April 25, 2022
Alaris Equity Partners Income Trust
Reducing to Sector Perform
Our view: So far in 2022, Alaris’ units have generated a total return of +3.3%, which compares to the -5.2% average and -6.5% median total return over the same period for the rest of our coverage universe. As a result, with an implied total return that is more in line with the average of our coverage universe, we reduce our rating to Sector Perform (was Outperform).
Key points:
Please see our sector report also published today, Canadian Diversified Financials: Q1/22 Preview and Best Ideas, for additional details.
Fundamentals remain strong. Alaris’ investment portfolio has a weighted average earnings coverage ratio (ECR) of ~2.1x and with ~75% of its portfolio having an ECR >1.5x. Alaris was active in 2021 deploying capital (almost $360MM), which should improve Alaris’ BVPS growth. Furthermore, the Kimco monetization helps to free up debt capacity to fund future investments.
However, current macro uncertainty could impact investment activity and/or financial performance within Alaris’ investment portfolio. While we believe Alaris’ strategy of structuring its investments to limit some of the downside risk should benefit unitholders, the current economic environment could nevertheless negatively impact the financial performance within certain investments within Alaris’ portfolio and ultimately preferred distribution resets for 2023.
We see the risk-reward as more balanced. Reducing our rating to Sector Perform (was Outperform) and 12-month price target to $24/unit (was $25), primarily reflecting a slightly lower valuation multiple (1.2x P/BV, was 1.3x).
Alaris reports Q1/22 results on May 5, 2022, with a conference call on May 6 at 11:00am EST; dial-in: 1-866-475-5449.