We believe the stronger-than-expected Q2/24 results, management increasing the 2024 guidance range, and other updates will have a positive impact on the units of Chemtrade. On the earnings call (August 15, 10:00 AM ET), we expect investors will focus on the performance of the business segments and comments around the increase of management’s 2024 guidance. We also expect investors to focus on the company’s capacity expansion at its ultra-pure sulphuric acid facility in Ohio (larger greenfield development was placed on hold following the FEED study that highlighted a significant cost increase), the expected pace of unit buybacks under the 10% NCIB, commentary regarding potential M&A, and additional details on the cessation of sodium chlorate production at the Prince George facility.
Details
Strong Q2/24 results. Chemtrade’s Q2/24 Adjusted EBITDA of $115 million was above our estimate of $99 million and consensus of $96 million. The variance from our forecast was driven by stronger-than-expected operating results from both the Electrochemicals division (+$6 million) and the Sulphur and Water Chemicals division (+$13 million), while corporate costs were $2 million above our estimate.
Increasing guidance again. Q2/24 results were stronger than management's expectations, and they expect momentum to continue into Q3. As a result, management raised its 2024 Adjusted EBITDA guidance to $430-460 million. This is up from management's previous guidance (May 2024) that they expected to be at the upper end of the $395-435 million guidance range that was originally put forward in January 2024.
Expecting slightly higher growth expenditures in 2024. Chemtrade now expects to spend $70-100 million in growth capital expenditures in 2024 (up from $60-90 million), which includes approximately $50 million for the ultrapure sulphuric acid business (up from $40 million, principally at the Cairo expansion), with the remainder for water treatment chemicals and other organic growth projects. The company indicated that the Cairo project is on track to finish construction later this year, with a commercial ramp-up to begin in 2025 (unchanged). The larger ultra-pure JV project in Arizona remains on hold. We note that maintenance capex guidance for the year increased to a range of $100-110 million (from $85-105 million).
Active on buybacks. As previously announced, Chemtrade completed a substantial issuer bid (SIB) in Q2/24 to purchase the outstanding in-the-money convertible debt that matures in September 2025. A total of $28.3 million of principal amount was repurchased for $37.6 million in consideration, and the company intends to exercise its early redemption rights for the remaining $57.1 million (formal notice to holders will be sent in late August 2024). In addition, under the NCIB for common shares, the company repurchased 546,700 units at an average price of $9.29 from August 1-13, 2024.
Ceasing sodium chlorate production at Prince George plant. Chemtrade announced that it would cease production of sodium chlorate at its Prince George facility following the announced pulp production curtailment by the plant's principal customer earlier this year. Chemtrade intends to convert the plant into a sodium chlorate dissolving operation, which is expected to be complete in Q3/24. The remaining chlorate volumes required by the principal customer will be supplied by dissolving sodium chlorate produced at the Brandon facility. Management does not expect the change to have a material financial impact.