Increased Guidance Increases Perceived Stock Affordability for Chemtrade Logistics
In the first half of the year, Chemtrade Logistics Income Fund (CHE.UN:CA, OTC:CGIFF) has demonstrated impressive financial results. The total Distributable Cash Flow (DCF) for the first semester came in at almost C$1.16 per share.
The company's anticipated Adjusted EBITDA for the year has been revised upward, with the new midpoint of C$487.5M representing a nearly 10% increase from the previous guidance. This positive trend is expected to continue, as Chemtrade has increased its anticipated Adjusted EBITDA for the year to a range of C$475-500M, up from C$430-460M.
Chemtrade's current stock price is approximately CAD 7.90, traded on the Toronto Stock Exchange (TSX). The stock has been bullish for some time, and the author, who holds a long position in Chemtrade's common shares, maintains a "buy" rating.
In the second quarter, Chemtrade spent almost C$23M on share buybacks. The company's financial position is robust, as evidenced by the total distributable cash in the first semester, which was C$133.5M. Chemtrade reported a total distributable cash of C$71.5M in the second quarter.
The company's financial health is further strengthened by its growth investments, which are expected to start paying off, lifting the EBITDA and DCF in absolute numbers.
However, there is a potential for dilution due to the convertible debentures. The 2027 and 2028 debentures are either "in the money" or close to the money, which could result in the creation of an additional 21.5M new shares if both series are converted into shares. This conversion would increase the DCF to approximately C$220M, assuming all convertible debentures are converted and the share count is approximately 130M.
Despite this potential dilution, the stock is still trading at less than 8 times the pro-forma diluted DCF for this year. Chemtrade currently pays a monthly dividend of C$0.0575 per share.
It's worth noting that Chemtrade has consistently beat expectations and increased its full-year guidance. The net debt vs. EBITDA ratio would decrease to just under 1.7 if the convertible debentures are converted into shares.
In conclusion, Chemtrade Logistics Income Fund's strong performance and positive outlook make it an attractive investment opportunity for those seeking growth and dividend income. As always, investors are advised to conduct their own due diligence before making investment decisions.
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