Just Energy's big decision
Just Energy announced it's third quarter results recently.In it Just announced net customer additions and offered guidance of $220 million for EBITDA.However later they announced that EBITDA for 2014 was actually $210 million.A slight reduction but this is a substantial increase in EBITDA from 2013.The problem that Just Energy was faced with was that their payout ratio was over 100%.
National Home Services
Just Energy started a new service in late 2012 called National Home Services (NHS) that sold waterheaters and air conditioners and furnaces.It had a positive impact on EBITDA in 2013 and expected to have a contribution of about $60 million to EBITDA in 2014.Apparently Just Energy was counting on this service heavily to meet it's guidance.Mr. Hartwick sold NHS for about $500 million and paid off about $400 million in debt. Now EBITDA(after the sale of NHS) will only be about $165 to $170 million for 2015. Ken Hartwick has decided to reduce it's dividend in September of this year so that the payout ratio will not exceed 100%.However did he make the right decision in selling NHS which was growing fast and adding more and more to EBITDA?And is the right decision to reduce it's dividend?
Non-core assets
Just Energy has written many press releases on it's American assets.Hudson Solar and different systems in Texas. Just Energy arranges barbeques and community events to add subscribers.But how much do these systems add to EBITDA and do they even add to EBITDA?It is very likely that most of them added together only produce half of the EBITDA that NHS did.It is hard to supervise them and hard to control costs and they add subscribers but lose them also.These are the kind of non-core assets that Just Energy should be divesting.It got rid of Tara Energy(in Saskatchewan) earlier in the year and reduced it's debt and this was a step in the right direction for Mr. Hartwick. Now he has a lot of gardening to do to reduce it's debt until natural gas prices start to raise again. Just Energy has to build and rely on it's core- selling natural gas and natural gas generated electricity.Reducing it's dividend will only hurt shareholders and it's stock price.He should have hung onto NHS, an up and coming profit maker, but it's too late now.Now he needs to build and hang onto his core assets and don't weaken it with a dividend reduction and an ensuing drop in the price of the stock.It already has come down from the $8.50 level to the $6.00 level.Where will it go if the dividend goes to $.50?No one knows yet but Mr. Hartwick's seat is getting aliitle hotter in August without some nimble moves.
National Home Services
Just Energy started a new service in late 2012 called National Home Services (NHS) that sold waterheaters and air conditioners and furnaces.It had a positive impact on EBITDA in 2013 and expected to have a contribution of about $60 million to EBITDA in 2014.Apparently Just Energy was counting on this service heavily to meet it's guidance.Mr. Hartwick sold NHS for about $500 million and paid off about $400 million in debt. Now EBITDA(after the sale of NHS) will only be about $165 to $170 million for 2015. Ken Hartwick has decided to reduce it's dividend in September of this year so that the payout ratio will not exceed 100%.However did he make the right decision in selling NHS which was growing fast and adding more and more to EBITDA?And is the right decision to reduce it's dividend?
Non-core assets
Just Energy has written many press releases on it's American assets.Hudson Solar and different systems in Texas. Just Energy arranges barbeques and community events to add subscribers.But how much do these systems add to EBITDA and do they even add to EBITDA?It is very likely that most of them added together only produce half of the EBITDA that NHS did.It is hard to supervise them and hard to control costs and they add subscribers but lose them also.These are the kind of non-core assets that Just Energy should be divesting.It got rid of Tara Energy(in Saskatchewan) earlier in the year and reduced it's debt and this was a step in the right direction for Mr. Hartwick. Now he has a lot of gardening to do to reduce it's debt until natural gas prices start to raise again. Just Energy has to build and rely on it's core- selling natural gas and natural gas generated electricity.Reducing it's dividend will only hurt shareholders and it's stock price.He should have hung onto NHS, an up and coming profit maker, but it's too late now.Now he needs to build and hang onto his core assets and don't weaken it with a dividend reduction and an ensuing drop in the price of the stock.It already has come down from the $8.50 level to the $6.00 level.Where will it go if the dividend goes to $.50?No one knows yet but Mr. Hartwick's seat is getting aliitle hotter in August without some nimble moves.
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