This Energy Stock Profits from the Pump

Parkland is a leading supplier and marketer of fuel and petroleum products across Canada, the U.S, the Caribbean region, and the Americas. Parkland Fuel changed its name to Parkland Corporation in May 2020, to better reflect its business activities of catering to its customers’ fuel and convenience store needs. 

The company is also the branded distributor of major fuel brands, such as Chevron and Esso. Parkland markets over 17 billion liters of petroleum products across Canada and the U.S. About 85% of Canadians live in close proximity to the company’s retail sites. It operates through the 55,000 bbl/d Burnaby Refinery and storage and logistics infrastructure.

Parkland has five operating segments: Canada (38% of Q1 adjusted EBITDA), USA (~6%), International (~23%), Supply (~36%), Corporate (-4%). Canada operates and supports a coast-to-coast network of 1,850 retail gas stations, 162 cardlock sites, bulk fuel, propane, heating oil, lubricants, and other related services. Canada operates under five key retail fuel brands: Ultramar, Esso, Fas Gas Plus, Chevron, and Pioneer and also operates a leading convenience store brand, On the Run / Marché Express, as well as other convenience stores brands.

Parkland owns 75% of the outstanding shares of Sol Investments which is the largest independent fuel marketer in the Caribbean.

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Investment Data
 

Revenue Growth & Market Exposure

Parkland services customers across Canada, the United States, the Caribbean region, and the Americas through three channels: Retail, Commercial and Wholesale. It has a diverse geographic and product platform across 25 countries.

Parkland’s Canada business supplies retail gas stations in Canada and delivers bulk fuel, propane, heating oil, lubricants, and other related products to commercial, industrial, wholesale as well as residential customers across Canada and the U.S. Over the years of its existence, Parkland has developed strong supply relationships with major refiners, fuel suppliers, and carriers across North America and the Caribbean. It also has access to strategic terminals and storage locations in the Caribbean.

Parkland has become the preferred choice for its customers and suppliers, given its outstanding service, competitive products, and safe and on-time deliveries. The company’s supply relationships, storage infrastructure, and third-party rail and highway carrier connections have helped it, aid customers, even at times of supply disruptions. A portfolio of reputed fuel brands and convenience store offerings have further enabled sticky customer relationships over the years.

Parkland is growing organically as well as through acquisitions. The company is also looking at increasing the production of lower-carbon intensity fuels at Burnaby Refinery which is operating at a refinery utilization of 90.3%.

Strong execution, integrated business model, diverse geographic platform, and extensive product offering have helped Parkland deliver strong results in 2020. Its marketing operations performed well as margin increases helped offset volume declines and the Canadian convenience stores achieved a 10.7% same-store sales growth while International’s performance was supported by geographical diversification.

Dividends

Parkland is a dividend aristocrat with a sound track record of growing dividends consistently. The company sports an annual average yield of 3% but a high payout ratio of 94% currently.

It last raised its dividend by 1.7% and has compounded its dividend growth at 2.4% annually, over the last three years. The upcoming annual dividend growth marked Parkland’s ninth consecutive annual dividend increase.

Parkland has a proven track record of business integration and is looking at driving returns through acquisitions and synergies. It has deployed $6.5 billion in growth capital and acquisitions since 2011.

The company’s impressive cash generation has managed to keep the debt levels low, in spite of its aggressive buying spree. Parkland’s cash flow from operations is sufficient to fund its capital expenditures, dividend payments, and acquisition and integration activities. It is also accelerating its digital transformation by partnering with Amazon Web Services to deliver better customer value at lower costs.

Parkland is well-positioned to be a leader in consolidation given the highly fragmented state of the fuel distribution market. Potential supply and cost synergies, as well as expertise across all fuel marketing channels, make it an attractive consolidation candidate.

Its USA segment provides a platform for growth in the U.S. and offers significant export opportunities for products from western Canada. The company has guided adjusted EBITDA of $1,200M +/- 5% and growth capital expenditures of $175 – $275 million for FY2021. It will also maintain $50 – $70 million of annualized cost savings. Parkland’s diversified and resilient platform provides stability and multiple avenues for growth. The company also stands to benefit from a deep pipeline of organic opportunities.

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Competition

Gen III Oil Corp is one of Parkland’s largest competitors. Parkland Fuel’s large scale grants it a strong supply advantage and a marketing platform to provide fuel to the Canadian fuel stations.

The company’s acquisition strategy helps it to continuously add scale which makes it a distinguished player in the North American fuel distribution market. Logistic expertise, strategic infrastructure, and strong supplier relationships differentiate Parkland from its peers.

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Bottom Line

Parkland is in a good position to benefit from the highly fragmented nature of the retail fuel market. The company has a proven track record of returns. Parkland is looking at driving future EBITDA growth through a combination of acquisitions and organic growth initiatives driven by strengthened customer offerings and commitment to providing low carbon fuel choices. It is expecting an economic recovery in the second half of the year.

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DISCLAIMER: Please note that this blog post represents my opinion and not an advice/recommendation. I am not a financial adviser, I am not qualified to give financial advice. Before you buy any stocks/funds consult with a qualified financial planner. Make your investment decisions at your own risk – see my full disclaimer for more details.