Fuel distributor Parkland Corporation appeared to be in a long-term declining business as electric vehicles gradually reduced demand for fossil fuel — until the company re-invented itself.
A $322 million purchase of M&M Food Market last month diversified the growing fuel marketer, granting a new lease on life.
M&M offers the company an opportunity to develop the frozen food business into the United States where adding a few thousand stores to the existing 300 outlets in Canada is practical over the next 20 years.
The company has plans to add delivery and possibly some fresh foods. M&M already has a limited offering of food in Parkland’s On The Run convenience store as well as Rexall stores.
Parkland has grown since 1987 from a small oil and gas service operation in Red Deer, Alta. to a major fuel distributor by a series of acquisitions of small gas station chains and a 55,000 barrel per day oil refinery in British Columbia.
Some of Parkland’s better know brands around here are Fas Gas and RaceTrac as well as a recent acquisition of 156 Husky Oil service stations.
The company sells one billion litres of fuel a year generating $1.22 billion earnings before taxes and depreciation.
The goal is $2 billion earnings before taxes and depreciation by 2025.
Parkland operates 650 retail service stations with On The Run outlets in Canada with 1,344 dealers buying from it. The United States operation has 329 owned outlets with another 329 dealers.
The combination of convenience store and fuel retailing may seem obsolete in time as electric vehicle use increases.
Parkland announced this month a new concept designed to keep the operation competitive and attractive to consumers in an EV world. Dubbed the Electric Charging Destination of the Future the concept will develop outdoor electric charging stations and associated features to accommodate customers during the 20-minute wait to charge the battery.
The outdoor charging stations will offer a chance to eat and play while charging the car. First units will be developed in British Columbia.
Parkland’s share price around $34.48 reflects a premium for the five year average 16 per cent a year price gain. The price is 31 times earnings of the last 12 months.
That’s a pretty steep premium even for a steady growing company. A price reflecting a 15 to 20 times earnings ($16.65 to $22.20) would be more reasonable especially in this volatile market.
The dividend returns a 3.5 per cent yield while debt is a reasonable 45 per cent of assets,
Parkland should be on watch lists of investors looking to cash in on long-term growth.
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Ooops! An alert reader James Stewart caught an error in the Feb. 1 Bizworld column about Gensource Potash. My back-of-the-envelope cash flow calculation should have been $2.14 cents a share for a $21 share price not a $2.14 price – providing current potash prices of almost three times the long term average hold.
CAUTION: Remember when investing, consult your adviser and do your homework before buying any security. Bizworld does not recommend investments.
Ron Walter can be reached at [email protected]
The views and opinions expressed in this article are those of the author, and do not necessarily reflect the position of this publication.
