RBCHaven't seen any other upgrades yet but here's RBC's response. Their current and upside scenario targets are $16.00 and $18.00 respectively. GLTA
August 11, 2015
EnerCare Inc.
Solid Q2 beat; growth visibility improves
Our view: Q2/15 results beat our estimates and consensus on the back of
stronger-than-expected HVAC sales and lower costs. We are maintaining
our Sector Perform rating, as we need more comfort regarding the
sustainability of this quarter's performance.
Key points:
Stronger-than-expected Q2. EnerCare's Q2/15 Adjusted EBITDA was $61
million, compared to our estimate of $55 million and consensus of $57
million. The Q2/15 ACFFO/share was $0.35, exceeding our estimate of
$0.27. The variance to our estimates is primarily driven by higher-thanexpected
HVAC sales volumes, lower call volumes leading to a reduction in
variable costs, and also slightly higher-than-expected customer additions.
Attrition continues to improve. Attrition has been improving year-overyear
since 2009. In the second quarter, attrition declined by 9%, and
management highlighted that the rental portfolio experienced net unit
growth in July, which was the first time since 2008. Attrition continued
to decline due to various factors including EnerCare's drive to improve
customer awareness and experience, and the implementation of Bill 55
(April 1, 2015).
New product introductions and favorable shifts in product mix.
EnerCare's strategy to shift its asset mix toward products with higher
returns is playing out nicely. For instance, the company has successfully
increased the proportion of HVAC rentals compared to outright sales, as
management estimates that a rental generates 2.5x the value relative
to an outright sale. EnerCare has also introduced new product offerings
to generate additional profit, including water softener rentals, and HVAC
financings and extended protection plans.
Low payout ratio provides flexibility. On the back of the strong Q2
performance, we estimate the 2015 payout ratio to be approximately
60%, providing EnerCare with financial flexibility. EnerCare initiated sharebuybacks
(through a Normal Course Issuer Bid) and repurchased $3 million
of common shares in Q3/15. We believe EnerCare has room in its payout
ratio, coupled with organic growth, to continue share repurchases and
increase its dividend in the high-single-digit range for several years.
Revising estimates. We have increased our 2015 and 2016 ACFFO/share
estimates to $1.32 and $1.05 (from $1.13 and $0.87), respectively, mainly
to reflect the second quarter results as well as our improved EBITDA
growth outlook.