GREY:ALARF - Post by User
Post by
SunsetGrillon Jan 08, 2020 8:18am
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Post# 30529562
Scotia Comments On News
Scotia Comments On NewsRating Sector Perform
1-Yr. Target C$21.00
AD-T C$22.03
1-Yr. Return 2.8%
Div. (NTM) $1.65 Div. (Curr.) $1.65
Yield (Curr.) 7.5%
Alaris Royalty Corp. Large Redemption Helps Strengthen Balance Sheet and Provides Flexibility for New Investments OUR TAKE: Positive. Alaris provided a corporate update this morning, which discussed a number of developments, including: (1) a large US$91.3M redemption of Sales Benchmark Index LLC (SBI); (2) a US$6M investment in a new partner; and (3) followon contributions totaling $11.5M in two existing investments. The redemption of SBI was unexpected as management had previously discussed the still-pending redemption of Sandbox at length. That said, the proceeds from the monetization help further strengthen AD's balance sheet and provide increased capacity for new capital deployment opportunities. We have subsequently revised our capital deployment and funding assumptions. While we have reduced our 2020 estimates given reduced distributions, our 2021 forecast remains relatively unchanged. Increasing target price to $21.00 (was $20.00) but maintaining SP rating. We have increased our target price on the back of a slightly higher valuation multiple given the company's improved financial flexibility and balance sheet. Recycling capital into highquality and sustainable businesses is likely to help Alaris sustain its recent multiple expansion, in our view (see Exhibits 1-2). KEY POINTS Given these developments, AD's senior debt to EBITDA ratio improved notably from 2.47x at the end of Q3/19 to 1.6x on a pro forma basis. The company now has ~C$165M drawn on its credit facility, with C$215M available for investment purposes. The redemption in SBI concludes a successful investment for Alaris that saw the company achieve a healthy total return of ~50% and a ~22% IRR from SBI. Gross proceeds of US$91.3M from SBI include a US$7M make whole distribution owed up to the third-anniversary date of Alaris' initial investment, which was August 31, 2020. AD's latest investment, Stride, is a leading Agile software development consultancy firm with a healthy ECR in the 1.5x-2.0x range based on pro forma financial results. Alaris has committed to contributing, at the option of Stride, an additional US$4M, subject to some due diligence and achievement of certain financial targets. Alaris' follow-on contributions included: (1) US$10.5M investment in Unify and (2) a US $1M contribution in Planet Fitness, which was part of a previous commitment of capital of up to US$8M, with the remainder expected through the year