TSX:CHE.DB.E - Post by User
Post by
hawk35on Feb 14, 2019 9:56am
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Post# 29363429
RBC initial comments
RBC initial commentsRBC initial comments. They will update their target price after the conference call.
February 13, 2019
Chemtrade Logistics Income Fund
First Glance: Weaker-than-expected Q4 results
across the board
Impact: Negative
First impression
Q4/18 results short of expectations. Chemtrade reported Q4/18 Adjusted
EBITDA of $65 million, falling short of our estimate of $77 million and
consensus of $78 million. The Q4/18 ACFFO/unit (diluted) was $0.19
compared to our estimate of $0.23. All three chemical segments delivered
results below our forecast. Please see Exhibit 1 for more details.
Sulphur Products & Performance Chemicals (SPPC). Adjusted EBITDA of
$17 million was lower than our estimate of $24 million and down from
$24 million (restated) in Q4/17. Management noted that the weakness
was due to factors including lower volumes, higher raw material and
freight costs, unplanned outages at a few customers' sites, an extended
maintenance outage at a regen customer, and an extended outage at one
of Chemtrade's regen faciliities.
Water Solutions and Specialty Chemicals (WSSC). Adjusted EBITDA of $12
million was lower than our estimate of $16 million and down from $15
million (restated) in Q4/17. Despite higher prices and volumes, margins
were squeezed due to an increase in raw material costs. The quarter
was also negatively impacted by two specialty chemicals customers
significantly reducing their purchases. Management expects margins to
improve as contracts are renewed at likely higher prices.
Electrochemicals (EC). Adjusted EBITDA of $46 million was lower than our
$54 million forecast and roughly flat compared to $47 million (restated)
in Q4/17. Management indicated that there was a sudden downturn
in demand for HCl late in the second half of the quarter, which led to
lower production of chlor-alkali (lower production compared to Q3/18,
but higher compared to Q4/17).
Conference call: Thursday, February 14, at 10:00AM ET. Click here to
access the live conference call webcast. We expect investors to focus on
further details around the weakness in SPPC, any colour on the timing of
the legal settlements in the water business ($100 million legal reserve),
the demand and pricing environment for the company's chlor-alkali facility
(weak Asian caustic soda prices), and commentary on its balance sheet
given that the Net Debt (including subordinated debt) / 2018 Adjusted
EBITDA (before legal reserves) is ~4.4x.