Parkland Fuel Corp., Canada’s largest independent fuel distributor, slumped the most in 18 months after reporting earnings short of estimates that led an analyst at National Bank Financial to lower his rating.
Parkland plunged 13 percent to C$16.87 in Toronto, the most since August 2011. The stock has fallen 11 percent this year. Parkland was the top performer in the S&P/TSX Energy index in 2012.
The Red Deer, Alberta-based company reported fourth-quarter adjusted earnings of 18 Canadian cents a share, 49 percent lower than the 36 cent average estimate of two analysts surveyed by Bloomberg.
Trevor Johnson, analyst with National Bank Financial, lowered his rating to sector perform, the equivalent of a hold, from outperform, the same as a buy. He also cut his price target to C$20 from C$21.
“Given the light quarter and 2014 valuation headwinds we are downgrading to sector perform,” he said in a note to clients today. “The challenge now is that as we roll forward our valuation to 2014 we lose the refining margins provided alongside the Suncor contract, which we estimate totaled upwards of C$40 million in EBITDA in 2012.”
Parkland has been reaping the rewards of a supply contract with Suncor Energy Inc. in place since 1997 in which it shares a portion of Suncor’s refining margins. That contract expires at the end of this year.
Parkland’s fuel gross profits in its wholesale, supply and distribution division jumped 70 percent in 2012 to C$119.4 million due to high refiners’ margins. The company will host an investor day in Toronto on March 18 to provide “a detailed forecast” guidance for 2014 to 2016, after expiry of the Suncor contract.
Parkland’s commercial fuel volumes declined 20 percent to 382 million liters compared with 476 million liters a year ago, due to lower industrial activity and the reallocation of some supply to its other divisions, Johnson said.
“The company intends to continue diversifying its customer base and simplifying operations to drive margins in order to combat headwinds facing its exposure to tempered oil and gas and construction sectors,” Johnson said.
Bob Espey, chief executive officer of Parkland, said in a statement the company experienced “softness” in its core commercial markets due to weaknesses in the natural resource sector.
“We are well-positioned for growth when the industries we support pick up again,” Espey said.