BMO analyst flash updateAnother Strong Print and On Track for a Record Year
Bottom Line:
Strong Q2 print with a ~$7M consensus beat plus another FY guidance increase, stemming largely from higher expected caustic prices. Though caustic will no doubt eventually cool off, strong pricing supports bullish earnings power plus CHE has levers to pull to improve the balance sheet (prospective North Van land sale, etc.). The stock trades ~5x 2022E midpoint EBITDA guidance and yields ~7% with 2022 seeming now a sub-50% payout ratio.
Key Points
Conference call: Thursday, August 11; 10am ET; Register here.
Adj. Q2 EBITDA of ~$82M (up ~25% y/y) beat ~$75M consensus/BMO. Distributable cash after maintenance capex was ~$26M ($0.25/unit). See page 2 for results variance.
SWC (sulphuric acid, sulphur, water treatment, etc.) adj. EBITDA of ~$55M (up 1% y/y) just missed our ~$57M forecast. Margins of ~20% fell ~500 bps y/y due to a sharp rise in sulphur prices, an input cost for water treatment chemicals. Though, after recent normalizations of sulphur benchmarks, we expect Q3 EBITDA margins will likely improve.
ElectroChem/EC (chlorate/chlor-alkali) adj. EBITDA of ~$51M (up 113% y/y) beat our ~$38M estimate due to higher selling prices for caustic soda, chlorine, and hydrochloric acid. EBITDA margins of ~29% beat our ~23% forecast and rose ~570 bps q/ q.
2022E guidance raises ~17% to ~$370M at the midpoint ($360-380M range now) on pace for a record year, besting ~$333M consensus on continued strength in caustic pricing. First, 2022 caustic ASP is now seen rising ~$350/t y/y, an increment of another $65/t. Second, 2022 N.A. sodium chlorate production volumes remain unchanged (350kt), while N.A. MECU sales volumes rise ~5kt to ~180kt. Third, maintenance capex increased ~$10M to ~$85M at the midpoint. Fourth, LTIP costs guidance increased ~$3M to ~$20.5M at the midpoint.
Reiterated expected costs for Kanto JV (~US$175-250M) though now expecting plant to be operational in late 2024/early 2025. We continue to expect detailed engineering plans/estimates in Q4, and seek elaboration on expected returns.
CHE sold the idle Augusta, GA sulphuric acid plant for US$10M.