Stock to watch: Surge in Superior Plus shares may not be out of fuel

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Superior Plus Corp.

Monday's closing price: $10.10, up 10 cents

52-week trading range: $5.52 -$10.28 a share

Annual dividend: 60 cents a share for a yield of 6 per cent

Analysts' ratings: There are 2 buys and 4 holds, according to Bloomberg data. Target prices range from $10.50 to $11.80 a share.

Recent history: Shares of Superior Plus went into a freefall last year after it slashed its annual dividend to 60 cents per share from $1.62 to reduce debt. But the stock of the Calgary-based propane distributor and specialty chemical maker have been on fire this year, climbing 88 per cent. Investor enthusiasm increased after Luc Desjardins, who has a track record in business restructuring, was appointed chief executive officer a year ago. Its stock took a hit in September after it revealed that Canada Revenue Agency was challenging its purchase of $800-million in tax losses from Ballard Power Systems Inc. Superior Plus did this just before converting to a corporation from an income trust in 2008. If there is a negative reassessment, Superior Plus will have to pay about $15-million [50 per cent of taxes owed] in order to appeal. Should the appeal fail, it would have to pay the rest of the taxes and penalties.

Outlook: The uncertainty around the tax pools "was a bit of an overhang" on Superior Plus, but it is now priced into the stock, said Stephen Andersons, a portfolio manager at Venator Capital Management Ltd. While a negative decision could mean paying about $32-million in taxes in 2012-13, "I am not that concerned," he said. "The payout ratio might go up slightly, but it is well within manageable levels."

Superior Plus, which had about a 100-per-cent payout ratio [including capital spending] early last year, pared that down to the 50-per-cent range after making two dividend cuts last year. "Rather than the 56-per-cent payout ratio estimated for 2013, I would be looking at about 65 per cent," Mr. Andersons said.

The company told shareholders at its Investors Day last Friday that it is targeting 7-to 10-per-cent compounded annual growth in EBITDA [earnings before interest, taxes, depreciation and amortization] from 2013 to 2015. It is looking at ways to increase revenue, improve margins and pay down debt. Last Friday, Superior Plus said it is redeeming $50-million in convertible debentures soon to reduce its leverage.

"I would buy this [stock] now even though it has run up 88 per cent," said Mr. Andersons, whose firm has owned Superior Plus stock and convertible debentures since late last year. "I don't think it is done...I see fair value currently for this company at $13.50 to $15 a share within a year. Meanwhile, I am getting paid 6 per cent to hold this. I see this as an $15-to-$20 stock by 2015."