May 8, 2022
Alaris Equity Partners Income Trust
Q1/22 largely in-line with portfolio performance remaining very strong
Our view: Q1/22 results were largely in line with our forecast with portfolio health remaining very strong. We see the stock as appealing for investors looking for a small-cap stock offering an attractive distribution yield (7.1%) with exposure to the private equity industry. Maintaining Sector Perform rating and $24 price target.
Key points:
Q1/22 normalized EBITDA of $33.8MM was marginally below our forecast of $34.3MM, but in line with consensus of $33.9MM (range of $32.0MM to $35.2MM). We backed out $1.8MM of F/X losses, $10.0MM of investment fair value gains, and $0.9MM of transaction costs from Alaris’ reported EBITDA of $41.2MM. The variance from our forecast was driven by higher-than-forecast G&A expenses.
Investment portfolio health remains very good, with a weighted average earnings coverage ratio (ECR) of ~2.0x and ~73% of its portfolio having an ECR >1.5x (see page 3 for more analysis on Alaris’ reported ECRs this quarter).
Other takeaways: (1) Alaris said the current market environment has them seeing fewer quality companies as potential new investments from their advisor network in the past couple of months; (2) Alaris has not seen a meaningful decrease in the valuations of private companies yet, despite the significant decline in valuations of publicly-traded companies; (3) Alaris has $137MM of available debt capacity following the redemption of Kimco; (4) current run-rate revenue is $154.8MM and run-rate cash flow is $34.1MM, or $0.75/unit; and (5) Brown & Settle (~$81MM FV, ~6.5% of portfolio) saw continued revenue and EBITDA improvements, which drove its ECR higher to the 1.2x – 1.5x range and has committed to fully repay its deferred distributions from 2021 (US$0.2MM).
Maintaining Sector Perform rating and 12-month price target of $24/unit.