Comments from TD Waterhouse Event
Canexus announced a 40% increase in
the cost estimate for its Bruderheim
NATO terminal expansion.
Impact
NEGATIVE
.
We are surprised at the magnitude of the cost increase. We believe that
Canexus’ credit metrics could be pushed towards its covenant level if the
incremental cost is funded solely with
its credit facilities. The company has
previously stated that it had the support of the majority of its lenders to relax
its covenants if required. However, we believe that the company will instead
elect to raise equity to shore up its
balance sheet. As such, our per share
estimates decrease to reflect our expectation of a $100 million equity issuance
in H1/14. Our EBITDA estimates remain unchanged as we do not expect the
company to recover the increased capit
al cost through higher crude-by-rail
transload fees. Our target price decreases $0.50 to $6.50 to reflect our
expectation of a higher number of shares outstanding.