November 13, 2017
Crius Energy Trust
First Glance: Weak Q3, but not as bad as some feared
Impact: Modestly Negative
First impression
Q3/17 results weaker-than-expected. Crius Energy reported Q3/17 Adjusted EBITDA of $18 million, falling short of our estimate of $26 million and consensus of $21 million (range of $19-26 million). Similar to its peers, the weak results were driven by a very mild summer, as the cooling degree days in Q3/17 were 24% lower than Q3/16. Although the results missed expectations, some investors were prepared for a larger EBITDA contraction. As a reference point, Just Energy reported a 64% EBITDA reduction in the past quarter, compared to an 11% decline experienced by Crius, which was partly offset by the July 5, 2017 acquisition of USG&E. Please refer to Exhibit 1 for additional details.
Organic customer growth picking up steam. During the quarter, the company organically added 64,000 RCEs (before acquisitions), which is roughly equal to the net customer additions over the previous three quarters (Q4/16 to Q2/17). It may be an indication that the company's growth initiatives are gaining traction, or the USG&E unit is experiencing strong organic growth.
Management expects significant synergies from the USG&E acquisition.
Management expects to achieve after-tax synergies to distributable cash of $55-60 million over the the next three years, comprised of $12-14 million of annual operational and financing synergies (to be fully realized by early 2019), plus an $18 million one-time cash tax savings by structuring the USG&E acquisition such that it can utilize NOLs from the Verengo acquisition. The magnitude of the synergies is large relative to the $37 million of EBITDA (12 months ending March 31, 2017) generated by USG&E. We previously estimated annual synergies in the range of $5-10 million, and reflected $5 million in our financial forecast.
Conference call: Tuesday, November 14, at 8:30 AM (ET). The dial- in number is 1-888-231-8191. We expect investors to focus on some additional colour on the weak Q3/17 results and strong organic customer growth. We also believe investors will try to assess the likelihood of the company achieving significant USG&E synergies