Superior Plus is a leading North American energy distributor and marketer. The company is the No. 1 retail propane distributor in Canada and one of the ten largest distributors in the United States

Superior’s Canadian propane distribution includes Superior Propane, Superior Gas Liquids, and United Pacific Energy. The U.S. propane distribution includes Superior’s retail power business in the eastern United States, the Upper Midwest, and California.

Superior Plus has sold its specialty chemicals business which has transformed the company into a pure power distribution company. The company is engaged in the distribution and retail marketing of propane products, the distribution of liquid fuels including heating oil and propane gas, and the wholesale marketing of liquids.

Canadian and US power distribution account for nearly 50-50 of the company’s total operating EBITDA.

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Investment data

Sales growth and market exposure

The sale of Superior Plus’ specialty chemicals business transformed the company into a pure power distribution company. The transaction is designed to improve Superior’s financial flexibility and enable it to grow through acquisitions in the power distribution sector.

Superior Plus is well positioned in the North American propane industry and should benefit from the transition from a traditional distribution model to a Canadian platform, resulting in improved efficiency and lower costs. The company has an established presence in the eastern US energy market and has good prospects of capitalizing on growth opportunities from new markets and industry consolidation.

Superior Plus offers through its subsidiaries the supply, procurement and marketing of propane 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 annual volume and wholesale accounting for 32%. The customer mix for US propane sales is less diversified than in Canada, and gross profit is mainly driven by private customers.

Superior grows through acquisitions. With the acquisition of Holden, Miller Propane and the Highlands Propane assets last year, propane distribution was further strengthened. In total, Superior completed five acquisitions for $ 288 million in 2020. The company benefits from its strategic locations and a competitive cost structure. The fragmented US market also offers the opportunity to conduct aggressive mergers and acquisitions to expand its presence in the eastern US and California.

Superior has shown strong operational performance in recent years but has crashed along with many energy stocks this year. Demand in the power distribution business is also heavily influenced by adverse weather conditions. Superior Plus ensured that a critical infrastructure was in place for uninterrupted supply to its customers during the COVID crisis. The company achieved target run rate synergies of $ 24 million related to the NGL acquisition beginning in 2020, and its U.S. Propane continues to realize synergies from acquisitions.

Dividends

Superior Plus has been paying dividends since 1996 and currently has a dividend yield of 1.9% but a high payout ratio. The company has increased its dividend by 3% CAGR over the past five years, even though a dividend hike was long overdue. The company currently pays a monthly dividend of $ 0.06 per share, but has not increased its dividend payout this year. The targeted payout ratio of Superior is 40% -60%.

The company received US $ 600 million in cash on the sale of its specialty chemicals business, which will be used to reduce debt and strengthen its balance sheet.

Superior hit the center of its Adjusted EBITDA forecast for 2020 despite the challenges posed by COVID-19 and other macroeconomic issues. The company has a good track record of reducing its operating rate, improving customer loyalty and increasing organic growth, which made a significant contribution to annual EBITDA growth. It also focuses on technology improvements such as tank sensors and an integrated customer portal platform, as well as productivity initiatives to drive lower costs and higher returns.

Brookfield Asset Management purchased $ 260 million of preferred stock of Superior Plus and had the option to exchange them for common stock of Superior. The company is expected to benefit from Brookfield’s investment as it provides the liquidity necessary to pursue future acquisitions and maintain a strong balance sheet.

Superior accounts for about 70% of the variable cost, which gives it the flexibility to control costs in response to low demand. The company has no maturities through 2024 and leverage over Adjusted EBITDA target of 3.4x. Adjusted EBITDA for 2021 was between $ 370 million and $ 410 million. Superior has a solid pipeline of acquisition opportunities and expects US power distribution EBITDA to more than double over the next five years.

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competition

Most of the competitors in the North American propane industry have traditional distribution models, while Superior’s propane distribution model is modern and offers a competitive advantage. In addition to Superior Plus, Fortis, AltaGas and Hydro One, Hydro One operates in the regulated utility industry in Canada.

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

Bottom line

Superior Plus is an essential service provider. Brookfield preferred stock investments, the acquisition of propane businesses in the United States, and the sale of specialty chemicals have strengthened Superior’s transformation into a pure power distribution company.

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

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