Crius Energy Trust Tr Unit CRIUF

From RBC

[Al42]

May 16, 2018
Crius Energy Trust
Dodging the "bomb cyclone" bullet, but turning
off the lights on rooftop solar
Our view: We reiterate our Outperform rating on the units of Crius
Energy due to the following factors: i) the company is well positioned
to report strong Q2 results after managing through the extreme January
weather (bomb cyclone) relatively unscathed; and ii) the company will
likely repurchase units under its NCIB.
Key points:
Focused on higher-margin customer growth, and cost savings.
Management indicated that it concluded a strategic review of
various options (e.g., sale of the business, large acquisition, levered
recapitalization, etc.) that led to focusing on higher-margin customers in
the energy retail business and implementing cost savings (consistent with
strategy highlighted in its January investor day). We note that Just Energy
went through a period of focusing on higher-margin customers, which led
to approximately two years of net customer attrition.
Ready to execute NCIB. The announced normal course issuer bid (NCIB)
to purchase up to 4.4 million units was approved by the TSX in late March,
but the company did not make any repurchases to-date due to its ongoing
strategic review. Now that the process has concluded, management
indicated that it would start repurchases "as soon as possible", utilizing a
formulaic approach.
Throwing in the towel on solar. Over the last two years, management
made its best efforts to leverage its energy retail business to grow in
the rooftop solar sector, but results did not materialize. As a result, the
company is looking to divest (or wind down) the rooftop solar division. We
believe the company took a measured risk (~$20 million acquisitions and
negative EBITDA over the last two years) on a large opportunity that failed
to gain traction, and now management can refocus on its core business.
Dodging a bullet in Q1. Crius's Q1/18 Adjusted EBITDA of $20 million
was slightly lower than our estimate of $22 million driven by a negative
$2 million EBITDA contribution from the solar division and $1 million of
costs related to the strategic review. Management did not quantify the
impact of the extreme weather experienced in January, but we believe
the company managed through the event well. As a reference point, an
energy retail peer recently reported a 54% reduction in Q1/18 EBITDA
(from Q1/17).
Revising estimates. We remain comfortable with our 2018E EBITDA and
increase our 2019E EBITDA to $111 million (from $105 million). Our
revisions primarily reflect higher attrition rates and Crius’s adoption of
IFRS 15. Under IFRS 15, customer contract initiation fees (upfront fees)
are capitalized and amortized over the life of the contract vs. expensed as
incurred, which increases our near-term EBITDA estimates.