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

RE:here's my take (bluelight special)

[Nawaralsaadi]

Actually I don’t see where a surprise will come from for Q4 results, they already pre-announced Q4 results on January 16^th along with the secondary offering. Actually January was the kitchen sink month with the disclosure of the $90m over spend and thee warning on Q4 EBITDA running at $25m (due to shipments being pushed into Q1). They also confirmed on January that NATO phase 2 is on track for completion by mid-2014, if there was a material delay, disclosing that along with the revised budget would have been the logical thing to do.

I personally don’t foresee a dividend cut since the company is exceeding the payout due to a temporary increase in capex spending, once this phase is over the payout will fall far below 100% and the extra accumulated debt will be paid off. I think investors are forgetting that already 60% to 70% of terminal  capacity is signed on take or pay contracts, this is cash in the bank. By April/May refineries will undertake maintenance and the WCS/WTI differential will blow up again, this is when I expect
CUS to sign up the remaining terminal capacity.

As for the chemical business, this is a really a steady eddy type of business moving in cycles around the price of the underlying commodity for the last 30 years or so, there is nothing exciting here and nothing problematic, this is why CUS traded at a low yield for many years and this is why its peers
Superior Plus and Chemtrade are trading at a low yield as well.

Weeks ago people were complaining that the CEO lost his credibility due to the 40% upping of the capex budget, and many were calling for his head. 6 weeks later the boards act, and the market hammer the stock by over 22%!. As for the timing of when they should have fired him, this is never an easy decision; do you wait for Q4 results, have him on the call and fire him the next day? Do you fire him right after the capex misstep and leave the company with no one to handle the secondary and the revised budget?.

The truth of the matter is that in a couple of months we will have a new CEO, and hopefully someone with a good background and proper experience. The terminal will be in full operations and the added cash flow will improve the payout ratio and the debt metrics. As we go in 2015, I see the new management taking steps to shore up the balance sheet such as selling some assets or partnering on the oil side of the business. CUS is not a multiple bagger return type of stock, but it is reasonable to expect at least 40% return from current levels before year end not counting the dividend.

Regards,
Nawar