While Chemtrade Logistics Income Fund (CHE.UN-T) reported a “solid” fourth-quarter beat, Raymond James analyst Steve Hansen warned its recovery thesis is “maturing” and new headwinds are emerging.
That led him to cut his recommendation to “market perform” from “outperform” on Monday.
“We are downgrading our rating on Chemtrade to Market Perform (vs. OP2 prior) and trimming our target to $11.00 (vs. $12.00 prior) as: 1) key elements of our recovery thesis have played out over the past 24 months (deleveraging, commodity tailwinds); and 2) we see incremental macro headwinds gathering on the horizon,” said Mr. Hansen. “While management has done a superb job at deleveraging the balance sheet—aided by robust market dynamics—we believe this process has largely run its course as the company embarks on a multi-year investment into ultra-pure acid capacity. At the same time, we see incremental macro headwinds forming as the North American economy slows and key commodity prices (i.e. caustic soda) fade from recent highs.”
On Feb. 22, the Toronto-based company reported adjusted EBITDA of $104.2-million, up 12.7 per cent year-over-year and above both Mr. Hansen’s $99-million estimate and the consensus forecast of $101-million driven by better-than-expected electrochemicals pricing and margins.
“While management reiterated its prior F2023 Ad. EBITDA guidance of $360-$400-million, it also now expects to land within the upper half of this range thanks to better-than-expected pricing dynamics quarter-to-date (vs. prior expectations),” he said. “Guidance continues to assume that pricing of key commodities will continue to fade (caustic, chlorine) – a pattern consistent with recent market dynamics.”
After introducing his 2024 estimates, Mr. Hansen trimmed his target by $1 to $11. The average is $11.75.