Excellent growth but pricey …

Superior Plus is a premier North American energy distributor and marketer. The company is the No.1 retail propane distributor in Canada and ranks amongst the top ten players in the U.S. 

Superior’s Canadian propane distribution includes Superior Propane, Superior Gas Liquids, and United Pacific Energy. The U.S. propane distribution includes Superior’s retail energy distribution business in the Eastern U.S., upper Midwest, and California.

Superior Plus divested its Specialty Chemicals business that transformed the company into a pure‐play energy distribution company. The company deals in the distribution and retail marketing of propane products, distribution of liquid fuels including heating oil and propane gas, and also provides wholesale liquids marketing services.

The Canadian and the US energy distribution account for nearly 50-50 of the company’s total EBITDA from operations.

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Investment Data

 


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Revenue Growth & Market Exposure

Superior Plus’s divestiture of Specialty Chemicals business established it as a pure‐play energy distribution company. The transaction is expected to improve Superior’s financial flexibility and grant it opportunities to pursue growth through energy distribution acquisitions.

Superior Plus is well-positioned in the North American propane industry and should gain from a transition from a traditional distribution model to a Canadian platform, resulting in improved efficiencies and reduced costs. The company has an established footprint in the Eastern U.S. energy market and stands a good chance to gain from growth opportunities through new markets and industry consolidation.

Superior Plus through its subsidiaries offers delivery, procurement, and retail marketing of propane-related products, as well as the distribution of liquid fuels including heating oil and propane gas. The company serves both the retail and wholesale energy markets with retail accounting for 68% of the annual volumes and wholesale accounting for 32%. The U.S. propane distribution customer mix is less diversified than Canada and gross profit is driven primarily by residential customers.

Superior is growing through tuck-in acquisitions. It strengthened its propane distribution further with the acquisition of Holden, Miller Propane, and assets of Highlands Propane in the last year. In all, Superior completed five tuck‐in acquisitions in 2020 for $288 million. The company benefits from its strategic locations as well as a competitive cost structure. The fragmented U.S. market further presents an opportunity to adopt aggressive M&As to expand its presence in Eastern U.S. and California.

Superior has demonstrated strong operational performance in the past few years but crashed along with many energy stocks this year. The demand within the energy distribution business is also very much impacted by adverse weather conditions. Superior Plus ensured critical infrastructure was in place for uninterrupted supplies to its customers during the COVID crisis. The company achieved the targeted $24M of run-rate synergies related to the NGL acquisition exiting 2020 and its U.S. Propane continues to realize synergies from acquisitions.

Dividends

Superior Plus has been paying dividends since 1996 and currently sports a dividend yield of 1.9% but a high payout ratio. The company has grown its dividends at a 3% CAGR In the last five years, though a dividend raise has been long overdue. It is currently paying a monthly dividend of $0.06 per share but did not increase its dividend payout this year. Superior’s targeted payout ratio is 40%-60%.

The company received a consideration of $600 million in cash proceeds upon the divestiture of its specialty chemicals business which will be used to reducing debt and strengthening the balance sheet.

Superior achieved the midpoint of its 2020 adjusted EBITDA guidance despite the challenges from COVID‐19 and other macroeconomic issues. The company has a good track record of reducing its operating ratio, improving customer retention, and increasing organic growth, which has contributed significantly to annual EBITDA growth. It is also focusing on technological improvements such as tank sensors and an integrated customer portal platform and productivity initiatives to achieve reduced costs and enhanced returns.

Brookfield Asset Management bought preferred shares worth $260 million of Superior Plus having the option to exchange them for common shares of Superior. The company is set to benefit from Brookfield’s investment as it provides the necessary liquidity to pursue future acquisitions as well as maintain a strong balance sheet. 

Superior incurs about 70% in variable cost granting it the flexibility to control costs in response to low demand. The company has no maturities until 2024 and has a debt to adjusted EBITDA target of 3.4x. It has guided 2021 adjusted EBITDA in the range of $370-$410 million. Superior has a robust pipeline of acquisition opportunities and expects to more than double the U.S. Energy Distribution EBITDA from operations over the next five years.

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Competition

Most competitors in the North American propane industry have traditional distribution models while Superior’s propane distribution model is modern, providing it a competitive advantage. Other than Superior Plus, Fortis, AltaGas, Hydro One operate in the Regulated Utility industry in Canada.

Superior also competes with large, full-service, national marketers and smaller, independent local marketers in the U.S. propane distribution market. 

TickerKeyTickerCompanySectorIndustryScoreQuoteMarket CapP/EFPEEPSYield RawYieldPayoutRatioPaymentsDividendChowderGrowthRatingIncomeRatingTollboothAmbassadorAchieverAristocratKingCountryGraph
TSE:FTSFTSFortisUtilitiesUtilities - Regulated Electric0.6254.7925.7021.0921.092.600.03693.690.776942.020.094967Tollbooth - RegulatedNOYESYESNOCanada1
TSE:BIP.UNBIP.UNBrookfield Infrastructure PartnersUtilitiesUtilities - Diversified0.6168.6322.8585.6885.680.800.03723.723.195042.040.129386Tollbooth - RegulatedYESYESNONOCanada1
TSE:HHHydro OneUtilitiesUtilities - Regulated Electric0.5029.8417.8310.1110.112.950.03403.400.343941.010.075936Tollbooth - RegulatedNONONONOCanada1
TSE:BEPCBEPCBrookfield Renewable Partners L.P.UtilitiesUtilities - Renewable0.3459.3117.140.000.000.000.02572.571.000041.220.054924Tollbooth - UnregulatedNONONONOCanada1
TSE:BEP.UNBEP.UNBrookfield Renewable Partners L.P.UtilitiesUtilities - Renewable0.3554.5314.930.000.00-0.840.02792.791.000041.220.057224Tollbooth - UnregulatedNONONONOCanada1
TSE:EMAEMAEmeraUtilitiesUtilities - Diversified0.6856.4414.2614.9214.923.780.04524.520.674642.550.105069Tollbooth - RegulatedNOYESYESNOCanada1
TSE:AQNAQNAlgonquin Power & Utilitties CorpUtilitiesUtilities - Renewable0.7420.5812.2911.8411.841.740.03783.780.446740.620.124578Tollbooth - UnregulatedNONOYESNOCanada1
TSE:NPINPINorthland Power Inc.UtilitiesUtilities - Renewable0.4746.649.4426.6926.691.750.02572.570.6857121.200.036334Tollbooth - UnregulatedNONONONOCanada1
TSE:CUCUCanadian UtilitiesUtilitiesUtilities - Diversified0.6434.139.3225.9125.911.320.05155.151.332741.760.142967Tollbooth - RegulatedNOYESYESNOCanada1
TSE:ALAALAAltaGasUtilitiesUtilities - Regulated Gas0.5321.405.9812.3212.321.740.04494.490.5517120.960.044936Tollbooth - RegulatedNONONONOCanada1
TSE:RNWRNWTransAlta Renewables Inc.UtilitiesUtilities - Renewable0.4620.645.5159.6859.680.350.04554.552.6846120.940.067634Tollbooth - UnregulatedNONONONOCanada1
TSE:ACO.XACO.XAtcoUtilitiesUtilities - Diversified0.6042.154.8419.1919.192.200.04254.250.815141.790.166867Tollbooth - RegulatedYESYESYESNOCanada1
TSE:BLXBLXBoralex Inc.UtilitiesUtilities - Renewable0.4442.474.3676.1076.100.560.01551.551.178640.660.064454Tollbooth - UnregulatedNONOYESNOCanada1
TSE:CPXCPXCapital Power CorporationUtilitiesUtilities - Independent Power Producers0.5137.784.0548.7748.770.770.05435.432.662342.050.126256Tollbooth - UnregulatedNONOYESNOCanada1
TSE:INEINEInnergex Renewable Energy IncUtilitiesUtilities - Renewable0.4822.483.930.000.00-0.230.03203.201.000040.720.032046Tollbooth - UnregulatedNONOYESNOCanada1
TSE:TATATransAltaUtilitiesUtilities - Independent Power Producers0.1412.352.660.000.00-1.220.01461.461.000040.180.014603Tollbooth - UnregulatedNONONONOCanada1
TSE:SPBSPBSuperior PlusUtilitiesUtilities - Regulated Gas0.3614.582.5734.1134.110.430.04944.941.6744120.720.049414Tollbooth - RegulatedNONONONOCanada1

Bottom Line

Superior Plus is an essential service provider. Brookfield preferred share investment, acquisition of retail propane businesses in the U.S., divesture of Specialty Chemicals have strengthened Superior’s transformation into a pure‐play energy distribution company.

The company’s competitive cost structure, strategic locations, robust pipeline of acquisition opportunities, and efforts towards reducing costs should go a long way to increase future returns.

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