Just Energy Group Inc. (Canada) T.JE

TD Lowers Target Price To $9.50

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Just Energy Inc. (JE-T) C$7.52 Removing from the Action List as JE Enters a Transition YearEvent Just Energy reported FQ4/17 Base EBITDA of $75.0mm (up 11% y/y), broadly in line with our estimate of $75.7mm and consensus of $72.5mm. Just Energy introduced F2018 Base EBITDA guidance of $210-220mm. Impact: NEGATIVE F2018 Base EBITDA guidance implies a y/y decline of 2.0-6.5% but, while we find F2018 guidance to be disappointing following several years of robust growth, note that the anticipated decline is due to higher operating costs to support future growth (primarily from increased prepaid commissions as management expects gross customer additions to increase significantly during the year). Management noted that, excluding these start-up costs, expected F2018 Base EBITDA growth would be ~5-10%. We view F2018 as being a transition year as Just Energy ramps up certain growth initiatives (including geographic expansion and channel expansion) and the company expects to return to double-digit EBITDA growth beginning in F2019. Key company metrics (net customer additions, attrition, customer renewal rates, gross margins per RCE) continue to trend favourably, and Just Energy expects to realize positive net customer additions in F2018. We have lowered our target price to $9.50 (from $11.00) based on 8.0x F2019E EBITDA (previously 8.5x) as we believe that the disappointing guidance will result in increased investor skepticism and that it will take time for Just Energy to regain investor confidence. While we continue to believe that Just Energy remains attractive at current levels, with the shares having returned ~21% since we added the company to the Action List in October 2016 and with F2018 appearing to be a transition year, we are removing Just Energy from the Action List at this time and moving to a BUY recommendation. TD Investment Conclusion At a current valuation of 7.9x F2018E EBITDA and 7.4x F2019E EBITDA versus a five-year average EV/NTM consensus EBITDA multiple of 8.2x, we believe that Just Energy shares remain very attractive at current levels, given the company's balance sheet, growth opportunities, and attractive and sustainable dividend.