BNS - Q2 PreviewPERTINENT DATA
Rating Sector Perform
1-Yr. Target C$17.50
AD-T C$16.41
1-Yr. Return 16.5%
Div. (NTM) $1.62 Div. (Curr.) $1.62
Yield (Curr.) 9.9%
Valuation: 11x 2019E NCOA
PERTINENT REVISIONS
New Old
CFPS from Ops18E $1.72 $1.59
Q2/18 Preview: Limited Visibility from Busy Quarter OUR TAKE: We have revised our estimates for Alaris (AD) heading into Q2 results. The company is set to report after market close on Monday, July 23; its same-day conference call is scheduled for 7:00 PM ET (1-866-475-5449; pass code: 9096179). We are forecasting Q2/18 net cash from operating activities (NCOA) of $0.36 and normalized EBITDA/sh of $0.54. Given the numerous transactions that took place in Q2, which resulted in gains for AD, visibility heading into the quarter appears to be limited, which has likely contributed to the large dispersion among consensus estimates. That said, we have revised our estimates to incorporate the impact of these developments (Exhibit 3).
Maintaining $17.50 target price and SP rating. While Alaris has made improvements related to its challenged files, its valuation remains discounted and currently trades at 10.3x our NTM NCOA (Exhibits 1 and 2). The combination of a highly competitive and uncertain environment for new capital deployment, along with the risk of further unexpected early redemptions of successful investments, is likely to constrain multiple expansion over the near to mid-term. That said, stronger-than-expected capital deployment likely represents a potential catalyst for the stock.
KEY POINTS In addition to the $97.6M of cumulative proceeds received in Q2 from the redemption of Labstat and Planet Fitness, AD announced the repurchase of its financial interest in End of the Roll for $12.6M in July. During the quarter, Alaris announced followon contributions in two existing investments – ccComm (US$10M contribution) and Accscient (US$3M contribution), in return for total combined annual distributions of US $1.8M, along with a new US$15M contribution into Fleet Advantage (US$2.1M annual distribution). For the quarter, we will be seeking an update on the remaining challenged files, more specifically, SM Group and SCR Mine Services. In addition, we will be looking for commentary on the investment pipeline as management expects another record year for capital deployment in 2018, despite a highly competitive private equity environment. Recall that, while 2017 was a near-record year with $172 million in capital deployed, the investments were weighted toward a very strong second half of deployment for the year. As a result, we are forecasting another ~$100M of gross new investments for the remainder of 2018.