Superior Plus: A 40% Loss for Investors, But What's Next?

Superior Plus Corp (TSE:SPB) investors have faced a significant setback, with the stock price declining by approximately 40% over the past three years. This substantial loss has raised concerns and questions about the company's future prospects. In this article, we will delve into the factors contributing to this decline and explore the potential outlook for Superior Plus.

The decline in Superior Plus' stock price can be attributed to several factors. Firstly, the company's primary business, propane distribution, is a mature market with limited growth potential. The shift in energy demand towards renewable sources has led to a decrease in demand for traditional fuels like propane, impacting Superior Plus' revenue and profitability. Additionally, fluctuations in energy pricing have affected the company's margins, as it both buys and sells these commodities. Recent volatility in energy markets, driven by geopolitical tensions and supply chain disruptions, has created uncertainty and impacted Superior Plus' financial performance.



Furthermore, Superior Plus' high dividend yield, currently around 9.5%, has raised concerns about its sustainability. While the company has maintained its dividend, the high yield may be a sign of the strain on its financials, contributing to investor unease and the stock price decline. The company's high debt level, currently at 3.9x, has also been a concern, although it is gradually declining.

Strategic decisions, such as mergers and acquisitions, have also played a role in Superior Plus' stock performance. In 2021, the company acquired the propane distribution business of Inergy, which expanded its customer base and strengthened its market position. However, this acquisition also increased the company's debt levels, which may have contributed to its recent stock price decline. Additionally, Superior Plus' decision to invest in renewable energy and related products and services, while strategic for long-term growth, may have led to short-term volatility in its stock price.

Regulatory changes and geopolitical factors have also influenced Superior Plus' operations and stock price. The company's primary business is subject to regulations governing energy markets and environmental standards. In recent years, stricter emission controls and the promotion of renewable energy sources have influenced demand for propane, affecting Superior Plus' operations and profitability. Geopolitical factors, such as trade disputes and political instability, have also impacted the company's ability to import and export products, further influencing its stock price.

Despite these challenges, some analysts view the current valuation as reasonable, with an EV/EBITDA of around 8.0x, and believe the dividend is not at risk for now. However, investors should consider SPB-T a higher-risk stock due to its small size and leverage.

In conclusion, Superior Plus Corp's 40% decline over the past three years can be attributed to various factors, including changes in energy demand and pricing, strategic decisions, and regulatory changes. While the company faces challenges, it is essential to monitor its financial performance and strategic initiatives to assess its long-term prospects. Investors should remain cautious and consider the company's higher-risk profile when making investment decisions.