Superior Plus (TSE:SPB), a gas utilities company, is rallying today while the overall market is selling off heavily. The rally is due to Superior Plus’ new “transformative” (according to the company) acquisition of Certarus, a provider of low-carbon energy solutions, for an enterprise value of C$1.05 billion (C$853 million of equity value and C$196 million in debt). This acquisition diversifies Superior Plus, adding high-growth, low-carbon fuels to its platform. SPB paid an 8.5x EBITDA multiple based on full-year 2022 forecasts for the company. Importantly, it’s expected to be accretive to SPB’s distributable cash flow per share by a double-digit percentage next year.
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Superior used debt as well as shares for the purchase. As a result, Certarus shareholders will obtain C$500 million worth of SPB shares at a price of C$10.25 plus C$353 million in cash.
Generally, a big acquisition – this one represents over 50% of SPB’s market cap – can cause shares of the acquiring company to fall due to the risks involved in such acquisitions. However, the market clearly likes this one, and the 8.5x multiple looks reasonable. Since SPB issued shares at C$10.25 each, which is 4.6% higher than the stock’s previous closing price, it makes sense that the stock is trading higher today. Additionally, Superior’s leverage ratio is expected to be around 3.8x following the acquisition, and it will be able to deleverage after using its free cash flow.
Is Superior Plus Stock a Buy, According to Analysts?
According to analysts, SPB is a Strong Buy based on three Buys and one Hold assigned in the past three months. The average Superior Plus stock price target is C$13.38, implying 31.7% upside potential.
