Enercare, Inc. CSUWF

TD Notes on Enercare Q1

[maypeters]

- will add more next week - could not add today

Enercare Inc.

(ECI-T) C$21.23

Q1/17 First Look

Damir Gunja

Paul Bilenki, (Associate)

Recommendation: BUY

Risk: MEDIUM
12-Month Target Price: C$22.00

12-Month Dividend (Est.): C$0.96

12-Month Total Return: 8.1%

Event
 

Enercare reported Q1/17 revenue of $277.8mm, versus our estimate of $263.3mm and consensus of $281.1mm.

Adjusted EBITDA for the quarter was $52.5mm, versus our estimate of $60.5mm and consensus of $61.5mm.
 

10:00 a.m. ET Conference Call (647-427-2311 or 1-866-521-4909).

Impact: NEGATIVE

Excluding non-recurring items (purchase price accounting, the write-off of certain

technology, and stock-based compensation), Adjusted EBITDA in the quarter was ~$56.0mm, still below expectations, although not as bad as the headline number may suggest.

The EBITDA miss relative to our estimates is due to higher-than-anticipated SG&A

at Service Experts, which we believe is likely the result of increased costs to rollout

the rental program across the platform.

The company added 9,000 units to its Home Services rental portfolio in the quarter

(up 13% y/y) versus 8,000 units lost to attrition (up 14% y/y). However, note that HVAC rental additions in Q1/17 decreased by 8% y/y, which the company attributed to warmer temperatures y/y leading to fewer furnace breakdowns.
 

In the sub-metering business, contracted units increased by 15% y/y in Q1/17, installed units increased by 6% y/y, and billable units increased by 11% y/y, with billable units currently representing 49% of contracted units. While these additional contracted units offer a source of embedded growth, Enercare also noted that as existing clients approach the end of their original contracts, renegotiated fees are likely to be below those of the original contracts due to

competitive pressures (the renegotiation of four contracts in H2/16 representing ~21,000 units was a $0.5mm headwind for the quarter).
 

Q1 is generally the seasonally weakest quarter for the Service Experts business as sales are most frequent at the beginning of the heating and cooling seasons. Enercare progressed with its rental program roll-out at Service Experts, with the program completed at all 15 Canadian locations in February 2017, and a pilot program introduced to two U.S. states in late March and one in May. While initial rental mix to date has been ~15-20% in Ontario and ~7-10% in Western Canada, it has only been ~3-5% in the U.S. (451 rentals across Service Experts in Q1/17).

[autofocus111]

Hey TD analyst pay attention. ECI mangement explained why the rental mix is lower in the USA markets. >>>The U.S. rental program is similar to Enercare's existing Canadian rental program, except that due to U.S. regulations, the rental contracts in the United States will be for a definitive term, which in the piloted states is 10 years. Enercare anticipates that the form of the

[TG1960]

OK everyone enough with the analysts yadayada...if you believe in the company and its business plan than own it and clip your coupon and take advantage of sell offs to increase your position. It was getting a little toppy and was due to consolidate anyway. Look back at the last couple of months and all the upgrades and increased price targets for ECI by all the anal### and boom a first qtr. loss

[maypeters]

well said. $22 is what TD expects in a year so the analyst seems to know no more than you ;-)

[maypeters]

I meant expected before the downgrade Everything the analysts do is in reaction - nothing proactive. And if an analysts says SELL they will find themselves out a job before the report even comes out.