RE:Doom and Gloomers parading todayphoenix_trader wrote: But the stock made a good move up. Interesting!!!!!!!!!!!!!!!!!!!
phoenix; The strength in the Share Price on Friday surprised me. I suspect that it may be a bit of a “Relief Rally” (Thank God They Got Rid of NATO!) and possibly some short covering.
My “optimism” re the future of Canexus was based on them getting what I felt was a realistic price for NATO (a least $200m). Although selling NATO will eliminate the current “bleeding” when the consequences of selling an asset that that was valued on their books at abt. $318m for $75m (barley enough to cover CUS.DB.A) sink in there could be quite a sell-off.
What next? As far as we know the N. Vancouver asset is still for sale but it looks like that is also not going very well. N. Van is profitable. If they sell it for a discount not only will they lose the revenue they will suffer yet another write-down. That may take some pressure off the Credit Facility covenants but the ratio of “Total Debt” including the remaining debentures to Assets will be terrible.
They may actually be better off keeping N. Van. if they can.
Doug Wonnacott has told us that after he “Shrinks” the company he will “Grow” the company. It looks to me that financing Growth with Debt will be out of the question. At some point they will most likely do an Equity raise. Depending on when and at what price it could be quite dilutive to the existing shareholders. Only time will tell but if that happens it could provide a good re-entry opportunity.
When Doug took over Canexus I gave him “The Benefit of The Doubt”. Now I have “Doubts”!
Unlike a frequent poster on this board if my current “pessimism” turns out to be correct I won’t be “Crowing” about it and play the “Blame Game”. After I factor in the dividends I received and Tax benefit I will realise I have abt. a 46% net loss on CUS. Regardless of the eventual outcome I Clearly Didn’t Get It Right!!
As Always; Do Your Own Due Diligence; It’s Your Money !! PS: I have access to the TD and CIBC analyst reports. CIBC has usually been more optimistic but haven’t issued an update yet. For what it’s worth here is the 05 June TD Morning Action Note update;
NATO Sold for Fire Sale Price of $75 Million Event Canexus Corp. announced that it has agreed to sell its North American Terminal Operations (NATO) to Cenovus Energy Inc. for $75mm in cash. The agreement has an economic effective date of June 30, 2015, and closing is expected on August 31, 2015. Canexus intends to use the proceeds from the sale to reduce its debt. Impact: NEGATIVE We believe that the realized value of $75mm for the NATO assets is likely below market expectations and crystalizes the misallocation of capital spending on the asset at north of $500mm, which was recently written down to a $318mm book value. Although improved, financial leverage remains elevated and the stock still carries uncertainty with respect to the sale of the North Vancouver assets and the eventual value of the remaining company. Our target price has decreased to $1.50 (from $2.00) based on the mid-point of our valuation assuming that North Vancouver is sold for $150mm and our valuation assuming that North Vancouver is retained by Canexus. We reiterate our HOLD recommendation. TD Investment Conclusion With the sale of the NATO negotiated, we believe that the company remains motivated to sell its North Vancouver asset in the coming months. These steps taken by management are incrementally positive for the balance sheet and leverage ratios, but there remains significant uncertainty with respect to what value the market will ultimately place on the residual chemicals business. Although leverage may be reduced to the 3.5x–4.0x EBITDA range, this level is still relatively high for a small market capitalization company with little ability to meaningfully pay down the debt in the near term. We believe that the company may become somewhat of an orphaned asset and potentially the target of a takeover attempt should the valuation fall low enough.