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Parkland Fuel Downgraded By CIBC To 'Sector Performer' On Valuation

 June 07, 2012 03:17 PM


(By Balaseshan) CIBC World Markets Inc. analyst Kevin Chiang downgraded his rating on shares of Parkland Fuel Corp. (TSE:PKI) to "Sector Performer" from "Sector Outperformer" due to valuation.

The brokerage maintained its $15.00 price target, which reflects a total return of 13% (including its $1.02 annual dividend), and is in-line with its "Sector Performer" rating.

While PKI has improved its transparency, Chiang suspects the Suncor contract and the limited details around its cost-savings initiatives will act as headwinds. He believes until there is greater clarity around these items, they will act as a cap on PKI's valuation.

That said, overall the analyst continues to have a favorable outlook for PKI as it moves forward with its plan to double its EBITDA within five years through a combination of cost cutting (targeting 5% reduction in operating costs), organic growth, and acquisition opportunities.

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In addition, Chiang views PKI's dividend as safe and he is forecasting a payout ratio of about 60% in 2012/2013, with the company targeting a payout ratio of 50% over the next 4-5 years. PKI has intimated as well that it may look to raise its dividend.

Parkland Fuel is a marketer and distributor of petroleum products, managing a nationwide network of sales channels for retail, commercial, wholesale and home heating fuel customers. It operates in two segments: commercial segment and fuel marketing.

PKI is trading down 1.97% at $13.94 on Thursday.

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