TSX:CUS.DB.D - Post by User
Post by
Al42on Oct 24, 2014 8:44am
653 Views
Post# 23057649
From RBC
From RBC
October 24, 2014
Canexus Corp.
We see good value as the market further discounts
NATO
Our view: We continue to see good value in Canexus even after the
recent setback. We estimate the current share price implies a value of
approximately $300 million for the NATO facility, compared to the $500
million invested. We have reduced our price target to $5.00 (from $5.50)
to reflect our reduced expectations from the NATO sale.
Key points:
NATO contracted volumes reduce to 40% (down from 60%). Canexus
announced that it has agreed to terminate the contract (2-3 unit trains
per week) with a midstream logistics and marketing company with respect
to shipping volumes through the NATO facility. The delay in the Cold Lake
tie-in triggered the termination right under the agreement, which was
exercised. The NATO facility is now contracted for volumes of up to 4 unit
trains per week (contracted with Cenovus and MEG Energy), representing
approximately 40% of the planned capacity of 10-11 unit trains per week.
Contract termination may reduce sale price. Indicative bids for NATO
have been received, and management highlighted that it has received
significant interest in the sale of the facility. Management expects final
binding bids in early December. We believe that the reduced contractual
position of NATO will be viewed negatively by bidders who favour a high
level of contracted cash flows (e.g., midstream and financial parties), while
the refiners and producers may be indifferent.
Good upside at current share price. We estimate that the current share
price implies a value of $300 million for the NATO facility, and we believe
the facility can be sold for at least $500 million (please refer to page 3),
which is equivalent to Canexus' total investment in the facility. It may make
sense to defer the sale if final bids come in materially below $500 million,
and bring the asset back to market after additional volumes are contracted
and the facility is operating smoothly.
Dividend cut partially priced in. We continue to believe that a dividend cut
is likely if the NATO sale proceeds are less than $700 million. With a current
yield of 10%, we believe the market has already priced in a dividend cut.
Reducing estimates to reflect the contract termination. We have
reduced our 2014 and 2015 ACFFO/share estimates to $0.19 and $0.36,
respectively (from $0.21 and $0.42, respectively), to reflect our view of a
slower ramp-up at the NATO facility.
Reducing price target to $5.00 (down from $5.50). The reduction in our
price target reflects our view that proceeds from the sale of NATO will be
lower than we previously expected. Our revised price target of $5.00 is
based on a sum-of-the-parts valuation with an average EV/2016 EBITDA
multiple of 9.0x (previously 9.5x).
Priced