new from Scotia Daily Edge ■ Crius announced the acquisition of Superior Plus Energy Services' US retail energy portfolio of 20k residential and small commercial accounts, totalling ~40k RCEs for a purchase price of up to $4.8M.
Implications
■ We like this acquisition given that: (1) electricity RCEs were acquired at an attractive $120 per unit, (2) the book is diversified (residential/ commercial and geographically), and (3) the book has a lower attrition profile (fixed contract and commercial) than KWH's current portfolio.
■ We estimate this transaction to: (1) be accretive to 2014 EBITDA and AFFOPU by 10% and 13% and (2) reduce the trust's payout ratio to 103% (from 117%) in 2014 and to 73% (from 81%) in 2015. As a result of this acquisition, we are now modelling net 2014 RCE adds of +31k.
■ Following the negative impacts of the polar vortex and SPB acquisition, we estimate Crius will have cash and cash availability of ~$43.4M (as at the end of Q3/14), which could be deployed towards additional acquisitions. Assuming Crius makes an 80k RCE customer-centric
electricity acquisition in Q4/14 at $120/RCE, we estimate the trust's 2015 payout ratio would decrease to 59% from 73%.
Recommendation
■ While we believe KWH has ample liquidity to weather Q1/14 and make additional tuck-in acquisitions throughout 2014, we remain on the sidelines until we get more visibility on the attrition profile following the expected material price hikes to the company's key customer base.
NEW PRICE TARGET: $5/unit.