Rodman & Renshaw: Allow For Lower Margin Customer Attrition In Just Energy Group

Rodman & Renshaw has maintained its Buy rating on Just Energy Group Inc

, saying that the stock is "undervalued" as the company is poised to benefit from its strategy of allowing lower margin customer attrition. During the year ended March 31, 2016, the company lost a total number of about 166,000 residential customer equivalents (RCE) as it is allowing loss of lower margin customers to improve its gross margins. Analyst Amit Dayal noted that customers added during the year contributed an average of C$207 to gross margin during FY2016 from C$191 in FY2015. Similarly, the gross margin per commercial customer added during the year was C$84 versus C$79 last year. As of March 31, 2016, the company has added 60,000 customers for its bundled offerings, which include the flat-bill program, smart thermostats, and the JustGreen program. "These bundled offerings result in lower customer cancellation rates and contribute a higher margin per customer. We continue to monitor with interest the success of this strategy and shall do so over the next few quarters," Dayal wrote in a note. For the year ending March 31, 2017, the company expects Base EBITDA of between C$223 million and C$233 million. Dayal estimates EBITDA of C$219.4 million, slightly lower than the guidance, as the analyst is monitoring the progress of the company's strategy. "We believe that with its growth and profitability focused initiatives, JE should be able to steadily grow at approximately 3.0% topline CAGR from FY2016-FY2020 and help JE reach Base EBITDA consistently above C$200M—reaching over C$250M in FY2020. As a result, we believe that the stock is currently undervalued," Dayal added. At the time of writing, shares of Just Energy rose 1.99 percent to $6.15. Dayal has a price target of $10 on the stock.