TD lowers target to 3.25TDW really ticked off about no questions during conf call.
Event
Just Energy (JE) reported Q1/20 EBITDA of $24.2mm, below our estimate of $39.3mm and consensus of $39.3mm. The reported results exclude the U.K. business, but we believe the quarter would have still been a sizeable miss even if these results were included.
The company lowered its F2020 EBITDA guidance to $180-$200mm (from $220- $240mm), with guidance now excluding the U.K. business (we estimate this accounts for roughly half of the guidance reduction).
JE announced that it is suspending its common share dividend.
JE announced that it plans to sell its U.K. business (separate from the potential sale of the company), which we believe is the result of potential North American strategic buyers not wanting to acquire assets outside of their core markets.
Impact: NEGATIVE
Operational trends in the quarter were largely negative, in our view, and JE's customer count decreased by 2% q/q (4% q/q drop in the consumer segment).
During the quarter, JE identified collection issues in Texas that resulted in a write- down of accounts receivable of $58.6mm (previously expected to be $40mm- $50mm). It also identified collection issues in the U.K. (not previously disclosed) that resulted in an additional write-down of accounts receivable of $74.1mm.
Despite the shares being down ~27% this morning, JE did not hold a question and answer session during the conference call, with management's comments limited to its prepared remarks.
We have lowered our estimates to reflect the classification of the U.K. operations as a discontinued operation and have gotten more conservative on our assumptions, given ongoing challenges in the business.
TD Investment Conclusion
At this point in time, we believe that an acquisition of the company by a strategic buyer is the most likely outcome for JE. We have revised our target price to $3.25, which equates to ~7.0x our F2020 EBITDA estimate. This is a ~2.0x turn premium to the pre-synergy multiple at which Crius Energy Trust was acquired, due to JE's larger scale and potential opportunities we see for greater synergies for a strategic buyer. We reiterate our HOLD recommendation.