Alaris Royalty Corp ALARF

Scotia Maintains $19.00

[SunsetGrill]

Rating Sector Perform 1-Yr. Target C$19.00 AD-T C$20.02 1-Yr. Return 3.1% Div. (NTM) $1.65 Div. (Curr.) $1.65 Yield (Curr.) 8.2%


Deal Flow Picks Up with $70M Investment in New Partner OUR TAKE: Slightly Positive. Alaris announced a $70M total investment in Amur Financial Group (Amur), consisting of a contribution of $50M for debt and preferred units and an investment of $20M in exchange for minority ownership of its common equity. The contribution will result in annual cash distributions of $6.5M (13% pre-tax yield), subject to a collar of 6% (in 2021). After a slow start to the year, deal flow appears to have picked up with the investment, which comes on the heels of the company's $100M convertible debt issuance. Prior to the announcement, AD had deployed only ~$17M in 2019 via follow-on contributions. Despite the slow start, during the last quarter's conference call, management had relayed a bullish outlook for capital deployment as it was working on a number of potential deals, mostly on the larger side. Maintaining $19.00 target price and Sector Perform rating. With only minor revisions to our forecast, we are maintaining our $19.00 target price. With limited upside given a one-year expected total return in the low-single digits, the stock appears to be fairly valued and we are maintaining our SP rating. KEY POINTS Amur was founded 30+ years ago and is one of Canada's leading fully integrated independent originator, manager, and servicer of home equity loans. Its business model is based on home equity loans being issued for debt consolidation, home renovation, or other uses. Amur has two revenue streams: mortgage origination (through Alpine Credits) and investment management.

The deal marks a bit of a shift away from its traditional contributions, and this is the first time AD has invested in a partner for not only preferred shares but also common shares. Management was attracted to Amur's consistent growth and policy of paying out excess cash as dividends. Any common share dividend payments received by AD will be in addition to the annual cash distributions. AD estimates Amur's earnings coverage ratio to be between 2.0x and 2.5x based on its review of its financial results. Following the transaction, AD will have ~$190M drawn on its senior credit facility and ~$160M available to invest. We raised our outlook for net capital deployed by ~$25M in 2019E and 2020E on the back of the larger-than-expected recent convertible debt