Enercare, Inc. CSUWF

TD

[retiredcf]

Maintain their $24.00 target. GLTA

Enercare Inc.

(ECI-T) C$18.85

Update from Management Meetings Event

We hosted investor meetings with John MacDonald (CEO) and Brian Schmitt (Interim CFO) in Toronto.

Impact: NEUTRAL

Overall, the meetings confirmed our positive view of the company's stability and growth potential, particularly in the U.S. market. We believe that ECI is capable of sustaining an overall blended organic growth rate of 4-6% annually, while consolidated growth could reach 10-12% including acquisitions.

• Ontario Home Services — ECI expects to deliver low-single-digit growth, with a focus on product innovation including smart home monitoring.

• Sub-metering — EBITDA has the potential to more than double over time based on contracted business.

• Service Experts (U.S.) — ECI's efforts include expansion within existing markets, geographic expansion, and margin growth. The company characterized the U.S. market opportunity as carrying a 20:1 factor relative to Canada. The rental model opportunity is potentially meaningful over time (2.5x the value of a sale on a DCF- basis), but, in our view, consolidation appears to be the most intriguing opportunity. ECI is targeting 4-6 tuck-in acquisitions per year in the U.S. (US$5mm-US$40mm of revenue each at 5x-6x EV/EBITDA multiples), and it is our understanding that there are ~1,000-1,500 potential acquisition targets in the U.S. We believe that ECI could potentially double the size of the U.S. business within five years (from ~ $52.5mm LTM EBITDA) through a combination of organic growth and acquisitions.

  Other items of note:

• U.S. tax changes and rising interest rates — ECI does not expect to see material impacts from these items, given that it has existing tax shields and primarily fixed- rate debt.

• "Connected Home" — ECI is planning to expand its existing 100-home pilot program to ~1,000 homes in 2018, while potentially introducing the offering in the U.S. in 2019. Management believes that this offering will be attractive bundled with its protection plans and rental products as well as for individuals with multiple homes.

• Plumbing and Electrical services offer opportunities on both sides of the border, particularly in markets where ECI already has a strong HVAC business (cost synergies and cross-selling opportunities).

• Management anticipates periodic modest hikes in dividend to maintain its status in certain indices, while preserving capital for growth