CANEXUS CORP 6.5 PCT DEBS T.CUS.DB.D

from Scotia Daily Edge

[blondeBond]

■ We have revised our commodity price and FX forecasts, mainly to include actual Q1/14 prices. Please refer to our industry note entitled "Revising FX & Commodity Price Forecasts" for further details. 
 

■ Our Q1/14, 2014 and 2015 EBITDA estimates go to $29M (from $28M), $130M (from $131M), and $186M (from $189M), respectively.

■ Our DCPS estimates for Q1/14 remain the same at $0.10, while our 2014E and 2015E numbers go to $0.44 (from $0.52) and $0.71 (from $0.73), respectively. 
 

■ We believe it would be in Canexus' best interest to cut its dividend by ~50% to enhance its financial flexibility given the amount of capital spending remaining and ramp-up phase. 

Recommendation 

■ We maintain our SP rating pending contract announcements and completion of Bruderheim. We have lowered our target marginally to $6.70 (from $7.00), based on 1.0x NAV. 

■ We believe a significant dividend cut is already discounted in CUS' share price at these levels and that the market would react positively. 

[Nawaralsaadi]

Thanks for the update. I certainly don’t see the use of a dividend cut with capex spending diminishing by September at the latest. A 50% cut could indeed save the company $40m over 2014, but if that was the plan, raising $150m in January makes no sense. The capex overspend was $90m, they raised $60m in excess of that amount, thus they do have a comfortable cushion to finalize construction and

[blondeBond]

Me neither. I think the suggestion of a div cut is more of a 'cover your butt' strategy that most bank analysts use - just in case... :)

[hawk35]

I agree Nawar about the low risk to capex increase or delays.  I have worked with the management board of companies that had a major problem like Canexus did last year.  I can tell you that bod and senior managment become actively involved on a daily / weekly basis.  They would have a come to Jesus meeting with all their staff and everyone is in the loop to make sure nothing else

[itsalie]

The recent activity with the stock price suggests the big money is betting on a divvy cut.. so they all dumped and will perhaps buy in should that come to fruition. Of course if it does happen the stock will immediately drop considerably further, again manipulated by the big players. Fundamentals are only part of the puzzle in the stock market.

[Nawaralsaadi]

A dividend cut won’t change anything in regards to the value of the chemical business or NATO, yes it may create a trading opportunity and some volatility, but unlike other situations I have seen with dividend cuts, any such cut if it was to take place would be quite limited in time, since the cash flow to allow for a higher dividend will be generated by Q4. I don’t believe the odds of a cut are

[Whatwasmyname]

I think too late to do a div cut. They did the bought deal without a div cut. The share price is recovering and given that the good days are ahead and the worst hopefully over cutting the divs despite yield at 11% NOW is counterproductive because the share price will rise and the yield will look normal at 7%. or 6% whatever the right share price when objectives are met. ...my 2 cents