Post by
Apaulson on Aug 15, 2024 6:58am
Time for Allan MacDonald to show some results!
Yesterday CIBC downgraded SPB to neutral and reduced its target price from $14 to $10 citing headwinds with Certarus.
The market is giving SPB no respect for its dividend yield. The market doesn’t think its sustainable. Either the share price rises to where the dividend yield is a reasonable amount, not the ~9.5% or so it is now, or SPB cuts their dividend. Allan MacDonald was asked about the dividend a couple times on the earnings call yesterday. He’s sticking his neck out though. In an answer, he said he thinks Certarus is undervalued. That’s a bold call that he is making. If the share price doesn’t increase in the near future, the clock is ticking on Allan MacDonald’s tenure as CEO. He better step up and buy some shares (a big amount, not 3,000 like last time), or he better talk Brookfield into building an equity position. Unless I’m wrong, it appears Brookfield is out of the money on its perpetual preferred shares as the current share price is less than the conversion price in the terms of the shares.
Ben Isaacson
Good morning, everyone. Thank you for taking my questions. They've actually all been asked. I only have one or two left. The first question is back to the dividend. Why do you feel the need to continue paying one at all? I mean, the stock is, I think, a 9.5% yield, and so the market doesn't seem to be paying you at all for giving them a dividend. So why not pull it and use that to buy back shares or as someone else said, accelerate the leverage reduction. I guess I'm approaching this from a different way. Some are asking whether the dividend is safe, but I'm asking whether it just makes sense to kill it entirely?
Allan MacDonald
Hey Ben, it's Allan. Yes, I mean, it's a great question. I think I could say that about a number of things. When I look at the value of Certarus versus some of its competitors in our -- some of the parts, I think it's tremendously undervalued. And the answer to that isn't to sell Certarus. It's to work within the business to get it better understood and for us to continue to stay on the path. So what we're not doing right now with our share valuation is challenging the fundamentals of this company. Superior has, I think, stellar assets when it comes to the propane business that frankly have an opportunity to be optimized in a meaningful way.
I think Certarus has positioned us incredibly well. And right now our capital structure may not be getting the value that we think it deserves, but we're not under any pressure to have to change that in order to capitalize on the opportunities in the business. So in the fullness of time, of course, you're always looking at, are you getting the right value and is the business being seen the way that we see it? But I think over the course of the next coming months, we're going to continue to focus on what we do best. That's drive the business hard, continue to generate growth. And I don't think our capital structure necessarily, certainly for our ability to support the dividend doesn't require any augmentation at this point.