Alaris Royalty Corp ALARF

Put that in Pipe - Mickey Caph (Scotia Update)

[SunsetGrill]

Still wanna stick with $150 Million deployment for 2019???? Still wanna stick with 80% ratio. Scotia revised 2019 deployment to 30 mill down from 43 mill. But you know more than analysts - 5x more apparently. THey have a 150 mill to deploy RIGHT. Its hard to be humble. Now lets hear how scotia is wrong blah blah blah. - maybe but not that wrong


Alaris Royalty Corp. Elevated Leverage Likely a Mid-term Constraint to Net New Investment Activity OUR TAKE: We remain below consensus, but have made upward revisions to our EBITDA/sh and net cash from operating activities (NCOA)/sh estimates, largely reflecting a shift in funding sources that assumes Alaris will maintain elevated levels of debt in its capital structure. Our revisions reflect more modest levels of net new investment activity and a shift in our funding assumptions from common equity to further extension of senior credit lines and, potentially, hybrid debt. We have revised our valuation metrics to better align with the likely capital strategy and to enhance historical comparability (see Exhibits 1 and 2). Our target is derived from a 50/50 weighting of NCOA/EV yield and EV/EBITDA. Maintaining $19.00 target and SP rating. The stock has come off its lows, but investor confidence likely remains fragile. Operating with an increased level of leverage will possibly heighten investor sensitivity surrounding any deterioration in the health of the portfolio, and unexpected early redemptions of successful investments would present a headwind to growth, particularly if capital deployment slows. KEY POINTS In its early stages of being a public company, Alaris used minimal leverage and funded new investments largely through equity issuance that was accretive given valuation levels. Alaris has not tapped the equity markets since 2015, with new investments funded through recycling of capital from sale proceeds and debt. Following an active year of capital recycling and deployment, we expect leverage levels to become a constraint for net new investment activity over our forecast period. We expect Q4/18 debt to forward EBITDA to reach about 2.2x. The company's senior debt covenant of 2.5x provides some near-term flexibility to rise to 3x over 90 days; however, based on our 2019 outlook, we estimate the company has additional debt sustainable capacity of about $25M-$30M on its senior lines (see Exhibits 3 and 4). Much attention is paid to the outlook for gross new investment activity, but we think the more telling metric is net new investment, which reflects early redemptions and sale of legacy investments. We believe this better reflects the growth outlook, along with true underlying funding needs given the ability to recycle capital. We project net new investment activity in the $30M range for 2019 and 2020, down from an estimated $43M for 2018 (see Exhibit 5).