Alaris Equity Partners Income Trust
Q2/22 in-line with portfolio performance remaining very strong
Our view: Q2/22 results were largely in-line with our forecast with portfolio health remaining very strong. We view the units as fairly valued and that the current economic uncertainty could constrain the unit price in the near- term. We see the stock as appealing for investors looking for a small-cap stock offering an attractive distribution yield (7.4%) with exposure to the private equity industry.
Key points:
Q2/22 normalized EBITDA of $50.5MM was in line with our forecast of $50.1MM, but slightly below consensus of $51.2MM (range of $50.1MM to $52.9MM). We backed out $6.1MM of F/X gains, $0.5MM of investment fair value loss, and $0.9MM of transaction costs from Alaris’ reported EBITDA of $55.2MM. The variance from our forecast was due to higher-than-forecast dividend distribution revenue and slightly lower-than- forecast G&A expense.
Investment portfolio health improved slightly Q/Q and reached new highs, with a weighted average earnings coverage ratio (ECR) of ~2.1x and ~80% of its portfolio having an ECR >1.5x (see page 3 for more analysis on Alaris’ reported ECRs this quarter).
Other takeaways: (1) unsurprisingly, Alaris said the market downturn and economic uncertainty are impacting its deal pipeline and that although it still sees a large quantity of deals, the quality of the opportunities is not as strong. That said, Alaris said it expects to be active in H2/22 from not only potential new investments, but also existing investments that may need additional capital relating to potential acquisitions; (2) although there were no new details, Alaris said it continues to progress exploring developing an asset management strategy which potentially could include raising and managing 3rd party capital to invest alongside Alaris, which could generate management fees and carried interest; and (3) in Q3/22, Alaris completed a US$26MM (US$16MM in preferred units and US$10MM in equity) follow- on investment in Accscient, which Alaris estimates should generate US $2.1MM of additional annualized distributions.
Maintaining Sector Perform rating and 12-month price target of $20/ unit. Conference call on Wednesday at 11 am; dial-in available when pre- registered (link on Alaris’ website) and webcast also available.