Superior Plus is roaring back to life after a spectacular free-fall.
In the past year the distributor of refined fuels and supplier of sodium chlorate has transformed itself from a debt-ridden debacle to a much nimbler company, paying back money it borrowed and restructuring its operations.
In the course of just one year, investors who stuck with the stock have been richly rewarded, watching it soar 53 per cent since last February.
However, Superior Plus isn't out of the woods quite yet. The company's shares are still 25 per cent off their post-crisis peak near $15 each, and management must rebuild the trust of shareholders who lost loads of money after it slashed the dividend, helping to send the stock plummeting over 60 per cent.
But there's certainly progress to be proud of.
The causes of this rebound involve just about everything you can imagine. Superior Plus's new CEO Luc Desjardins is just over a year into the job he's already made 11 management changes. Together the new team is doing everything from reworking supply chain management to assessing logistics to drafting new pricing for individual customer groups.
In a recent conversation with CIBC World Markets analyst Jacob Bout, Mr. Desjardins also left numerous new options on the table including spinning out some assets, such as the construction products division. The way he sees it, the unit could fetch $250-million.
However, management also told Mr. Bout that excess cash will be put toward debt reduction. Superior Plus has come a long way from the days when its debt amounted to 6.1 times its earnings before interest, taxes, depreciation and amortization (EBITDA). That figure now rests at 4.6 times, according to Capital IQ, and the company has an internal target of 3.5 to 4 times.
Should Superior's different business units continue to grow the way they have, with its pulp chemical business now generating EBITDA of $115-million, reaching the target is certainly doable. Plus there's an opportunity to expand in South America in the near future, Mr. Bout notes, because the continent is developing new pulp mill projects.
Some big question marks remain. Chiefly, the Canada Revenue Agency is questioning whether Superior Plus owes back taxes related to is conversion from an income trust into a corporation. (More on that here.) If the CRA wins the case, it could cost the company $50-milion, or about 20 per cent of its 2012 EBITDA.
Still, the outlook is much better than it was a year ago.
(Tim Kiladze is a Globe and Mail Capital Markets Reporter.)
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