OTCPK:CSUWF - Post Discussion
Post by
retiredcf on Mar 08, 2017 8:27am
RBC
Their current and upside scenario targets are $21 and $24. GLTA
March 8, 2017
Enercare Inc.
Strong execution going into 2017
Our view: We believe Enercare is well positioned to grow its rental portfolio in 2017, with potential upside from tuck-in acquisitions and the gradual roll-out of its rental platform in the U.S. Although we are taking a cautious approach, we believe its shares are attractive to income and growth investors who are bullish on the roll-out of its rental platform.
Key points:
Service Experts continues to exceed expectations. Service Experts (SE) capped off 2016 with another strong quarter, delivering 30% accretion for the year (compared to management's estimate of 25%). Enercare (ECI) rolled out the HVAC rental model to all of SE's 15 locations in Canada in Q4/16, and initial results were very encouraging with a 10% rental mix in Western Canada where rentals are a new concept, and 20% in Ontario. In the U.S., rentals were piloted in two states during Q1/17 and will roll out to two more in H1/17.
Focused on whether the rental platform gains traction in the U.S. ECI's opportunity for significant value creation continues to be a full roll-out of its rental platform at SE. We believe investors will be closely monitoring the rental penetration rate at the initial states where rentals have been introduced.
Exploring small M&A opportunities. ECI plans to leverage the SE business platform to acquire HVAC service providers. Having already executed a small tuck-in in Q1/17, management highlighted that potentially acquisitions could range from small $1–2 million tuck-ins for existing regions to larger $25 million strategic acquisitions that expand ECI's footprint into new markets. Preference will be given to markets with proximity to ECI's existing operations, good regulatory framework, and businesses with strong brands and recurring service plans (i.e., captive customer base).
Dividend modestly increased by 4%. ECI announced a 4% dividend increase (to $0.96/share annualized), which was below our forecast of 10%. We believe management may be taking a more conservative approach on its payout so that it can internally fund small acquisitions and a potential ramp-up in capex due to the roll-out of its rental platform.
Increasing estimates. We are modestly raising our 2017 and 2018 EBITDA forecast to $317 million and $335 million (from $307 million and $324 million), respectively, to reflect stronger contribution from Service Experts. The increase in our 2017 and 2018 ACFFO/share estimates to $1.30 and $1.42 (from $1.28 and $1.40), respectively, is muted due to an increase in our maintenance capex forecast. (See Exhibit 3 for more details
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