Just Energy Group (JE.TO)

(Market Call Minute.) Tremendous success and tremendous growth story but they are in new markets which are very tough to get and very tough to get new customers when gas prices are so low.

Electricity or Gas contracts. Part of problem is that payout ratio was not fully covered a while ago. He never owned it because it offered a high yield but was expensive. Acquisitions never unlocked much value. He is cautious but would buy at $5.50. The business should be fine in the next few years and the dividend should not get cut again.

Energy retailer business has struggled because people don’t want to answer to the door to them. Not a bad business but it is hard to see where dramatic growth is coming from. There is also a new American competitor.

Used to own it, doesn't now. Doesn't think it's a great business.

Not comfortable with the business. Is very highly leveraged.

Debenture (JE.DB) runs until 2017. While not the strongest credit, what are your thoughts on the risk/reward for a small weighting? Have several different bond issues outstanding and all trade at high-yields to maturity and there has been some questioning of the company’s ability to survive. A small position would be rewarding compared to a money market investment, just as long as you can live with the volatility.

With higher natural gas, there is a potential for a rebound. Have been suffering from a too strong growth which they have to finance. Had to cut the dividend and unfortunately this puts a pall on the stock for a considerable period of time. It will be 2 or 3 quarters yet before you see a significant improvement in the share price.

They addressed the rumours about not going to be able to make their numbers and having to cut the dividend again. The stock bounced but it is still well down from where it was. Payout ratio is well over 100% and the yield is 18% and he doesn’t think this can be sustained forever but they said they would be growing into their dividend by the end of fiscal 2014. Doesn’t like the business model. A risky hold.

SHORT. Has respect for what they have done growing the company in their revenues and customer base but fundamentally it is being overvalued. Everyone thinks it is a utility company. Do door-to-door sales for locking in gas and electricity prices and hedge on making margins. Have 4 million customers and lose about a quarter of their customers every year through non-renewal of contracts. Dividend yield of 15.78% which is unsustainable. Payout is way over 100%.

Sold his holdings a few months ago. Didn’t like the way the business was communicating. Doesn’t understand the derivatives on their balance sheet. Yield of 16.3% so you can probably bet that the yield is going to come down.

Resells natural gas. With natural gas so cheap right now, the incentive for customers to change to a reseller just isn’t there. Believes the dividend was cut in half in January but is still at 16% and is very much in doubt. In his view, this is a broken model.

Owns some convertible bonds. Nat Gas price has been horrid for the last few years. They are working in a very tough environment. With the cut in the dividend, they should be fine. Cash flow is positive.

Has a small Short position in this. A chunk of their business is related to the consumer side, encouraging consumers to take on fixed price natural gas contracts and this has not done so well. It has brought their payout ratio close to 100%. Another chunk though is wholesaling electricity and this part has held up quite well.

People buy the stock because of the dividend and because it is high. Don’t buy something solely for the dividend when it is north of 7%. He would have to look into the debenture which the caller asked about.

14% yield. Investors are starting to question whether it is sustainable. Company has stuck to its word of paying out $1.24 until the end of the fiscal year (March). They have a levered balance sheet. At the end of the day it is a good company but you have to question the distribution. If you believe in the business model, it probably won’t drop much when the dividend is cut.