BMO: Get It Before It's Yielding 10% (or Lower)Post CC report published:
Bottom Line: Maintain Outperform rating and $13.50 target price. 2019E EBITDA lowers
slightly to $340M, though 2020E EBITDA lowers less to $365M. Though by design CHE
is generally only a GDP growth-like business, operations have stabilized with core
margins continuing to improve; main volatility is caustic soda prices, but this volatility is
manageable considering CHE's strong FCF profile. The dividend (~12% yield, 69% payout
ratio in 2019E lowering to ~53% in 2020E) is safe/attractive, in our view, and we expect
CHE to trade up to a 10% yield or lower.
Our Thesis
Though management still has much work to do to regain broader institutional investor support, we believe the worst is behind Chemtrade with earnings stabilized, margins improving, water-related legal issues buttoned up, and manageable leverage. The dividend ($0.10/month for 12+ years) is safe and ttractive, and we expect CHE to trade up to a yield of 10% or lower.