Desjardins Comments - G&M Desjardins Securities analyst Gary Ho sees Chemtrade Logistics Income Fund (
) poised to benefit from the “economic reopening plus considerable tailwinds underpinning ultra-pure acid and hydrogen .”
He assumed coverage of the Toronto-based maker of industrial chemicals with a “buy” recommendation, seeing its pivot to organic growth and operational efficiencies under new CEO Scott Rook “positively while continuing to monitor its elevated leverage.”
“Why we like the story. (1) Relatively recession-resistant as CHE tendsto overperform in a downmarket and underperform in an upmarket, but should benefit from reopening (regen acid—driving activity; merchant acid—industrial production/GDP; caustic soda —aluminum, pulp & paper),” said Mr. Ho. (2) The domestic semiconductor industry is expected to more than double over the next five years, driving growth in ultra-pure acid. (3) Commercialization of green hydrogen, starting with Prince George, but the larger opportunity is at Brandon (5 times the size of Prince George). (4) Focus on operational efficiencies—targets $10-million in annual savings. (5) Turning point? As CHE successfully drives organic growth and deleverages under new CEO Scott Rook, sentiment should improve.”
Mr. Ho raised the firm’s first-quarter EBITDA for Chemtrade to $75-million from $71-million, moving closer to the Street’s forecast of $77-million. He pointed to stronger results from its Electrochemicals segment stemming from a rally in all chlor-alkali molecules, including caustic soda and chlorine.
He said those gains could cause Chemtrade to revist its full-year earnings guidance, which would be a key catalyst for the stock.
Mr. Ho has a $9.50 target for its shares. The average is $9.39.
“Our positive thesis is predicated on the following: (1) economic reopening will drive EBITDA growth (naturally deleverages); (2) tremendous ultra-pure and hydrogen opportunities; and (3) management change leading to a valuation re-rate,” he said.