RE:More from Scotia after conferenceCHE has been an important part of my portfolio for some time and with the low prices in recent years I have accumulated a significant number of shares so that I get a current monthly dividend of $800 on my holdings.
To me this a classic "valve and pump" business...providing critical inputs to other companies in a very non sexy business that simply churns out cash
I would like to see more debt paydown below The 2.52 leverage we have now. It has come down remarkably and management is to be congratulated. That would give us a lot of flexibility in any acquistion or capital intensive investment to raise debt.
I would happily defer a dividend increase to bring that about.
Don't know where the optimal leverage point is, but IMO eliminating the fixed cost of debt in interest and repayments is a better use of our cash for now as are programs that will reduce fixed costs elsewhere to increase margins.
We have held out for this long, it seems to me we can for a little longer.
NOTE I realize other shareholders may not share my concerns and want their dividends now. I am in exactly that both in another investment I hold a lot of...so I do respect that.
In the end I think I can trust this management team to make the right decision
incomedreamer11 wrote:
Poised for Continued Outperformance on a Recession-Resilient Portfolio
OUR TAKE: Positive. We believe CHE is poised for continued relative outperformance N/T. First, caustic remains tight; with selling prices supported by reduced EU chlor-alkali supply due to very high costs for electricity + high freight rates from Asia. Second, HCl demand has meaningfully improved due to increased fracking activity in NA. Also, CHE expects a “significant improvement” in sodium chlorate results next year, also due to higher costs for EU/Asia-based competitors. Third, the counter-cyclical water solutions business will now start to enjoy some margin expansion, as sulphur and other input costs move lower, while pricing (revenue) is contractually fixed. Fourth, we’re bullish on CHE’s opportunity to benefit from the U.S. build-out of semi-conductor capacity, both from its legacy ultra-pure business and the new JV. Fifth, with leverage at 2.4x and improving (vs. 6.0x y/y), CHE is much better positioned to maintain its distribution through a downturn than in the past. Sixth, we believe CHE’s board could/should increase the distribution (7% yield already), given a sustainable sub-50% payout (~20% in Q3). We maintain a Sector Outperform rating and unchanged $10.50 PT.
What we learned on the call: (1) the recent and sharp decline in sulphur costs offers a nice tailwind for the water solutions business; (2) we could see a slight downturn in the regen business if a recession materially impacts miles driven in NA; (3) demand for ACH and PAC is growing at 5% annually; CHE should be able to capitalize on this growth through expanded capacity due online this quarter; (4) the 15,000 mt Cairo, OH ultrapure acid plant is due online in ‘24, while the 100,000 mt Kanto JV remains on track; (5) of the $55M in guidance uplift, 40% is attributable to SWC, with the remaining 60% attributable to EC; (6) every US$50/mt change to caustic pricing, sustained for a year, results in a $10M change to EBITDA; and (7) CHE continues to generate robust margins in chlorine, which at times, had been a break-even business for the company.
Chemtrade will host an Investor Day on Nov 18.