GREY:ALARF - Post by User
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SunsetGrillon Sep 01, 2017 8:56am
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Post# 26646189
Scotia increase up to $25 Again From $24 from $25
Scotia increase up to $25 Again From $24 from $25Alaris Makes Its Largest Investment OUR TAKE: Alaris announced that it has invested US$85M (C$107.1M) in a new partner, Sales Benchmark Index, LLC (SBI) in exchange for US$11.1M (C$13.9M) of distributions. The SBI contribution closed on August 31, 2017, and is expected to largely offset the Sequel redemption where management expects to receive US$96M. The deal is positive for AD and is the largest investment in the company's history. We estimate the distribution from SBI will represent just under 20% of AD's current distribution. While SBI yields 13%, slightly below the average ~15%, Alaris is trading yield for larger participation in SBI's growth by expanding its distribution reset collar to 8% per year from the typical 5 or 6%. We were very encouraged with the magnitude of the investment as this single investment exceeded our estimated total for the back half of 2017 of $74M. We have subsequently increased our 2017 capital investment. Following the SBI investment and Sequel redemption, AD expects to have ~C$95M available for deployment. Increasing target to $25.00 and maintain Sector Outperform rating. We continue to believe capital deployment represents the next leg up for the stock with an eye on continuing progress in cleaning up the remaining challenged files. KEY POINTS SBI is a US-based management consulting firm specializing in sales and marketing dedicated to helping clients deliver revenue growth. SBI was founded in 2006 and uses the benchmarking method to help clients accelerate their rate of revenue growth. Alaris' investment in SBI is made up of US$75.0 million of permanent units as well as US$10.0 million of redeemable units. The redeemable units can be redeemed at par at any time up to the third anniversary following the closing of the SBI Contribution at SBI’s discretion. The estimated earnings coverage ratio on the SBI distribution is ~1.5x based on the debt-free proforma capital structure following the closing of the SBI Contribution. Alaris currently trades at 12.7x our NTM NCOA, representing a cash flow yield of ~8% (see Exhibit 1). In our view, Alaris is an attractive business model for investors seeking solid yield. Increased pace of capital deployment and clearing up of challenged files are key catalysts for the stock.