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Report: CIBC Does Not Foresee Large Premium In Any Offers For Just Energy

June 10,2019



The Globe and Mail reports that CIBC raised its price target on Just Energy Group Ltd., noting the company's recent announcement of a strategic review and disclosure that the company has received interest from a number of parties

The Globe and Mail quotes CIBC analyst Mark Jarvi as stating that, "With recent interest in retail electricity marketing businesses in the U.S., a sale might be a simpler proposition and a quicker means to unlock value. However, given JE’s business mix, leverage, and current valuation, we do not foresee a large premium if an offer comes. We raise our target to $5.50 from $4.50, reflecting upside from a takeout where a buyer can find synergies. With only modest upside from the current trading level, we reiterate our Neutral rating." [$ Canadian]

The Globe and Mail quotes Jarvi as stating that, "The recent acquisitions of Crius Energy by Vistra Energy and Stream Energy by NRG Energy show power generators are interested in adding retail exposure as a natural hedge to their wholesale power production. Further, the Texas market has been identified as a key market to have retail exposure – while JE doesn’t disclose its exact residential-customer-equivalent (RCE) count in Texas, we believe it’s a sizable position (potentially 5 per cent market share). However, selling JE in a single transaction might not be simple given the U.K. (20 per cent of revenues) and Canadian (11 per cent of revenues) businesses and sizable natural gas book."

The Globe and Mail quotes Jarvi as stating that, "Looking at EV [enterprise value] per RCE metrics from past deals implies upside in the $8-$9 range; however, we believe EV/EBITDA and synergies analysis is a more prudent approach. Past deals have been executed at an average of about 4.5 times-5.0 times EBITDA, post-synergies. JE might get a slight premium given its scale and diversification, but potential upside primarily comes from possible synergies, which also implies a strategic buyer would be the most logical buyer."

See The Globe and Mail for the story

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Just Energy   M&A  

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