Chemtrade Logistics Income Fund

Chemtrade Logistics Income Fund (TSX: CHE.UN) offers industrial chemicals and services in Canada, the United States, and South America. It operates through Sulphur Products & Performance Chemicals (SPPC), Water Solutions & Specialty Chemicals (WSSC), and Electrochemicals (EC) segments.

Why Investor's Should Book Profit?

Underperforming Peers on Margin Front: The company's reported margin in Q3FY21 was significantly poor compared to the industry median. On the gross margin front, it underperformed the industry median by 20.5%. Its operating margin in Q3FY21 stood at 1.8% vs the industry median of 12.9%. CHE.UN significantly underperformed on the net margin front as well, as depicted in the chart below.

Source: REFINITIV, Analysis by Kalkine Group

Higher Balance Sheet Risk: The company's balance sheet is highly leveraged compared to the industry median, with a Debt/Equity ratio of 2.55x as of September 30, 2021, as compared to the industry median of 0.85x, implying a higher balance sheet risk. Also, debt protection metrics are significantly poor compared to the industry median, with Net Debt to EBIDTA ratio of 20.27x vs an industry median of 7.12x.

Overvalued: The company has reported losses at the bottom for three consecutive fiscal years, which implies that the company's net worth is deteriorating. Despite the deteriorating net worth of the company, its shares are trading at a TTM Price to Book value of 1.53x. It should trade below its book value as shareholders are losing money into the business every year. Hence, the stock looks overvalued at current trading levels.

Stock Recommendation

The company's fundamentals lack luster and it is underperforming the industry in terms of profit margins and weak balance sheet. Further, despite a consistent deterioration in the company's net worth, its shares are trading above its book value, indicating that the shareholders are paying premium for a company that is not generating any value for them. So, ideally, its shares should be available at a discount to its peers. Hence, we recommend a "Sell" recommendation on the CHE.UNstock at the closing price of CAD 8.13 (as on November 25, 2021).

1-Year Price Chart (as on November 25, 2021). Source: REFINITIV, Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

Disclaimer

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