Scotia raises target to $10 EnerCare Inc. (ECI
-
T C$9.34)
George Doumet
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(514) 350
-
7788
(Scotia Capital Inc.
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Canada)
Q1/13: Attrition Outlook Improving
Event
Pertinent Data
New
Old
Rating:
--
SP
Risk:
--
High
Target:
1
-
Yr
$10.00
$9.50
Adj
EBITDA13E
$165
$164
Adj
EBITDA14E
$168
$167
New Valuation:
6.5x EV/Adj. EBITDA on 2014E
Old Valuation:
6.25x EV/Adj. EBITDA on 2014E
Key Risks to Target:
Attrition, shifts in public policy, interest
rates
Full Story
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Analyst Link
Table of Contents
¦
EnerCare reported Q1/13 adjusted EBITDA of $41.4M vs. our estimate of $40.8M and
consensus of $39.7M.
Implications
¦
Q1/13 revenues were up 9.4%, driven mainly by a 29% increase in sub
-
metering
revenues.
We expect revenue growth to remain robust through 2013 and 2014, as installed units
convert to billable. Legacy revenues were relatively flat at $47.1M due to a reduction in
installed assets (1,165K vs. 1,203K last year) offset by rental rate inc
reases.
¦
Attrition for the quarter came in at 11k units vs. our estimate of 16k units and down from
17k last quarter. This marks the lowest level of attrition since Q2/08 and confirms an
improving trend that started three quarters ago. Longer term, we expec
t lower attrition
levels, assuming the enactment of Bill 55.
¦
We are raising our valuation multiple to 6.5x EV/EBITDA on 2014E based on a clearly
improving attrition outlook. Given that ECI trades closely with attrition, we expect multiple
expansion followi
ng consecutive quarters of attrition around the 10k to 15k mark. We are
still cautious on the likelihood of a material correction in the Ontario housing market and a
negative ruling from the Competition Tribunal proceedings.
Recommendation
¦
We believe ECI
shares are attractive for yield
-
oriented investors