Post by
SunsetGrill on Mar 06, 2020 2:38pm
Scotia Analysis
Rating Sector Perform
1-Yr. Target C$21.00
AD-T C$17.18
1-Yr. Return 31.8%
Div. (NTM) $1.65
Div. (Curr.) $1.65
Yield (Curr.) 9.6%
Alaris Royalty Corp. Q4/19 Initial Take: Results A Touch Short with ccComm's Distributions Deferred OUR TAKE: Negative. Alaris reported Q4/19 results that were a touch short of expectations. That said, a key development that materialized was that on March 4, 2020, management of Alaris initiated a dispute process against the co-founders of Sandbox following a material reduction in the original offered purchase price, which could lead to legal proceedings. While the overall health of the portfolio remained largely in good shape, another issue appeared to prop up with management announcing the deferral of ccComm's distributions. Acceleration of payment terms from its primary vendor in June 2019 placed significant pressure on net working capital, which has not alleviated as expected due to lower volumes to start 2020. To reduce this pressure during ccComm's seasonally slow period (January to May), distributions on the preferred units were deferred beginning in February. We expect additional details to surface with respect to the sale of the Sandbox investment, along with the challenges at ccComm, and an update on the capital deployment pipeline during the conference call. We will provide a full update following the March 6 conference call at 11:00 AM ET (dial-in: 1-888-390-0546). Normalized EBITDA/sh of $0.71 was a bit below our forecast and the Street at $0.72. This was up 29% over last year, but in line with last quarter. The year-over-year increase was largely driven by a stronger top line reflecting net capital deployment and organic growth through annual resets across a number of investments in January. NCOA/sh of $0.48 also fell a touch short of our forecast of $0.49 and was flat y/y as revenue increase was offset by higher finance costs and negative changes in net working capital compared to the prior year. The payout ratio came in at 85.5%. The quarter saw 10 partners experience no change to their ECR, with two showing improvements and three experiencing deterioration. DNT and Planet Fitness saw their coverage ratio improve from 1.2x-1.5x last quarter to 1.5x-2.0x. Ascient's ECR deteriorated from 1.5x-2.0x to 1.2x-1.5x, while Fleet and Unify saw their coverage ratio decrease from above 2.0x in Q3/19 to 1.5x-2.0x. We also note that the new investment in Stride posted an ECR of 1.5x and 2.0x. Coverage ratios at Providence, Kimco and ccComm remained below 1.0x.