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analysis

On today’s Breakouts report, there are 28 stocks on the positive breakouts list (stocks with positive price momentum), and 32 securities are on the negative breakouts list (stocks with negative price momentum).

Once again, energy stocks continue to dominate the positive breakouts list given their strong price momentum.

Discussed today is a dividend stock that has been a laggard, declining 11 per cent in 2022, making it the worst performing stock in the S&P/TSX Utilities Index - Superior Plus Corp. (SPB-T).

Given this decline, the stock is currently trading at a reasonable valuation. Analysts anticipate the share price will rebound. Based on the average target price, the stock has an anticipated total return (including the 6.2-per-cent dividend yield) of 27 per cent over the next year.

Next week, Superior will be reporting its financial results from its seasonally strong first-quarter. It was a cold winter, which may bode well for the company’s first-quarter earnings given a likely boost propane demand.

A brief outline on Superior is provided below that may serve as a springboard for further fundamental research when conducting your own due diligence.

The company

Toronto-based Superior Plus has streamlined its operations over the years. The company is a now a pure-play propane distributor with two reporting segments: Canadian Propane Distribution and U.S. Propane Distribution. The company distributes propane to over 890,000 customers across North America. In 2021, 55 per cent of the company’s total earnings before interest, taxes, depreciation and amortization (EBITDA) stemmed from its U.S. Propane Distribution segment and the balance from the Canadian Propane Distribution segment.

There is seasonality in the company’s operations most earnings generated in the first and fourth quarters (heating season during the seasonally cold months) with the highest earnings realized in the first quarter. Management estimates that between 45 per cent and 60 per cent of annual EBITDA is realized in the first quarter, depending on the region and business.

In March, the company announced the acquisition of U.S.-based Quarles Petroleum Inc. for approximately $180-million. Management anticipates this acquisition will add roughly $24-million in adjusted EBITDA on an annual run-rate basis two years after the acquisition is completed (expected to be completed in the second quarter). To fund this acquisition, the company completed a $288-million bought deal financing in April, issuing over 25-million shares at a price of $11.20 per share.

Brookfield Asset Management is a major shareholder. Brookfield remains committed to its investment in Superior Plus, purchasing approximately $75-million of the common shares in the bought deal financing completed last month. Marquard & Bahls AG, is also a major shareholder owning 18 per cent of the shares outstanding, according to Refinitiv.

Investment thesis

  • Market leader. Superior is the largest propane distributor in Canada with a market share of roughly 38 per cent. The company is the fourth largest retail propane distributor in the United States.
  • Steady cash flow generation.
  • Recession resistant business. Demand is more closely tied to the weather rather than economic growth.
  • Attractive dividend yield. Currently yielding 6.2 per cent.
  • Stable monthly dividend. Maintained its dividend at the current level throughout the coronavirus pandemic. Monthly dividend has remained at the same level (6 cents per share) since 2014.
  • Acquisition growth. Continued expansion in the fragmented US market. In 2021, the company completed seven acquisitions. Management’s goal is to achieve EBITDA of between $700-million and $750-million by 2026, driven by acquisition growth combined with organic, or internal, growth of between 2 per cent and 3 per cent.
  • Valuation: reasonable valuation, trading just above historical levels.
  • Share price is hovering around the lower end of its historical trading band.
  • Potential key risks to consider: 1) rising interest rates creating other investment options for investors seeking income; 2) warm winter weather conditions; 3) risk of stagflation (low economic growth and high inflation environment) or a potential future recession; and 4) high debt levels with the leverage ratio at just under 4 times.

Quarterly earnings

After the market closed on Feb. 17, the company reported relatively in-line fourth-quarter financial results but its guidance for 2022 moved the stock price sharply lower.

Adjusted EBITDA came in at $142-million, just shy of the consensus estimate of $144–million. Management introduced guidance for 2022, calling for adjusted EBITDA of between $410-million and $450-million, well below the Street’s expectations (the consensus 2022 EBITDA estimate was $494-million at the beginning of Feb.). For 2022, the company anticipates spending between $200-million and $300-million on acquisitions and targets a long-term leverage ratio of between 3.5 times and 4 times, up from its prior targeted range of between 3 times and 3.5 times.

The following trading day, the stock price declined 13 per cent on high volume with over 6 million shares traded, well above the three-month historical daily average trading volume of approximately 1.2 million shares.

After the market closes on May 10, Superior will be releasing its first-quarter earnings results. The consensus EBITDA estimate is $231-million. Superior will be hosting an earnings call on May 11 at 10:30 a.m. ET.

Dividend policy

The company pays its shareholders a monthly dividend of 6 cents per share, or 72 cents per share on a yearly basis. This equates to a current annualized yield of 6.2 per cent.

The company has maintained its dividend at this level since 2014.

Analysts’ recommendations

The company is covered by 12 analysts, of which six have buy-equivalent recommendations and six have neutral recommendations.

The firms providing research coverage on the company are as follows in alphabetical order: ATB Capital Markets, BMO Nesbitt Burns, Canaccord Genuity, CIBC World Markets, Cormark Securities, Desjardins Securities, iA Capital Markets, National Bank Financial, Raymond James, RBC Dominion Securities, Scotia Capital and TD Securities.

Revised recommendations

Last month, seven analysts revised their expectations.

  • Canaccord’s John Bereznicki upgraded the stock to “buy” from a “hold” rating but reduced his target price to $13.50 from $14.50.
  • Cormark’s Brent Watson upgraded the stock to “buy” from “market perform”and increased his target price to $15 from $13.50.
  • IA Capital Markets’ Matthew Weekes trimmed his target price to $13 from$14.
  • Raymond James’ Steve Hansen reduced his target price to $13 from $14.
  • RBC’s Nelson Ng upgraded the stock to “outperform” from “sector perform” and maintained his target price at $15.
  • Scotia Capital’s Ben Isaacson cut his target price to $14 from $16.
  • TD’s Daryl Young tweaked his target price to $15.50 (the high on the Street) from $16.

Financial forecasts

The consensus EBITDA estimates are $457-million in 2022, up from $398-million reported in 2021, and forecast to rise to $505-million in 2023.

The company has had negative earnings revisions. For instance, four months ago, the consensus EBITDA estimates were $494-million for 2022 and $529-million for 2023.

Valuation

According to Bloomberg, the stock is trading at an enterprise value-to-EBITDA multiple of 8.4 times the 2023 consensus estimate, slightly above the five-year historical average of 8 times. Looking back over the past five years, the stock is currently trading well below its peak multiple of approximately 10.5 times.

In comparison, industry peer Parkland Corp. (PKI-T) is trading at an EV/EBITDA multiple of 11.4 times.

The average one-year target price for Superior Plus is $13.92, implying the share price may appreciate 21 per cent over the next 12 months. When combined with the 6.2 per cent yield, this equates to a potential total return of nearly 27 per cent over the next year. Individual target prices are: $12.50 (from BMO’s Joel Jackson), three at $13, $13.50, three at $14, $14.50, two at $15 and $15.50 (from TD’s Daryl Young).

Insider transaction activity

Year-to-date, only two insiders have reported trading activity in the public market – both making very small purchases.

On Feb. 22, chief financial officer Beth Summers, bought 4,500 shares at a price per share of $10.92, increasing this particular account’s position to 42,782 shares. The cost of this purchase exceeded $49,000.

Between Jan. 4 and March 9, Rick Carron, president of Superior Propane, acquired a total of 2,475 shares at an average cost per share of approximately $11.32. The cost of these purchases totaled over $28,000. After these transactions, this specific account held 6,754 shares.

Chart watch

Year-to-date, the share price has declined 11 per cent, underperforming the S&P/TSX Utilities Index that is up 1.6 per cent and making Superior the worst performing stock in the S&P/TSX Utilities Index.

On May 4, the share price staged a sharp comeback, surging 3.1 per cent, well above the S&P/TSX Utilities Index that rallied 0.8 per cent, making Superior the second best performing stock in this sector.

Looking at a longer time frame, looking all the way back to 2006, the share price has largely traded between $9 and $16. The stock price is currently at the lower end of this trading range.

ESG Risk Rating

Rating provider Sustainalytics has given Superior an ESG risk score of 34 or ‘high risk’ rating (defined as a score between 30 and 40).

POSITIVE BREAKOUTSMay 4 close
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ARX-TARC Resources Ltd19.15
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CPX-TCapital Power Corp44
CVE-TCenovus Energy Inc25.7
CR-TCrew Energy Inc6.17
GEI-TGibson Energy Inc26.03
IPCO-TInternational Petroleum Corp. of Sweden13.15
MEG-TMEG Energy Corp22.17
NVA-TNuVista Energy Ltd12.37
OVV-TOvintiv Inc. 72.17
POU-TParamount Resources Ltd35.83
PKI-TParkland Fuel Corp38.28
RFP-TResolute Forest Products Inc. 19.1
SES-TSecure Energy Services Inc6.86
SDE-TSpartan Delta Corp. 12.6
TOY-TSpin Master Corp. 47.61
STEP-TSTEP Energy Services Ltd. 4.41
SU-TSuncor Energy Inc47.59
SOY-TSunOpta Inc7.55
SGY-TSurge Energy Inc10.78
TPZ-TTopaz Energy Corp. 23.73
TOU-TTourmaline Oil Corp71.3
TCW-TTrican Well Service Ltd4.66
VMD-TViemed Healthcare Inc. 7.18
WEF-TWestern Forest Products Inc2.21
WPK-TWinpak Ltd.44.5
YGR-TYangarra Resources Ltd3.38
NEGATIVE BREAKOUTS
BOS-TAirBoss of America Corp28.09
ALYA-TAlithya Group Inc.2.87
ANRG-TAnaergia Inc. 8.02
ORA-TAura Minerals Inc. 9.98
AYR-A-CNAYR Strategies Inc.8.51
BHC-TBausch Health Companies Inc. 23.06
CCA-TCogeco Communications Inc98.32
CGO-TCogeco Inc72.64
CL-CNCresco Labs Inc. 5.36
DRT-TDIRTT Environmental Solutions1.29
DND-TDye & Durham Ltd. 20.61
EQX-TEquinox Gold Corp.7.87
EQB-TEquitable Group Inc56.21
XAU-TGoldMoney Inc. 1.79
GTII-CNGreen Thumb Industries Inc. 16.3
HEXO-THEXO Corp.0.48
HCG-THome Capital Group Inc29.6
IMG-TIAMGOLD Corp2.71
IMV-TIMV Inc. 1.41
LNF-TLeon's Furniture Ltd18.97
LSPK-TLifeSpeak Inc. 4
MAL-TMagellan Aerospace Corp9.2
NEXT-TNextSource Materials Inc.2.94
OCO-XOroco Resource Corp.1.45
QSR-TRestaurant Brands International Inc69.18
RIV-CNRIV Capital Inc. 1.23
STC-TSangoma Technologies Corp. 14.47
SJR-B-TShaw Communications Inc36.92
TER-CNTerrAscend Corp. 5.31
TRI-TThomson Reuters Corp124.29
TCN-TTricon Residential Inc17.73
WE-XWeCommerce Holdings Ltd. 6.28

Source: Bloomberg and The Globe and Mail

This report is not an investment recommendation.

The Breakouts file is a technical analysis screen intended to identify companies that are technically breaking out. In addition, this report highlights a company’s dividend policy, analysts’ recommendations, financial forecasts, and provides a brief technical analysis for a security to provide readers with more information.

If a stock appears on the positive breakouts list, this indicates positive price momentum, and that a company may be worthwhile for investors to look at the fundamentals in order to determine if the recent price strength is warranted and will continue. If a security appears on the negative breakouts list, this indicates negative price momentum, and may be indicative of either deteriorating fundamentals or perhaps indicates a buying opportunity.

Securities screened are from the S&P/TSX composite index, the S&P/TSX Small Cap index, as well as Canadian small cap stocks outside of these indexes that have a minimum market capitalization of $200-million.

A technical analysis screen does not replace fundamental analysis, but can help identify companies worth having a closer look at.

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