Enercare, Inc. CSUWF

Industrials Rental & Leasing Services

"EnerCare Inc is a provider of essential home and commercial services and energy solutions. The company offers rental services of water heaters, water treatment, furnaces, air conditioners, and other HVAC rental products. EnerCare is also in the business of plumbing, protection plans, and related services. The company operates in Canada and the United States of America."

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Enercare, Inc.

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Post by retiredcfon Nov 15, 2017 9:17am

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Post# 26966620

TD

Enercare Inc.

(ECI-T) C$19.61

Upgrading to BUY Following Q3/17 Results Event

Enercare reported Q3/17 revenue of $325.9mm (up 3.2% y/y) versus our estimate of $322.8mm and consensus of $330.1mm. Adjusted EBITDA for the quarter was $78.1mm (down 1.9% y/y), versus our estimate of $81.9mm and consensus of $80.5mm.

Impact: NEUTRAL

Management estimates that EBITDA in the quarter was impacted by ~$2.6-3.6mm of one-time items (including ~$1-2mm from cooler weather y/y and ~$1mm from Hurricane Irma) and, adjusting for these items, adjusted EBITDA for the quarter would have fallen relatively in line with our estimate and consensus. Encouragingly, despite facing headwinds, Service Experts performance remains robust, delivering 8.5% y/y revenue growth on the back of 12% higher originations.
Enercare's shares have fallen by ~6% over the past month and have traded sideways since we downgraded to Hold in May. Recent results have alleviated some of our earlier concerns (elevated SG&A and challenging y/y comparables) and we believe that Enercare now presents a more appealing risk-reward trade- off relative to other companies in our coverage universe. We are upgrading to BUY (from Hold) at this time, while our $23.00 target price remains unchanged.
In its core Home Services portfolio, Enercare continues to deliver improved aggregation trends concurrent with pricing/mix improvement and we believe that the company is well-positioned to take advantage of a convergence of home services. Meanwhile, Service Experts continues to exceed our expectations, while the sub-metering business continues to have a strong pipeline of embedded growth. As outlined in our June 2017 Bulletin, we believe that the embedded growth in sub-metering and the roll-out of rentals at Service Experts could result in a combined ~$2.00-$3.00 per share of additional value. Additionally, Enercare pays an attractive 4.9% dividend yield and offers additional upside from the continued execution of tuck-in acquisitions (three completed at Service Experts to date) and we believe that the company's current valuation (9.5x F2018E EBITDA) offers investors a good entry point into the name.

TD Investment Conclusion

Enercare is an attractive long-term holding, as it is a well-run company with good growth opportunities and a portfolio of rental assets that generate stable and recurring cash flows supportive of the attractive dividend.