Just Energy Group (JE.TO)

(A Top Pick Dec 30/14. Down 59.5%.)*Short* (A pairs trade with EnerCare (ECI-T).) This has been a long term Short, but it hasn’t worked out great as of late. This is essentially door-to-door sales of energy products and should be trading at a discount to Enercare.

This has been going and going and going because there have been a couple of big hitters buying. Its FMV lags the current price and its Price to Book. Getting up to about 24X its BV, so those kinds of companies come under the heading of Speculative. However, there is a lot this company can do, including raising equity, because it is a very attractive time to do it. There has been a lot of momentum on the stock. Be wary until you can see the company doing the kind of things that will bring value underneath the company.

(Top Pick, Short, August 7, 2014, Down 16.43%) Recently added to the position. They don't understand their business. They seem to reinvent themselves every 3 years. They sold their best business which was the water heating business. Just to stand still they need to find 15% new customers. They sell door to door hoping to sell their products. It is likely that it is going down. Feels their business will deteriorate in the future. Since 2005 it has been down 70%.

In terms of valuation, it is about 8.5X EV to EBITDA, a similar multiple that EnerCare (ECI-T) trades at, but it appears inflated to him. Comparing the underlying fundamentals to EnerCare, there should be no comparison. He doesn’t understand what this company’s business is. Their attrition rate is about 16% per year. This means to just stand still they have to find 16% in new customers. That is not a very sustainable model. He is Short this stock.

Had a very nice run last year. Went up about 40% during the winter, partly due to the Arctic vortex. There were 2 very smart insiders buying very heavily. This makes you sit back and think “Am I missing something?”. It wasn’t until the Q2 numbers came out last year that his Short thesis was proven to be correct. These are essentially door-to-door salesman of energy products, and that product keeps changing. At the end of the day, they lose about 15% of their customers every year due to attrition. Just to stand still, they have to replace 15% of their customers. That’s not a very efficient business model. Also, there is the cost of acquiring that 15%. The view of the company is that this is expansionary CapX, so they capitalized that. The view of analysts is that it is normal expenses of running a business, and should be classified as operating expenses. He has had a Short position on the name for a while, and is fairly comfortable with it.

Short. A Pairs trade with a Long on Enercare (ECI-T). They are selling a very stable part of their business, water heaters, which was their most profitable and stable business. The real issue is what is their business? They are door-to-door salesman of energy products, but it seems to be continually evolving. There is also the issue of the attrition rate. Last quarter they were losing 15% of their clients, which means that every year they have to find 15% of their existing base just to stand still. Not a very sustainable business model. Yield of 8.32%.

(A Top Pick Sept 18/13. Up 11.81%.) Pairs Trade. Shorted this stock and went long Enercare (ECI-T). This is primarily door-to-door salesman trying to convince customers to switch to their product. He doesn’t understand their business model, and has a lot of issues with their accounting. Feels this has further downside so he continues to Short it.

He would be concerned about the dividend, which is well in excess of 12%. The business has gotten much, much more difficult. There is a lot more scrutiny in what they do on door-to-door selling. Prospects for growth are questionable along with some accounting questions.

Short. Just came out with Q2 earnings. It reinforced his thesis on the stock. They are in the process of repairing the balance sheet and sold the most stable part of their business. Cut their dividend 40% in the last 18 months. 8.5% yield and 112% payout ratio even after the cut.

Noticed there is some insider buying going on, and savvy investors have been picking up shares. Wondering if there isn’t something here. Very hard to understand their balance sheet because they use a lot of derivatives. He is going to watch the stock price. If you see it moving up, you are probably going to be okay. Cautiously optimistic.

It is very difficult to put a bottom in this. Looks like the valuation is more compelling here, and the dividend should be sustainable so you are going to be able to pick up a nice yield. He is somewhat concerned about the business itself. Their strategy of growing in the US has been somewhat derailed. A little bit too risky for him.

A spectacular chart if you are short the stock. They cut the dividend about 40%. 7.7% now, but the question is if they have cut it enough. They are doing the right things here. They are selling the hot water heater business, but it will leave the balance sheet still levered somewhat. It is up now because shorts are buying stocks back.

(A Top Short March 7/13. Down 29.22%.) Had traded this back and forth and has probably broke even. Still believes they have an unsustainable payout model and is a bit of a house of cards. Have pretty strong shareholder support which, if you support it long enough, it may become real. You are best to just stay out of this one at this stage.

He is Short this name. Had a good run this winter, mainly because of the cold weather. Very skeptical about their business model and their accounting.

Analysts like this and are moving it up to an Outperform recommendation and it has traded past through some of their targets. He just can’t wrap his head around the business model of going door-to-door and asking residents to lock in their natural gas prices. Have improved their balance sheet considerably going forward. Refinanced about $90 million of their debt that was coming due later this year. Very high dividend which is probably sustainable at this level but he would feel more comfortable with more clarity on the path of their cash flow.