While “encouraged” by Chemtrade Logistics Income Fund’s second-quarter earnings beat, Desjardins Securities analyst Gary Ho said “the implied softer 2H23 and questions around sustainability in 2024 give us some pause.”
“”2H23 could see lower caustic soda prices, a weaker pulp industry impacting sodium chlorate and higher turnaround activity,” he said. “2024 will face tough comps in 1H and a North Vancouver turnaround in 2Q.”
On Monday, the Toronto-based company reported adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $144-million, exceeding both Mr. Ho’s $115-million estimate and the consensus projection of $116-million. However, the analyst’s attention was focused on an implied second-half EBITDA guidance of $174-million, below his $210-million projection, which fell in line with the Street.
“We believe it will take some time for investors to digest the swing in results given the moving pieces,” he said. “We reduced our 2024 EBITDA to $388-million (was $400-million), driven by a more tepid outlook.”
With his forecast reductions, Mr. Ho cut his target for Chemtrade shares to $11.50 from $13.25, keeping a “buy” rating. The average is currently $11.57.
“Our positive view is based on: (1) multiple chemicals in CHE’s portfolio having relatively recession-resistant attributes; (2) tremendous ultra-pure and hydrogen opportunities; and (3) consistent execution and a repaired balance sheet should restore investor confidence and warrant a valuation re-rate,” he concluded.