It’s been an active many months for Bob Espey. In June, his company, Parkland Fuel Corp., completed a transformative, $378-million purchase of retail gasoline station operator Pioneer Energy Group. Then a week ago, Parkland made two more deals, picking up 80 On the move stores from Imperial Oil Ltd. for an undisclosed sum and adding a $22.5-million acquisition of Propane Nord-Ouest, a propane marketing business serving Quebec’s mining industry.
Parkland, an energy distributor, operates on the downstream side from the energy sector. Unlike the upstream or production side of the profession that has been decimated by the plunge in oil prices, Red Deer, Alta.-based Parkland is resistant to the worst crisis within the sector in a generation.
Indeed, Espey, Parkland’s president and CEO, likes lower energy prices because it stimulates demand, even though it is yet another manifestation of lower economic activity.
“We have experienced demand go up within the East versus the West,” Espey said in an interview. “In the West you have headwinds in economic activity but, certainly within our network, it isn’t off dramatically.”
As oil prices crashed 45 percent this past year, Parkland posted a 17 percent begin earnings and raised its dividend five per cent.
“Our current earnings guidance is $265 million. There is no reason why we can not double that in five years,” Espey said.
Analysts like Parkland’s acquisitive streak.
“Parkland is well-positioned to be a consolidator given its leading market position, strong balance sheet, along with a history of successfully acquiring and integrating businesses, in our view,” Sabahat Khan, an analyst with RBC Dominion Securities Inc., told clients inside a note after the company announced its annual results this month.
Related
- Alimentation Couche-Tard’s $1.6-billion deal to purchase 279 Esso gas stations is heavy around the TimbitsImperial Oil to sell remaining 497 Esso stations to 5 fuel distributors for $2.8 billionCompetition Bureau cracks open new law with Parkland Industries case
-
-
-
The deal for Burlington, Ont.-based Pioneer Energy, that has outlets primarily in Ontario and Manitoba, helps Parkland expand its national footprint to more than 1,000 gasoline stations, comprising nine per cent of the country’s fuel market.
However, the Pioneer acquisition has run afoul from the Competition Bureau, which challenged Parkland’s acquisition of Pioneer gasoline stations or supply contracts in 14 communities in Ontario and Manitoba.
The bureau contends that Parkland’s post?merger share of the market in those communities is between 39 and 100 per cent, which boosts the “probability of price coordination.”
“We are still in productive discussions using the Bureau. The sites involved aren’t material from a contribution perspective,” Espey said, while declining to recognize a time frame to resolving the dispute.
Parkland’s fuel business comprises 70 percent of its revenues, but Espey is looking to raise the non-fuel contribution to Half, especially because the company rolls out convenience stores underneath the On the move brand acquired from Imperial Oil.
The company was already running 600 of Imperial’s Esso-branded online stores and was its largest branded distributor in the country.
Despite the rapid regulatory pressures on the hydrocrabons segment, Espey, a 49-year-old former Navy officer, doesn’t expect to its fossil fuel filling stations substituted with electric vehicle charging stations any time soon.
Parkland includes a few electric-charge stations but they’re only used “occasionally,” said Espey.
“There is a nice big headwind and inertia to adopting another fuel, and that is driven by couple off factor: one is the relative price of fuel, and second is capital base set up in people’s cars. People aren’t rushing out to buy electric cars.”
Parkland is continuing to grow to a $2-billion market cap company from $700 million 5 years ago, and is looking to diversify from its core Western market.
Acquisition from the Quebec propane company is a continuation of the company’s transfer to new areas, as is a growing focus on the U.S market after it acquired North Dakota-focused SPF Energy Inc. for $113 million in 2013.
But the business’s exponential growth may also be difficult to maintain moving forward, analysts say.
“The wherewithal to acquire businesses at reasonable valuations or integration issues post-acquisition could change up the company’s long-term growth potential,” says RBC’s Khan, who has a 12-month price target of $23 for the company.
The company’s shares grew 6.5 percent in 2015, but have pulled back 4.5 percent this season, trading at $21.90.
Lower business activities, rising competition from fuel marketers and continued market share gains of non-traditional players could also affect Parkland’s results, Khan said.
“We have been in a great spot,” Espey counters. “We have indicated that we can make accretive acquisitions for shareholders.”
And Espey might not be done dealing yet.
Opportunities for more acquisitions are rising as large operators such as Exxon Mobil Corp., Royal Dutch Shell Plc. and Chevron Corp. have been in the midst of a decades-long retreat from their retail operations.
“There are others probably better positioned to run the day-to-day operation on the ground,” said Espey. “If we are able to dominate a website and do better around the productivity, than everybody will win.”
Financial Post
yhussain@nationalpost.com
Twitter.com/YAD_FPEnergy
