In the highly competitive fuel business, this Canadian stock is growing rapidly by acquisition.
In the latest quarter, revenue jumped by 87% and cash flow soared by 139% aided by a series of deals that have added gas stations, convenience stores and oil refineries. The dividend yields a solid 3.8%. Still, this growth-by-acquisition strategy adds debt, and risk.
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PARKLAND FUEL CORP. (symbol PKI on Toronto; www.parkland.ca) operates gas stations, convenience stores and a fuel-distribution business, in Canada and the U.S.
Those retail fuel and convenience store banners include Ultramar, Esso, Fas Gas, Chevron, Pioneer, and On the Run. Its commercial fuels business sells under the brands Bluewave Energy, Chevron, Columbia Fuels, Esso, Sparlings, Ultramar, and others.
Parkland has relied on a strategy of acquisitions to grow its business.
In March 2016, the company bought Esso stations in Saskatchewan and Manitoba.
In early 2017, it agreed to purchase Chevron’s downstream operations in British Columbia for $1.5 billion. These include an oil refinery in Burnaby, 129 gas stations in the Vancouver area and a business that supplies fuel to the Vancouver International Airport. This acquisition was completed in the fourth quarter of 2017.
In August 2017, Parkland acquired the business assets of CST Brands, Inc. for $986.0 million from Alimentation Couche-Tard (symbol ATD.B on Toronto). Those assets mainly consist of refuelling stations that operate under the Ultramar brand.
Revenue for the past 5 years reflects these acquisitions: it increased 10.5%, from $5.7 billion in 2013 to $6.3 billion in 2016. With the Chevron and Ultramar deals, revenue jumped 52.4%, to $9.6 billion in 2017.
Cash flow increased 11.8%, from $136.5 million ($1.90 per share) in 2013 to $152.6 million ($1.60 per share) in 2016. It then jumped 54.7%, to $234.6 million ($2.00 per share) in 2017.
Growth stocks: Company repositions On the Run stores, adds new food label
In the three months ended March 31, 2018, Parkland’s revenue rose 87.2%, to $3.3 billion from $1.8 billion a year earlier. Cash flow jumped 139.1%, to $110.0 million from $46.0 million. On a per-share basis, cash flow rose 82.6%, to $0.84 from $0.48, on more shares outstanding.
Parkland is in a highly competitive business, and its rapid growth-by-acquisition strategy adds debt, but also risk. As of March 31, 2018, long-term debt stood at a somewhat high $2.0 billion, or 48.6% of the company’s market cap.
However, Parkland continues to integrate its Chevron and Ultramar acquisitions. They should improve profit margins through cost savings and improved economies of scale. The company is also repositioning its convenience store operations under the On the Run brand and has introduced its own food label, 59th Street Food Co. Parkland’s same-store sales increased 3.5% in 2017 and these initiatives should continue that growth.
The stock trades at 13.0 times this year’s cash flow forecast of $2.38 per share. The shares yield a high 3.8%.
TSI Network recommendation: Parkland Fuel is okay to hold, but only for aggressive investors.
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