March 15, 2024
Alaris Equity Partners Income Trust
Q4/23 normalized EBITDA was ahead of forecast
Our view: Q4/23 normalized EBITDA was ahead of our forecast, primarily due to higher-than-forecast common equity dividend income. Overall investment portfolio health continues to show signs of stabilization, although we think clearer evidence of an improving trend would be a positive catalyst for the stock. We increase our target to $18 (was $17) and maintain our Sector Perform rating.
Key points:
Q4/23 normalized EBITDA of $37.6MM was ahead of our $36.5MM forecast and $35.7MM consensus (range of $34.5MM to $36.5MM). Of note, we backed out $2.6MM of F/X losses; $27.5MM from investment fair value gains; and $2.0MM of transaction costs from Alaris’ reported EBITDA of $61.3MM. The positive variance was driven primarily by higher-than- forecast common share dividends from equity investments.
Investment portfolio health continues to show early signs of stabilization as Alaris’ Earnings Coverage Ratios (ECRs) were largely unchanged Q/Q. Alaris’ Q4/23 weighted-average ECR was ~1.6x (vs. ~1.6x Q/Q in Q3/23) with ~43% of its portfolio having an ECR >1.5x (vs. ~36% Q/Q in Q3/23). See page 3 for more analysis on Alaris’ reported ECRs this quarter.
Other takeaways: (1) Alaris expects distribution revenue of ~$39.2MM in Q1/24 from its preferred and equity investments; (2) Alaris expects that of its Partners in 2024, 9 will have a positive annual preferred distribution reset and 8 will have a negative annual preferred distribution reset; (3) Alaris expects annual general and administrative expenses of $16.5MM in 2024; (4) Alaris amended its credit facility, which increased the base from $450MM to $500MM with reduced pricing and an increase in the senior debt to contracted EBITDA covenant from 2.5:1 to 3.0:1; and (5) starting in 2024, Alaris indicated it qualified as an investment entity as defined by IFRS 10, which will change Alaris’ financial reporting.
Increasing our 12-month target to $18/share (was $17) and maintaining our Sector Perform rating. The increased target reflects slightly higher BVPS forecasts.
Conference call today at 11am ET; link to webcast available on Alaris’ website.