These are transitional times in the Canadian equity markets.
After a more than decade long run, the mining and metals sector has a serious case of the blahs. Technology is one obvious place to accommodate a rotation, but this has yet to happen as M&A activity continues to define the times.
Perhaps lost in all this has been the remarkable emergence of the TSX and TSX Venture Exchanges as world class players. Our hometown exchanges now rank third in the world for capital raised in 2012, ahead of London, Hong Kong, China, and Australia. What’s more, the activity has been distributed across sectors, with mining accounting for just 19% of new issuers.
One very recent example of Toronto’s recent success is the recent $100-million IPO of U.S. based Crius Energy Trust (TSX: KWH.UN) which, on November 13th, effectively became the first cross-border income trust that isn’t centered on oil & gas assets.
Cantech Letter talked to CEO Michael Fallquist about the company’s recent activities.
Michael, Can you tell our readers about the history of Crius?
Crius Energy was formed in 2012 through the combination of Regional Energy Holdings and Public Power. Both companies had experienced substantial and rapid growth on their own in the U.S. retail energy market and both felt strongly about the market potential. We believed that by merging, not only would we have a management team with more than 40 years of retail energy experience, we would also create a company with a leading retail energy platform better positioned for long-term growth and profitability. Merging the two companies allowed us to offer more diversified products to customers through a variety of commodities, such as electricity and natural gas, differing contract types, such as fixed or variable, and alternative product features, such as green energy. We were also able to reach across a wider range of customer segments while becoming more efficient and reducing costs.
On November 13, 2012, you filed a $100-million IPO, effectively becoming the first cross-border income trust that isn’t centered on oil & gas assets. Why did Crius want to go public on the TSX?
Crius is an energy service provider and since Canada is a resource and energy rich country, this is an ideal market in which to list Crius Energy Trust as a public company. Canadians understand the deregulated energy market, from both consumer and investor perspectives, because there are other public energy service providers in this country. Additionally, the favourable tax structure of the trust system in Canada is attractive because it allows us to redistribute the tax savings back to investors through a higher yield rather than through a normal dividend.
Investors these days are still focused on income. Can you tell us what kind of dividend you will be paying?
We expect the initial monthly cash distribution rate to be $0.0833 per Unit. The first distribution will be a little higher because it includes the period from the date of closing-which was Nov 13, 2012-to December 31, 2012. That distribution is expected to be $0.1326 per Unit.
Does Crius plan to grow organically, through acquisition, or a combination?
Part of what we believe makes Crius such a unique investment opportunity is that we are well positioned to capitalize on growth through both organic means and acquisitions. On the organic side, we have a number of strategies to continue to expand into new markets and territories and also to increase our penetration rates in the markets where we currently operate. Our “family of brands” strategy allows us to target multiple customer segments with a variety of products and services. In terms of acquisitions, we operate in a highly fragmented market consisting of nearly 50 energy retailers with less than 200,000 customers. We believe we are one of the few companies in the industry with the necessary access to capital and the ability to quickly and cost effectively scale the additional clientele to pursue these smaller-to-medium sized industry players.
You founded one of the components of Crius, Viridian Energy, in 2009. Where is green electricity today? Is it still a more expensive option than traditional methods?
Viridian Energy has been successful because the value proposition echoes customer sentiment and demand with regard to sustainable energy options. By marrying renewable energy options with affordability, we have been able to create a value proposition that is attractive to customers who are not only initially drawn to a green product, but who are also more likely to stay with the company. This creates a retentive customer base. We believe demand from this customer segment will continue to grow and Viridian is well poised to continue to expand in this segment.