Enercare, Inc. CSUWF

TD 2

[retiredcf]

Enercare Inc.

(ECI-T) C$18.75

Q4/17: Outlook Remains Favourable; Reiterating BUY Rating Event

• Enercare reported Q4/17 revenue of $312.3mm (up 7% y/y), in line with our estimate of $310.9mm and consensus of $308.7mm. Adjusted EBITDA for the quarter was $74.1mm (up 2% y/y), in line with our estimate of $74.3mm but below consensus of $77.4mm.

• Enercare announced a 4% increase to its dividend to $1.00/share.

  Impact: NEUTRAL

• Results in the quarter fell in line with our expectations and we remain of the view that the outlook for Enercare for F2018 and beyond is favourable. The company has several sources of long-term growth (roll-out of the HVAC rental model, embedded growth in sub-metering, the roll-out of the connected home program, and tuck-in acquisitions) and we continue to believe that Enercare could deliver overall organic growth of 4-6% per year and potentially 10-12% annual growth including acquisitions.

• We see tuck-in acquisitions as potentially being a meaningful, but often overlooked, source of growth in the coming years, with ~1,000-1,500 acquisition targets in the U.S. Enercare completed three tuck-ins in F2017, two already in F2018, and we believe it could potentially exceed its 4-6 tuck-in per year target this year. Along with organic growth, we continue to believe that acquisitions could help Enercare double its U.S. business within five years.

• We have fine-tuned our model and estimates following the results (note that our F2018 and F2019 revenue forecast is now net of sub-metering commodity charges given IFRS 15 adoption), while our $24.00 target price and BUY recommendation remain unchanged. In our view, Enercare remains a very stable company with a strong management team, attractive growth opportunities, good cash flow generation supportive of serial dividend increases, and additional upside from acquisitions.

  TD Investment Conclusion

  Enercare is an attractive long-term holding, as it is a well-run company with good growth opportunities and a portfolio of rental assets that generate stable and recurring cash flows supportive of the attractive dividend