TSX:CHE.DB.E - Post by User
Post by
retiredcfon May 17, 2023 9:32am
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Post# 35452107
RBC
RBCTheir upside scenario target is $14.00. GLTA
Outperform
TSX: CHE.UN; CAD 7.71
Price Target CAD 11.00
Chemtrade Logistics Income Fund
Firing on all cylinders and heading towards a record year
Our view: Despite concerns about a global economic slowdown, Chemtrade's operations are firing on all cylinders as management expects 2023 to be a record year. Due to some defensive attributes of the company's operations, cash flows will be less sensitive to an economic slowdown compared to traditional chemical companies. We are reiterating our Outperform rating and $11 price target.
Key points:
Increasing 2023 guidance by 13%+. Given the strong Q1/23 results and positive outlook for the remainder of the year, management increased its 2023 EBITDA guidance to be at or above $431 million (2022 actual EBITDA), which is up 13%+ from the mid-point of the previous guidance range of $360-400 million. Management did not provide a guidance range, but expects 2023 to be a record year.
Strong outlook for the Electrochemicals segment through 2023. Caustic soda pricing in Q1/23 decreased from peak levels reached in 2022. Despite this, Chemtrade's realized MECU netbacks still increased Y/Y by $550/ MECU, with higher pricing for both chlorine and hydrochloric acid being the main contributors. Roughly 60% of the increase in the MECU was attributed to higher chlorine pricing and to a lesser extent HCl and the stronger U.S. dollar. The merchant chlorine market also improved with reduced industry supply as larger chlor-alkali producers rationalized capacity. HCl pricing also improved due to increased fracking activity in North America. Sodium chlorate prices increased significantly driven by contract renewals reflecting lower operating rates and higher energy costs.
Significantly higher capital costs for the Casa Grande development, but we expect consistent project returns. Following the completion of the FEED study for the Casa Grande, Arizona greenfield ultrapure sulphuric acid facility (49% owned by Chemtrade), Chemtrade now expects the project cost to be significantly higher than the top end of its previous guidance of US$175-250 million. With the higher cost, and management's targeted project IRR of ~20%, managements will be having commercial discussions on the supply contract to ensure that the project is economic. Management plans to provide a project update in mid-2023.
Increasing our 2023 EBITDA estimate. We raise our 2023 EBITDA estimate to $440 million (from $400 million), primarily to reflect higher contribution from the Electrochemicals business and management's updated guidance. We have kept our 2024 EBITDA forecast unchanged, but see upside in the Electrochemicals segment particularly if electricity prices in Europe and other parts of the world remain elevated.