Just Energy

Just Energy (TSX: JE) is a utility company, which provides electricity and natural gas health and well-being services. Apart from these, the company operates as a water quality and filtration devices, and utility conservation etc.

Key Updates:

• The company announced changes in its senior management team, which includes appointment of Michael Carter as Chief Financial Officer and the appointment of Jim Brown for the post of Chief Commercial Officer. The company notified that Mr. Scott Fordham would be appointed for Chief Operating Officer with the responsibility for all retail operations and customer satisfaction.

• Recently, the company has done CAD 100 million recapitalization in order the strengthen and de-risk the business.

• The recapitalization was done in exchange of CAD 160 million 6.75% convertible unsecured senior subordinated debentures due on December 31, 2021 and CAD 100 million 6.75% convertible unsecured senior subordinated debentures due March 31, 2023.

• Furthermore, the Company’s existing senior secured credit facility was amended to provide for an extension of CAD 335 million credit facilities for next three years, with revised covenants and a schedule of commitment reductions throughout the term.

Q1FY21 Financial Highlights: Just Energy announced its first-quarter results, wherein the company posted sales at CAD 593.134 million, reflecting a decline of 11% on y-o-y basis. Despite lower revenue, the company posted a 27% y-o-y growth in the gross margin to CAD 269.137 million, underpinned by significantly lower cost of goods sold. Administrative expenses and selling commission expenses stood in line with the pcp while selling non-commission and marketing expense decline significantly which supported the company’s profitability. Furthermore, finance cost remained under control and slide 7% on y-o-y to CAD 21.853 million. The company reported an impressive bottom-line of CAD 82.098 million as profit from continuing operations, as compared to a net loss of CAD 269.971 million in pcp.

Q1FY21 Income Statement Highlights (Source: Company Reports)

Stock Recommendation: The stock of JE slumped ~90% so far this year. The group reported a decent quarterly result amid a challenging time. Further, to optimize its operational efficiency, the company has suspended its door-to-door channel, which is a key positive and contributed immensely to the profitability. The company adopted a multichannel sales model which lead to stay in the competition, amidst a demand destruction scenario during on account of COVID-19. The company has completed its recapitalization recently in order the strengthen and de-risk the business. However, we remain skeptical about the prospect as despite the recapitalization; the group has outstanding debt of CAD 536.5 million on its balance sheet, which is ~1.5x of the group’s market cap (CAD 353.7 million as per TSX), an area of concern. Further, the group’s shares are hovering in a steep bearish zone, with price traded significantly below the crucial short-term as well as long-term support levels of 50-day and 200-day SMAs. Also, its shares traded below the immediate support levels of 10-day, 20-day and 30-day SMAs. Further, the MACD is falling, and the difference between 12-day and 26-day SMAs is negative. Also, at the last traded price, Just Energy shares traded below its 20-day SMA and tilted towards the lower Bollinger Band®, another bearish pattern. Hence, considering the aforementioned facts, we recommend investors to ‘Avoid’ the stock at the closing price of CAD 7.37 on October 08, 2020.

JE Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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