of $30.9 million as a result of significant supply additions across the industry while the U.S. rig count decreased 25% from its November 2022 peak, resulting in increased pricing competition in its core West Texas market.
U.S. Propane: Lower U.S. propane gross margins per gallon and sales volumes also contributed to the miss.
G&A: Partially offsetting these factors was G&A of $193.3 million, 9% below our estimate of $211.5 million. Details on Page 4.
Revising 2024/25 Estimates Lower Despite Unchanged 2024 Guidance: Management has maintained its EBITDA guidance for ~5% y/y growth (~$500.0 million), above our revised 2024 EBITDA estimate of $486.7 million (-1%) that contemplates ~2% y/y growth. In 2025, our EBITDA estimate of $495.0 million (-5%) also contemplates ~2% y/y growth. We view our revised estimates as conservative, and note the following:
Propane Business Optimization: Management intends to disclose propane business optimization targets either with Q3/24 results or in a stand-alone investor update, but has declined to quantify the impact of these initiatives. Our 2025 estimates only contemplate current run rate margin performance.
Certarus: Our base case assumes that broader industry oversupply will persist into 2025 as Certarus (and likely its competitors) continue to add supply in to the market for the balance of this year. As such, our EBITDA growth assumptions are below our assumptions for MSU additions. Therefore, if industry conditions improve alongside a recovery to U.S. drilling and completions activity, there is upside potential to our Certarus forecast.
Our Investment Thesis Superior continues to lack near-term catalysts, in our view, and we continue to expect that management will continue to defer on the specific targets on its Propane business optimization efforts until at least Q3/24 results or in a stand-alone investor day later in the year. That said, we believe Superior's core propane distribution business offers investors a resilient base of recurring free-cash-flow generation that will allow the company to continue to grow the Certarus business albeit at a moderate pace, and reduce its leverage ratio through growth, while maintaining the dividend. Certarus' outlook remains strong, but we believe that investors are reluctant to assume that high growth rates will continue indefinitely.
We are maintaining our BUY rating, but reducing our target price to C$10.00/ share (from $12.00 previously).