CANEXUS CORP 6.5 PCT DEBS T.CUS.DB.D

RE:RE:RE:Seeking Alpha Article - Canexus

[ocean112]

Hi Calgary (and others)....it sounds like you don't agree with the article - which is totally your perogative.

I was one of those hoping (like others) that NATO would sell for a much higher valuation - but I see from the authors financial analysis the wisdom of dumping a negative cashflow generator. If you take a 5 year perspective (as the finanical analysis seems to show) - there seems to be plenty of upside by year 4 to year 5 (something like a 300% return by year 5 at a 8.2 multiple). 

However, what I read was an author's opinion backed up by what seemed to be solid financial analysis that seems to be in line with other brokerages (ie. Scotia and CIBC with outperform ratings along with thier price targets of $2.3 to $2.5).  I actually can understand how he arrived at the numbers based on his spreadsheet (I wish the brokerages would do the same but they resort to high level multiples/sum of the parts analysis without much justification on thier assumptions).  

That said, just so I understand - which part of the financial analysis did you disagree with (from the article).  

Sure, it's anyone's guess what Chlor Alkali will go for, or what multiple should be applied - anywhere from 6x (ie. TD)  to 8.5x (Scotia/CIBC)  is what the brokerages are using  - which leads to drastically different price targets.  It seems this article is using an 8.2x multiple and goes on to explain why.  

I can see a case could be made for a high valuation for Chlor Akalai as the article states (ie. negotiating synergies, leverage from NATO sale, etc.) - or a case could be made not to sell the asset.  

I cannot see a case to dump a $22M to $25M cash generating business for 6x EBITDA in a bear market when they aren't close to violating thier debt covenants after the NATO sale?  Also - it seems by 2016, with the BIP - they will be generating $50M (or so) free cash after dividends and CAPEX to pay down debt.  Sure, the article makes clear paying down $600M with $50M at a time will take many years - but I think the author is saying - the worst is probably over for Canexus with liquidity and uncertainty - and shows multi-year price targets that - if one is patient - will reap benefits.  For those under water - well - it's a write off.  

Do you (or anyone else from this site) disagree with the article?  If you do - can you spell out why?  I really would like a well articulated counter argument to the article (not just someone's opinion).   Do you see a price target of $1.00 to $1.20 after the NATO sale?  If so - what scenario would lead to that target?  

From where I stand - the authors position seems well laid out - but I always look for both sides of the coin.  I simply can't see much downside from the current $1.40 - $1.60 range we've been trading at over the last few weeks.  Am I missing something?