Desjardins Securities analyst Gary Ho raised his forecast for Alaris Equity Partners Income Trust ahead of the March 9 release of its fourth-quarter results.
He’s now projecting revenue for the quarter of $47.6-million and normalized EBITDA of $43-million. Both exceed the consensus estimates on the Street ($47-million and $41.6-million, respectively).
“Our revenue forecast of $47.6-million is slightly ahead of guidance of $47.0-million due to a higher common dividend contribution,” he said. “Its common investment strategy has performed well, adding excess dividends, and we expect outsized returns upon monetization. Our 4QF SG&A expense estimate of $17.3-million matches guidance of $17.0-million.
“We estimate a modest FV loss ($1.5-million) due to the truing-up of interest rates and a slightly higher C$ vs US$. Portfolio investments remain healthy, with a majority experiencing robust year-over-year growth.”
Mr. Ho is now “anxiously” awaiting an updated on the Calgary-based private equity firm’s strategy for managing third-party capital, which he thinks “could result in a valuation re-rate.”
“AD will likely launch its strategy in 2023, which we believe will be viewed positively,” he said. “Not only does it add another funding source, it helps to generate management/performance fees, which should boost ROE and could lead to a valuation re-rate — 1.1 times P/BV [price to book value] on 4Q23 results in a potential share price of $22.70.
“The company had $219-million at 3Q22 (pro forma FNC redemption and Sagamore deployment); we expect this amount to increase in 4Q22 with strong FCF generation (and some debt repayment).”
Reaffirming his “buy” rating for Alaris shares, he bumped his target to $21 from $20.50. The average is $21.08.
“Our investment thesis is based on: (1) AD’s diverse portfolio is well-positioned to perform, even with an uncertain US macro outlook; (2) a fortified balance sheet from the Kimco and FNC redemptions, and recent debt financing; (3) a healthy 65–70-per-cent payout ratio; and (4) it is attractively valued at 0.89 times P/BV, with a 7.8-per-cent distribution yield,” he said.