RE:Similarities to SPBRoxy, good to see a balanced input, it does seem however that you are extrapolating a bit too much from what has transpired at other companies. We really don’t need to do that to gauge if the dividend must be cut, what you need is to go through a basic cash flow analysis: What is the expected EBITDA in 2014, what is the expected EBITDA in 2015? How much more NATO capex spending do they have to do?? What is the outlook for chemical pricing? ... etc.
Based on the cash flow models I have seen for the company and the ones I am working on myself, CUS will have a well below 100% payout by 2015. Keep in mind that the dividend is costing the company $77m in cash (based on 20% DRIP issuance – 97m inclusive if DRIP). This is what is estimated for 2014/2015 in terms of EBITDA/AFFO?
2014:
At $110m in EBITDA for the chemical segment in 2014 and $20m in NATO EBITDA, Canexus EBITDA will be $130m. This won’t be enough to cover the dividend as the AFFO is estimated to be in the 40c to 45c per share. (Dividend is at 54c)
2015:
At $120m in EBITDA for the chemical segment in 2015 and $50m in NATO EBITDA, Canexus EBTIDA will be $170m (it is worth noting both TD and Scotia are projecting $190m in EBITDA for 2015). This will more than suffice to pay the dividend since AFFO is estimated at 65c to 70c against a 54c dividend payment.
Basically Canexus has two more quarters of heavy capex spending, by Q4 the payout will dip under 100% and will continue to be at around 70% for 2015, thus why cut the dividend for 2 quarters? What will it accomplish?, The quarterly cash dividend is costing them $19m, so if they cut by 30% for Q2/Q3-2014 they will save $11.4m in cash, this a trivial amount that they can easily recover in Q4/2014-Q1/2015 if they don’t cut the dividend. Thus, the real impact of the NATO overspend on the dividend won’t be a dividend cut, but it will be a no dividend raise as the excess cash will be used to pay down debt.
The question of the dividend being maintained is contingent on NATO’s EBITDA being truly at $50m annualized by Q4/2014, if so than the risk to the dividend is nil. The interim CEO has confirmed the $50m number in the last CC, and he also confirmed that contracting for 100% of the capacity is going well. I didn’t sense that this CEO was cheerleading or overly promoting the numbers, if anything the team at the call sounded very candid and I have no reason to doubt them.
I have been involved with shareholder activism for some time, and I am quite encouraged to see a pro-active board, they held the ex-CEO accountable and have taken charge of the operation until a new competent CEO is selected. This is a responsible Board, investors should take solace in their actions.
Investors at Canexus have paid a hefty price over the last two years due to the NATO initiative and the downturn in chemical business, but we are only 6 months away from the NATO build up being behind us, and we are far along in the chemical downturn cycle as the company is getting to have a new leadership. Canexus won’t be going to $9+ anytime soon, but I can easily see it holding at the $6s or so until we cross the NATO finish line and get a new CEO, in due time it will creep back higher, but make no mistake about it, NATO under the old CEO destroyed shareholder value and it will take a long time for shareholders who bought prior to NATO before they see any tangible benefit from this key project, only those who bought and are buying at current levels will make money in the next couple of years.
Regards,
Nawar