Chemtrade Logistics Income 6 50 Convertible Unsecured Subordinated Debentures T.CHE.DB.E

RE:RE:Hawk35 What did you decide?

[Kherson]

hawk35 wrote: High jodietoadie.  Went over the notes I made when doing DD and listed a few things below.  Sorry for the length. 

I decided to buy a 1/2 position yesterday (1,200 shares).  If the stock rises I will buy the other half and if it declines further I will buy the other half and average down at the appropriate time.  This approach has always worked out well for me.

Debt was also my first concern.  At Dec 31/17 current and long terms debt was 1.8 billion.  Total assets (not including intangible assets) was $1.7 billion so assets do cover the debt.  The lions share of this debt comes from the Canexus purchase so they got good value for this debt.  Cashflow was key to my decision.  The payout ratio for 2018 is projected to fall to 65% (in spite of 2017 problems at SPPC and WSSC) so they have lots of free cash to service and pay down the debt.  Their business is a cash generating machine in spite of weakness at SPPC and WSSC.  Second thing that reassured me is that the first major debt repayment is not due until 2022 / 2023 allowing management lots of time to execute their strategy.

Sustainable dividend was another concern with 8% yield but the low 65% payout ratio suggests sustainability.  Also their dividend history is real good.  I found records of the dividend being paid monthly since 2003 without interruption.  They have been paying .10 a month since 2007.  I'm comfortable with the dividend being sustainable.  My preference is no dividend increase until debt is reduced.

Most analysts see lots of room for growth and improvement with SPPC and WSSC being only two areas.  The Canexus assets and business were neglected for years.  The downside to this is that they will have to invest in repairs and upgrades (like what is going on in BC now) but the upside is improved performance in 2019 and beyond.  And lets not forget that they have only owned the Canexus assets for 1 year so any potential synergies and cost reductions will be fully realized in second half of 2018 and into 2019.

Another concern I had was the impact if a recession occurs.  This will affect their business.  A recession is not likely to happen for the next two years.  Based on healthy cash flow I'm thinking they could ride it out and maintain the dividend like they have in the past.  I would be more confident if the debt is reduced in the next two years.

Another reason I bought CHE is the current stock price.  The market has over reacted to SPPC and WSSC problems and the integration issues relating to Canexus.  The upside potential is huge and we get paid well to wait.

The last thing that reassured me was the risk rating for this company.  Risk can be low, medium, hight and speculation.  This company is rated as medium risk which is the same as most pipeline, utility and reit stocks.  I'm comfortable with this level.

I'm not expecting improvement to appear until second half of 2018.  So if the SP performance is choppy over the next few months I'm not losing sleep over it.  And I will enjoy the 8% yield.

You also mentioned two other stocks.  I'm just starting dd on AD.  I won't look at KWH.UN because they are rated as speculative risk.

Looks like Hawk35 forgot that he purchased Chemtrade on April 30th at around $14.80 per unit! He is only down 17%.
Too funny...
Kherson