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 last week, Parkland made two more deals, obtaining 80 On the move stores from Imperial Oil Ltd. for an undisclosed sum and adding a $22.5-million purchase of Propane Nord-Ouest, a propane marketing business serving Quebec’s mining industry.
Parkland, an energy distributor, runs using the downstream side of the energy sector. Unlike the upstream or production side of the industry that’s been decimated through the plunge in oil prices, Red Deer, Alta.-based Parkland is resistant to the worst crisis within the sector inside a generation.
Indeed, Espey, Parkland’s president and CEO, likes lower energy prices as it stimulates demand, even though it is yet another manifestation of lower economic activity.
“We have experienced demand increase in the East in comparison to the West,” Espey said within an interview. “In the western world you do have headwinds in business activities but, certainly within our network, it’s not off dramatically.”
As oil prices crashed 45 per cent this past year, Parkland posted a 17 per cent begin earnings its dividend five percent.
“Our current earnings guidance is $265 million. There is no reason 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, and a history of successfully acquiring and integrating businesses, in our opinion,” Sabahat Khan, an analyst with RBC Dominion Securities Inc., told clients in a note after the company announced its annual results this month.
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The deal for Burlington, Ont.-based Pioneer Energy, which has outlets primarily in Ontario and Manitoba, helps Parkland expand its national footprint to a lot more than 1,000 gas stations, comprising nine per cent from the country’s fuel market.
However, the Pioneer acquisition has run afoul from the Competition Bureau, which challenged Parkland’s acquisition of Pioneer gas 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 percent, which increases the “likelihood of price coordination.”
“We continue to be in productive discussions with the Bureau. The sites involved aren’t material from the contribution perspective,” Espey said, while declining to identify a period frame to resolving the dispute.
Parkland’s fuel business makes up 70 percent of their revenues, but Espey is looking to raise the non-fuel contribution to Half, especially as the company rolls out supermarkets under the On the move brand acquired from Imperial Oil.
The company was already running 600 of Imperial’s Esso-branded retail sites and was its largest branded distributor in the united states.
Despite the rapid regulatory pressures around the hydrocrabons segment, Espey, a 49-year-old former Navy officer, doesn’t be prepared to its fossil fuel filling stations replaced by electric vehicle charging stations in the near future.
Parkland includes a few electric-charge stations but they are only used “occasionally,” said Espey.
“There is a nice big headwind and inertia to adopting another fuel, and that’s driven by couple off factor: one is the relative cost of fuel, and second is capital base installed 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 it is looking to diversify from the core Western market.
Acquisition of the Quebec propane company is a continuation from the company’s transfer to new areas, out of the box an increasing concentrate on the U.S market after it picked up North Dakota-focused SPF Energy Inc. for $113 million in 2013.
But the company’s exponential growth may also be hard to maintain moving forward, analysts say.
“The inability to acquire businesses at reasonable valuations or integration issues post-acquisition could impact the company’s long-term growth potential,” says RBC’s Khan, who has a 12-month price target of $23 for that company.
The company’s shares grew 6.5 per cent in 2015, but have pulled back 4.5 percent this season, trading at $21.90.
Lower economic activity, rising competition from fuel marketers and continued market share gains of non-traditional players may also affect Parkland’s results, Khan said.
“We are 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 additional acquisitions are rising as large operators for example Exxon Mobil Corp., Royal Dutch Shell Plc. and Chevron Corp. have been in the midst of a decades-long retreat using their retail operations.
“There are others probably better positioned to run the day-to-day operation on the floor,” said Espey. “If we are able to dominate a website and do better around the productivity, than everybody will win.”
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