Enercare completes acquisition

 On May13,2016 Enercare (ECI) released it's first quarter of 2016 report.Enercare is a supplier of heating,ventilation and air conditioning units to the public.It started off as a small supplier of HVAC equipment and has grown by a number of acquisitions.The first was a submetering company called Triacta and the most recent was called Service Experts.Enercare has made a number of improvements to it's operation over the last three years.It used to have a net loss ,through attrition,every quarter but this is the third consecutive quarter of net growth in the number of units and has had a positive effect on it's financial performance.                             

Highlights of the Quarter

In October 2014 Enercare (ECI) bought Direct Energy in principle and has made a number of share purchases since this time.The exact percentage of shares owned is not known for sure but it is believed that Enercare has a majority stake now.click here for details on Direct Energy acquisition.And this quarter it has added a company called Service Experts to it's portfolio.This is a $340 million company that has been purchased through acquiring debt and issuing equity. ECI has issued another 16 million shares for the acquisition.They expect the new addition to be 25% accretive in 2016.Enercare made another change in this quarter;they have shifted from the sale of equipment to the rental of equipment.This will increase the length of the revenue stream although reduce the size of the initial payment.It might also reduce the churn of customers that will not own the equipment if they change equipment suppliers.Enercare has made a number of service changes in an attempt to reduce the attrition of customers.

Financial Summary

This is the third consecutive quarter of net growth in rental units.It is unlikely that any or many new units have been counted from the Service Expert acquisition.The majority of new units will have come from organic growth and from the Direct Energy consolidation.Q1 revenues only increased by about 2% and earnings by almost 5%.And adjusted EBITDA grew from $53 million in 2015 to $59 million in  2016.These are small and steady increases that show the switch over from the sale of units to the rental of units.2016 will show greater gains in the second half as the impact of the new acquisition clicks in.

Overview

Enercare has not moved up much in price through 2016 but it has built in a substantial amount of torque from it's acquisitions.This does not even count the acquisition of Triacta in Q3 2015- a small submetering operation.So the focus will be on the attrition  rate of these new units.If there is continued net growth in the ECI customer base the second half should be promising.It will be interesting to see if the switch to the rental of units helps to further reduce attrition.If these new acquisitions are accretive and there is a continued net growth in the customer base then second half performance will be better than the first half.If so look for annual revenues of about $600 million  and adjusted EBITDA of about $250 million.That would make their P/E ratio of about 7 times and very cheap for a quasi-utility.                              see analysis of first quarter report;    keep up to date on Cdn. utilities;use Blogdaleupsome for analysis of utilites