The CIBC report is out. Here are the highlights:
We expect CUS' Q1/14 results to be affected by adverse weather impacting
truck-by-rail operations and by a shortage of railcars. CUS loaded roughly
17 unit trains in Q1/14. While chemicals demand was strong in Q1, chlorine
and derivatives prices were softer year over year.
We lower our Q1/14E EBITDA to $27.42MM, as we reduce our truck-to-rail
contribution and expect a lower contribution from chemicals. Our 2014E and
2015E EBITDA decline to $120.88MM and $154.06MM, respectively, as we
assume a slower ramp at the NATO unit train operations.
Unit train operations will be shut down in the mid-end of June until the end
of August in order to finish the terminal construction, after which it will take
CUS some time to ramp up to full capacity. CUS has not announced new
contracts, but it continues working on a potential contract for 2 unit trains.
We expect a new CEO to make some tough decisions once on board. We
continue to believe it would be prudent to cut the dividend by 30%-50%
and find a strategic partner or outright sell the assets to unlock value at
Bruderheim. We maintain our SP rating and $6.50 PT.
Not a mention of the delay in Keystone XL - and likely uptick in crude by rail. Here is what they were saying just 2 months ago We believe the payback period for Bruderheim is particularly critical as the ramp
in pipeline capacity and crude rail loading faculties is significant in the next three
to five years and the expectation is that the Canadian crude differentials will
close. (COMMENT - They would close predicated on new pipelines coming online reducing the WCS to WTI differential)
This makes the current operating model of fee-for-service increasingly
difficult as time goes on. (COMMENT - As a result - they reduced thier 2015 EBITDA guidance given the delay - they failed to mention this - and also failed to mention that the delay in Keystone XL just bought Canexus 1-2 years to recoup the investment - something one might think rather material)
As such, it seems prudent that Canexus looks for a
partner or sells outright the Bruderheim facility to a buyer that has a strategic
interest.Crude oil pipelines capacity is projected to almost double by 2017. Four major
proposed pipelines will be able to move up to 3.5 million Bbd out of the WCSB
by 2017 once built (COMMENT - REALLY? Many have been delayed - ironic no mention of this in thier latest report when it was a focus in their previous report). . The Enbridge Mainline and the Kinder Morgan TransMountain pipelines will originate at Edmonton, Alberta, and the Spectra Express (SE-SP) and the TransCanada Keystone pipelines will originate at Hardisty,
Alberta. Edmonton and Hardisty are the main crude oil hubs in Alberta given the
amount of pipelines originating from these two locations. (COMMENT - Pipelines have been delayed - WCS to WTI spread will not decrease anytime soon as there will continue to be a supply glut forcing producers to dump their product at discounted prices. Rail becomes increasingly important if producers want to narrow the spread by accessing potential markets to sell thier crude).
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Conclusion - Thieir latest report is a saving face measure given thier previous report. Failure to mention ANY impact of the delay related to KXL and the benefit to crude by rail providers like Canexus reveals a negatively biased and rather unbalanced report.
So take it for what its worth.