The company had C$91.7 million in cash at the end
If Chorus cuts the dividend to 40 cents at $3.3/SP will deliver sustainable 12% yield. IMO the shares are BUY at this level for income seeking investor and some capital gains.
Chorus has estimated that, at worst, it would need to repay
C$24.4 million ($24.7 million) to Air Canada for 2010 and C$24.7
million for 2011,
National Bank Financial analyst Cameron
Doerksen said in a research note.
The company had C$91.7 million in cash at the end of the
second quarter and can afford the payments, Doerksen said.
But he warned that the lower free cash flow expected from
the reduced Air Canada cost mark-up, balanced against Chorus's
capital requirements for new plane purchases, suggest that the
company might have to cut its dividend by 25-35 percent.
"This is clearly negative news for Chorus Aviation with
negative implications for valuation and for the company's
dividend," Cameron said.
"Recall that in a worst-case scenario, the mark-up Chorus is
paid on its controllable costs by Air Canada could fall to 9.48
percent from 12.5 percent," he said.