RE:RE:Q2 results - ??From CIBC:
ALARIS EQUITY PARTNERS INCOME TRUST
Getting Back On Track
Our Conclusion
Overall, we felt the Q2 print was much more in line than the preceding period. Revenue came in slightly above expectations, LMS is on track to resume distributions in Q3, the weighted-average ECR was unchanged sequentially (albeit with more private company partners moving down a band than up) and the 9% dividend yield remains well supported by a comfortable payout ratio of ~70%. Alaris trades at 0.79x P/B, which is a level the company has only traded at (or below) for 5% of the time over the past decade. We continue to view the current entry point as attractive and rate the shares Outperformer.
Key Points
Revenue slightly exceeds prior guidance. Excluding gains and losses, revenue came in at $36.9 million, slightly ahead of prior guidance at $36.1 million. The variance was attributed to higher-than-expected dividends from common equity investments. G&A expenses were essentially in line with our estimate (i.e., within $0.1 million), but the company lowered its G&A guidance on a go-forward basis by 6%, reflecting a reduction in legal fees as a result of the settlement of the Sandbox litigation last quarter. LMS progressing well. Concurrent with Q1 results, Alaris indicated that it would allow
LMS to temporarily defer distributions to help manage the inflated cost of steel inventory. EBITDA rebounded in Q2, supported by a normalization of steel prices and improved project pricing. The ECR remains below 1.0x, but Alaris expects LMS to restart distributions in Q3, with the six months of deferred distributions to begin repayment in early 2024.
Weighted-average earnings coverage ratio unchanged sequentially. The weighted-average ECR remained at 1.6x in Q2, unchanged from the prior quarter. However, five private company partners moved down an ECR band in Q2 (i.e., D&M, Heritage, Sagamore, Stride and Unify) versus only one that moved up (i.e., Edgewater).
Dividend remains comfortably supported. Alaris’ yield of 8.8% is supported by a payout ratio of ~70%, where revenues (and by extension earnings) are largely contractual in nature and highly visible. Even in a scenario where Alaris’ largest private company partner encountered challenging circumstances and was unable to sustain distributions, we believe the dividend would not be at risk.