From RBC
March 8, 2018
Crius Energy Trust
First Glance: Core energy retail results in-line, but
solar continues to be a drag
Impact: Positive
First impression
We expect shares to trade higher from depressed levels. Heading into
the quarter, we believe investors were spooked by concerns regarding
liquidity, distribution sustainability, and potentially weak Q4/17 results.
With the release of the Q4/17 results, we believe the company's liquidity
position is sufficient at $49 million, leverage is at a conservative ~0.9x our
2018 EBITDA forecast, and we believe the 2018 payout ratio will remain
in the 50-60% range. If the units remain depressed, we fully expect the
company will repurchase units under its NCIB.
Core Q4/17 results in-line. Crius Energy reported Q4/17 Adjusted EBITDA
of $18 million, falling short of our estimate and consensus of $20 million
(consensus range of $19-21 million). The variance is due to the -$3 million
EBITDA contribution from the solar division compared to our estimate
of -$1 million. The core energy retail business performed in-line with
our estimate, and management reiterated that it will focus on achieving
profitability in the solar division by the end of 2018. Please refer to Exhibit
1 for additional details.
Net attrition driven by non renewal of municipal aggregation customers.
During the quarter, the company lost 54,000 RCEs (before acquisitions),
compared to gaining 64,000 RCEs in Q3/17. The net attrition is
disappointing, and management highlighted that it was driven by the
non renewal of municipal aggregation customers (lower margin) totaling
50,000 RCEs. In addition, consistent with the message at the company's
January 2018 Investor Day, management expects attrition in 2018 to
be elevated as marginally profitable (or unprofitable) customers will
be returned to the utility upon contract expiration, if the company is
unsuccessful at renewing them at a higher margin.
Exposure from Viridian legal settlement consistent with reserve. Last
month the preliminary approval of a $18.5 million class action lawsuit
settlement regarding Viridian (previously owned by Crius) was reached.
Management had made previous arrangements to cap its exposure to
$13 million (consistent with its legal reserve established in H1/17), and
indicated last week that it expects to make payments over a 18-month
period.
Conference call: Friday, March 9, at 8:30 AM (ET). The dial-in number
is 1-888-231-8191. We expect investors to focus on customer attrition,
gross margin trends, M&A opportunities, and additional colour on
management's approach to its NCIB.
Disseminated: