Author Topic: AD.TO - Alaris Royalty Corp.  (Read 201 times)

Mark Jr.

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AD.TO - Alaris Royalty Corp.
« on: March 29, 2020, 06:25:55 PM »

Alaris Royalty Corp has been mentioned in a couple other threads here,

One was GRC (Grenville Royalty Corp - total implosion):

And the other was

I've had some of the RRSP in this for a couple years, it was a pretty decent dividend, you could get to 7.5% yield when you bought on the dips toward $18/share, with a solid monthly payout (until now, see below).

The yield now is at %19 based on Friday's close, it was over 20% earlier in the week. Of course, given the circumstances (writing this during the coronavirus drawdown), I don't expect this to hold up - they've already announced they're switching from monthly to quarterly dividend in anticipation of current uncertainty.

I did a table of their current investments/royalties and assigned a rough impairment estimate to each one on how much their royalty will be impacted over the next 12 months:

CAD Royalties

USD Royalties

This is really back of the napkin and I tend to be overly dramatic when guessing at downsides, for example I wrote Planet Fitness and the plastic surgery clinics down to zero.

My model came in at about a 64% dividend reduction over the next year, depending on what the USD/CAD rate does.

When I first worked this up I thought it came out to a 6.8% yield based on current share price and a USD/CAD of 0.8, until I realized I had a mistake in my spreadsheet because the yield kept going down as I strengthened the USD.

Found the error, and it looks more like this, assuming my guesses at royalty impairment are in the ballpark then

USD/CAD 0.8 = 9.5% yield
USD/CAD 0.65 = 11.2% yield
USD/CAD 1.20 = 7% yield (USD crash scenario)

Assuming there isn't a glaring error in my spreadsheet (I already found one), Alaris seems more compelling now, as I type this, than when I did the original workup, and then it looked not bad at these prices.

Alaris also showing some sense in that they eschewed share buybacks during the frothy heyday of 2 months ago, and the years running up to it, but they're stepping in now and announced last week a buyback of 9% of their shares. This is the time to be doing this.

Between their revolving lines they have about $248M of investible capital, with WACC about 6%. They typically, during normal times garner a ROIC in the mid-teens percentage-wise.

With investible capital and a weak economy they could get some better values.
« Last Edit: March 29, 2020, 07:11:43 PM by Mark Jr. »