Last October Seeking Alpha published an article on a big deal by Parkland Fuel's (OTCPK:PKIUF) - see Parkland Fuel's Transformative CST Brands Acquisition - in which I suggested the company was a buy based on the potential for EBITDA growth and the company's excellent track record of successfully integrating acquisitions. Soon on the heels of that article, the company released a very mediocre Q3 EPS report and the shares dropped ~10%. However, the investment thesis has not changed, the outlook looks quite auspicious, and the yield now (4%) is even more attractive than before (3.7%).
Source: TMX Money (PKI Trading on Toronto Stock Exchange).
The Q3 EPS report was disappointing: EBITDA, net income per share and distributable cash flow were all either flat or slightly lower on a yoy basis:
The company blamed the poor results on:
... continued softness in economic activity in Western Canada and the Bakken region in the U.S. Volumes were down slightly due to softer wholesale volume, especially in the U.S. division.
This was offset by stronger Supply and Wholesale and Retail Fuels results. As a result, the company reiterated full-year 2016 adjustable EBITDA guidance of $235-$265 million. Note that would be up almost 4x from $64.9 million in adjusted EBITDA for full-year 2015.
Going forward, the CST Brands acquisition is estimated to bring on ~$110 million in incremental adjusted EBITDA - an increase of 44% as compared to the midpoint of 2016 full-year guidance.
Summary and Conclusion
Bottom line here is that my last article on Parkland was ill-timed considering the lousy Q3 EPS report. However, the company did confirm full-year guidance, and we've had - if not a cold winter so far - at least a more "normal" winter. That's good for fuel demand. In addition, the current and generally higher oil and gas prices should lead to increased activity in Q3's problem areas (Western Canada and the Bakken). Indeed, according to the Baker Hughes rig count on 1/6/2017, the Canadian rig count jumped by an impressive 39 rigs in the latest week. That's a big jump and will lead to more economic activity in Parkland's home region. Meantime, the CST Brands acquisition is expected to close in Q1, and that's a big-time catalyst moving forward and will grow the company's EBITDA by 40% plus. Parkland is still a buy.
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