RBs initial commentsTarget price to be announced tomorrow.
Just Energy Group Inc.
First Glance: It JUST went from bad to worse
Impact: Very Negative
First impression
Releasing a flood of bad news. Over the past month, the company surprised the market with a $45-50 million write down of receivables, followed two weeks later by an abrupt change in the CEO. Last night the company announced the suspension of their dividend, a total receivables write down of $133 million, weaker-than-expected Fiscal Q1/20 results, a reduction in F2020 guidance, and a negative cash balance of $0.4 million (with 96% of its credit facility utilized). In addition, it appears that the company will accelerate the sale/disposal of its U.K. business, while continuing to run a sale process for the rest of Just Energy.
Large receivables write-down. During the quarter, management wrote down $59 million of receivables relating to customer enrollment and non- payment issues primarily in the Texas residential market. Management also identified collection issues in the U.K. business resulting in an additional $74 million of receivables write down.
Suspending the dividend. The Board decided to suspend the common share dividend "until further notice". We had recently highlighted the tight funding picture and near-term "cash crunch", and expected a significant dividend cut absent a sale. Due to the lack of liquidity, suspending the dividend is prudent and positions the company to gradually deleverage its balance sheet (absent a sale).
Posted weak FQ1/20 results and reduced F2020 guidance. Just Energy's Fiscal FQ1/20 Base EBITDA from continued operations of $24 million (excluding the U.K. operations) was well below our estimate of $39 million, and lower than consensus of $41 million (FactSet). We believe the U.K. business may have generated negative EBITDA margins. Management reduced their F2020 Base EBITDA and free cash flow (FCF) guidance (excluding the U.K.) to $180-200 million and $50-70 million, respectively, (from $220-240 million and $90-100 million, respectively, which include the U.K. operations).
Strategic review is still ongoing. The company highlighted that the strategic review is ongoing and progressing "within the special committee's expectations". Although it appears that a sale of the company could still take place, the market's value expectation would have significantly declined.