Our Conclusion
Alaris reported what we view as solid Q4/17 results. CFPS of $0.64
beat our $0.43 estimate, as did adjusted EBITDA of $18.5 million vs.
our $18.2 million estimate. Highlights were good cost control,
particularly compensation and corporate costs. We are maintaining
our Neutral rating on Alaris and $21 price target, pending further
evidence that it can put out more capital than it brings back through
redemptions; this is the key to dividend growth.
Implications
We see Q4/17 as largely a routine quarter for Alaris, though we do
sense the tone is turning more positive, both on investment
remediation (see page 3) and capital deployment. The balance sheet
is strong, with lots of dry powder; it will be unlikely to need new
equity for deals, at least in the current year.
Management speaks of strong business development activity,
including follow-on investments; notably, most distribution resets
have been at the high end of the collar range. New investment
opportunities encompass a range of investment sizes, regions (mostly
U.S.) and industries. Alaris is also seeing some good initial reception
to its proposed common equity component for suitable deals, which
management discussed at the recent CIBC Whistler Institutional
Conference.
We are introducing FY/19 estimates, which include 6.7% Y/Y
dividend growth to $1.74 over a reduced $1.63 FY/18 estimate (down
from $1.71). This reflects ongoing challenges in capital deployment.
At some point Alaris will be able to refocus on growing the dividend,
which should bring the yield down from its current 8.7%.