Post by
SunsetGrill on Dec 07, 2021 10:17am
Scotia Update - Add On Investments
Rating Sector Perform
1-Yr. Target C$21.00
AD.UN-T C$17.76
1-Yr. Return 25.9%
Div. (NTM) $1.35
Div. (Curr.) $1.32
Yield (Curr.) 7.4%
Deal Flow Continues with Two Follow-On Contributions Worth US$14M
OUR TAKE: Neutral. Alaris issued a press release this morning announcing two follow-on contributions totaling US$14M, which was in line with our expectations. The investments continue AD's torrid 2021 on the capital deployment front, with the company having deployed more than $350M over the last 12 months, of which ~US $43M has been through follow-on contributions.
We believe AD could announce additional activity prior to the end of 2021, with follow-on opportunities as the most likely avenue. The recent redemption of FED injects additional capital that will likely help fund investments through the remainder of the year and into 2022, with the Kimco redemption likely in 1H/21 also critical to fund further growth next year. Looking into 2022, we believe investors will be focusing on capital management as a lever to drive the next phase of growth following a record year of capital deployment that could potentially create some capacity constraints to fund growth over time. In addition, we believe global supply chain shortages and complications are likely to put a heavier focus on the health of AD's investment portfolio through the coming year.
Maintaining $21.00 target price and SP rating.
KEY POINTS AD's US$9.5M follow-on contribution in 3E will result in an additional US$1.2M of annualized distributions, with the first reset predicated on y/y gross profit changes at the beginning of 2023. In total, Alaris is collecting ~US$5.4M from its investment in 3E, having invested a total of just under US$40M into the company. 3E will be using the proceeds to partially fund two acquisitions which will help diversify the business across its service offerings.
D&M's contribution comprised a US$4.5M investment in preferred equity, along with a US$0.8M of a short-term subordinated note. Alaris now has US$75.4M invested in D&M, with distributions totaling US$9.5M on an annualized basis, in addition to common equity distributions the company makes to Alaris on its common equity investment. D&M will use the proceeds to acquire a complementary business.