TSX:CHE.DB.E - Post by User
Post by
incomedreamer11on Nov 18, 2022 8:57am
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Post# 35109744
TD comments
TD commentsMaterials (Small cap quantitative portfolio)
We are adding a position in Chemtrade Logistics Income Fund (CHE.UNT) at 2.0%.
Last week, Chemtrade posted Q3/F22 earnings that were well ahead of estimates ($0.57 versus $0.19 consensus).
This earnings beat led to an increase in both 2022 and 2023 consensus earnings estimates, which were raised 65.7% and 38.9%, respectively (Exhibit 1). These upward revisions continue what has now been a considerable positive reversal in Chemtrade's earnings after a multiyear decline and bottoming in mid-2020. As we show in Exhibit 2, forward earnings have returned to levels previously witnessed back in late-2018 when Chemtrade traded at $16 compared with $9 today. As a result, Chemtrade is presently trading at a much lower 12-month forward P/E of 15.6x versus 28.6x in 2018. With its 15.8% rally in share price following the better-than-expected Q3/ F22 earnings release, along with its positive earnings momentum, we would also expect Chemtrade to continue to move up in ranking in our Quantitative Growth Model (current rank: 118; four weeks ago: 240). Chemtrade also has exposure to, and is highly correlated with, the energy services subsector (Exhibit 3).
We have been increasing our energy service exposure over the past several months with CES Energy Solutions Corp. (CEU-T, portfolio weight 4.6%), and most recently with the addition of Precision Drilling Corp. (PD-T, portfolio weight 3.0%). It is our view that leadership within the energy sector could rotate towards the services — a trend we are already beginning to see now (Exhibit 4). If so, we believe that Chemtrade stands to gain. With more than 60% of its revenues generated in the U.S., and reporting in Canadian dollars, Chemtrade also benefits from an elevated U.S. dollar. Chemtrade presently yields 6.8% with a monthly distribution