Desjardins Comments - G&M Desjardins Securities analyst Gary Ho reduced his 2023 and 2024 earnings expectations for Chemtrade Logistics Income Fund (
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to reflect new caustic soda pricing data, but he’s otherwise expecting few surprises from its first-quarter financial report on May 10.
“We believe the pricing patterns in recent months were somewhat built into CHE’s guidance—ie soft 1Q and recovering thereafter (hence, we do not anticipate significant guidance changes),” said Mr. Ho. “The price is now approximately at cash cost and is expected to increase. The Northeast Asia index was US$390 per dry metric ton in the most recent week, 9 per cent above its 2023 trough of US$358/dmt but still 28 per cent below the beginning of 2023. By our math, if prices stay at these levels, CHE will essentially meet its US$465/dmt guidance.”
“Chlorine (price gains in 1Q) and HCl (strong rig counts) remain robust. CHE continues to benefit from high selling prices for sodium chlorate (annual contracts). Water margins should remain healthy (recouping high raw material costs last year).”
Citing caustic soda “weakness,” he cut his 2023 EBITDA projection to $384-million from $390-million, remaining narrowly above the midpoint of its $360-400-million guidance. His 2024 estimate slid to $380-million from $385-million previously.
To reflect “a slight contraction in peer multiples recently,” Mr. Ho trimmed his target for Chemtrade shares by $1 to $12.50 with a “buy” recommendation. The average is $11.25.
“Our positive view is based on: (1) multiple chemicals in CHE’s portfolio having relatively recession-resistant attributes; (2) tremendous ultra-pure and hydrogen opportunities; and (3) consistent execution and a repaired balance sheet should restore investor confidence and warrant a valuation re-rate,” he said.