Expansions By Sono Bello And Ohana May Influence Future Earnings, But Revenue Declines And Reporting Changes Pose Risks

Key Takeaways

• Strategic expansion and new market growth are expected to drive future revenue and earnings for Alaris through investments and new service offerings.
  
• Anticipated financial performance improvements from preferred distribution resets and increased equity values will enhance net margins and earnings.
  
• Changes in financial reporting and investment challenges could hinder earnings predictability, portfolio valuation, and short-term net earnings amid broader economic and electoral uncertainties.

Catalysts

A private equity firm specializing in management buyouts, growth capital, lower & middle market, later stage, industry consolidation, growth capital, and mature investments.

• The introduction of new service offerings by Sono Bello and the expansion into new markets are expected to drive future revenue growth, with a targeted exit in 2027 when the full value of these efforts is realized.
  
• Amur's financial performance is anticipated to benefit from an expected 2025 reset of the preferred distribution, and strong consumer sentiment is likely to increase their common equity value, boosting future earnings.
  
• Fleet's growth in revenue and EBITDA, driven by established long-term customer relationships, contributes to increased common equity value, which is expected to positively impact net margins and earnings.
  
• The recent price increase in Ohana's Planet Fitness membership fees is expected to generate additional revenue without affecting membership uptake, which should enhance net margins over time.
  
• With the planned growth investments, particularly in the U.S. and potential for increased deployment, Alaris is positioning itself for strategic expansion and revenue diversification, potentially driving higher future earnings.

Alaris Equity Partners Income Trust Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Alaris Equity Partners Income Trust's revenue will decrease by 0.9% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 99.4% today to 32.0% in 3 years time.
• Analysts expect earnings to reach CA$61.9 million (and earnings per share of CA$0.45) by about February 2028, down from CA$197.2 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 22.3x on those 2028 earnings, up from 4.7x today. This future PE is greater than the current PE for the CA Capital Markets industry at 12.0x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.64%, as per the Simply Wall St company report.

Alaris Equity Partners Income Trust Future Earnings Per Share Growth

Risks

• Changes in financial reporting as a result of being classified as an investment entity under IFRS 10 could create difficulty in directly comparing financial data across periods, potentially impacting clear visibility into revenue and earnings trends.
  
• Investments in Ohana and Cresa involve convertible preferred equity with a portion paid in kind, which could impact liquidity and earnings predictability if these entities do not generate anticipated cash flows.
  
• Heritage is not expected to return to profitability or support preferred distributions until 2025, implying an extended cash flow impact that might lower net earnings in the short term.
  
• Fair value decreases in several entities such as SCR and Ohana due to declining revenues, reduced business development, and capital spending issues, which could have a negative effect on net margins and the overall portfolio valuation.
  
• Uncertainty in the U.S. electoral context, including advertising cost pressures affecting companies like Sono Bello, could pose near-term risks to profitability and revenue generation if such effects persist beyond election cycles.

Valuation

• The analysts have a consensus price target of CA$25.3 for Alaris Equity Partners Income Trust based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CA$193.1 million, earnings will come to CA$61.9 million, and it would be trading on a PE ratio of 22.3x, assuming you use a discount rate of 6.6%.
  
• Given the current share price of CA$20.25, the analyst price target of CA$25.3 is 20.0% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.