Suncor Energy Inc. T.SU

Selling PetroCan - Some Math

[Experienced]

There has been talk by some analysts about a valuation of 10-15 billion dollars for the sale of PetroCanada. The question is whether this is a realistic valuation.  The company that most people talk about us Couch Tard. So let's look at it.

Before doing this, let's find a valuation metric. One of the most common is multiple of EBITA.  The numbers I have seen for EBITA for PetroCan is in and around 800 million.  In a sale the multiple for EBITA varies but is usually in the range of 4-6 which would put a realistic sale price at between 3.2 and 4,8 billion. A takeover bid could fetch a multiple of 8-10 in a contested takeover which would up the valuation to 6.4 to 8 billion.

in 2016 couch Tard bought 279 gas stations from Essa for 1.6 billion. Given the fact that the Competition Bureau would not approve the purchase of all PetroCan stations, estimates are that Couch Tard could buy perhaps about  800 stations from PetroCanCan. This would put the the valuation of PetroCan around 9 billion if they found a buyer for the other 800 stations.

Based on all this, it would seem to me that a sale price of 10 billion for PetroCan would be the upper bound and would be a fairly rich valuation. IMO it is highly unlikely that PetroCan would fetch anything higher than 10 billion and a more likely result would be something in mid to high single digits. I think this is especially true since over time there will be flat or declining gasoline sales as more people start driving EVs.

[stwatcher]

Good post .....and considering Suncor paid 18 billion CAD to buy PetroCan in 2009