Chemtrade Logistics Income Fund

Chemtrade Logistics Income Fund (TSX: CHE.UN) provides industrial chemicals and services and operates in four business segments: Sulphur Products & Performance Chemicals (SPPC), Water Solutions & Specialty Chemicals (WSSC), Electrochemicals (EC) and Corporate (Cor). 

Key highlights 

• An income play: The group continues with the track record of dividend payment. The company announced a monthly dividend of CAD 0.05 per common share payable on 26^th January 2021, with a record date of 31st December 2020. At the last closing price, the stock was offering a dividend yield of 10.6%, which is lucrative considering the current interest rate environment.

Source: Company

• Issued Fund 2020 Debentures at 8.50%: During Q3 2020, the Company completed a public offering of CAD 86.3 million principal amount of convertible unsecured subordinated debentures, at CAD 1,000 per debenture, with an interest rate of 8.50% per annum, maturing on September 30, 2025. At the option of the holder, these Debentures are convertible into trust units of the Fund at a conversion price of CAD 7.35 per unit.

• Increase in Cash Flows from Operating Activities:In Q3 2020, the company reported an increase in Cash from operating activities by CAD 10.4 million to CAD 90.9 million, as compared to CAD 80.5 million in the previous corresponding period, primarily due to changes in working capital.

Financial overview of Q3 2020 (In thousands of Canadian dollars)

Source: Company 

• In Q3 2020, the company reported CAD 345.8 million revenue, as against CAD 395.6 million in the previous corresponding period. The fall in revenue was primarily due to lower sales volumes and lower selling prices for caustic soda and hydrochloric acid, lower merchant sulphuric acid, Regen acid, and other products Sulphur Products and Performance Chemicals segment.
• Gross profit stood at CAD 7.3 million, as against CAD 41.4 million in Q3 2019 due to lower revenue and high cost of sales and services.
• The company reported a net loss of CAD 48.3 million, compared to CAD 0.1 million in the previous corresponding period, due to reasons discussed above, coupled with higher finance cost. 

Risks associated with investment

The company's performance depends on the commodity prices, and volatility in the prices would impact the performance. Some other risks associated with its business include a general reduction in demand for its products, the loss of a portion of its customer base, the interruption of the supply of products or raw materials, etc. 

Valuation Methodology (Illustrative): EV to Sales 

Note: All forecasted figures and peers have been taken from Thomson Reuters 

Stock recommendation

The company caters to speciality chemicals segment, which has high entry barriers with the stable client base. The company is a leading supplier of several industrial chemicals and has a substantial product presence across the North American market. We expect high demand for the company's products supporting the revenues with a gradual revamp of the economy. The demand for its water treatment segment products is likely to remain stable in the foreseeable period. Further, the stock is offering a solid dividend yield of 10.6%, which is encouraging from an income investor’s standpoint. Therefore, based on the above rationale and valuation, we have given a "Speculative Buy" rating at the closing price of CAD 5.73 on December 24, 2020. We have considered Ag Growth International Inc, Mosaic Co, Superior Plus Corp, etc. as the comparison's peer group.

1-Year Price Chart (as on December 24, 2020). Source: Refinitiv (Thomson Reuters)

Goldmoney Inc

Goldmoney Inc. (TSX: XAU) is a precious metal focused global business. Through its ownership of various operating subsidiaries, the company is engaged in precious metal sales to its clients, including arranging delivery and storage of precious metals for its clients, coin retailing, and lending. Clients of the group are in over 150 countries hold nearly CAD 3 billion in precious metal assets.

Key highlights

• Strong financial performance: The Company reaped the high demand for precious metal and higher market prices.In Q2 2021 on a consolidated basis, the Company experienced a strong operational growth generating CAD 243.6 million in precious metal trading revenues, up by CAD 116.5 million as compared to CAD 127.2 million in Q2 2020, leading to gross profit of CAD 10.4 million as compared to CAD 5.6 million in Q2 2020.

Source: Company

• Increase in Assets under custody: The Company’s Goldmoney.com business experienced a 20% increase in assets under storage to CAD 2.59 billion as on September 30, 2020, compared to CAD 2.07 billion as on March 31, 2020. The precious metals market continued to experience strong demand for gold, silver, and platinum with market price increases of 10%, 59% and 11%, respectively. 

Source: Company

• Healthy Liquidity:The Company hold sufficient liquidity to continue the ongoing development of Goldmoney.com, LBTH and Schiff Gold, acquire new users, and explore additional opportunities. The Company believes its working capital balance is sufficient to fund expected requirements for the next 12 months. As on September 30, 2020, the Company had CAD 22.2 million in cash and cash equivalents, cash held for dealing, and restricted cash and net working capital of CAD 89.2 million, with no significant long-term debt or material contractual payment obligations.

Financial overview of Q2 2021 (Expressed in Canadian Dollars)

Source: Company

• In Q2 2021, the company achieved strong revenue growth. Revenue increased by CAD 116.5 million to CAD 243.6 million as compared to CAD 127 million in Q2 2020, due to higher overall demand and increased market prices.

• The Company’s gross margin increased by 203% to CAD 7.6 million as against CAD 2.5 million in Q2 2020. The increase was attributable to strong precious metal demand.

• Gross profit increased by CAD 4.8 million to CAD 10.4 million in Q2 2021 as compared to CAD 5.6 million in the previous corresponding period, due to increased precious metal revenues and fee revenues.

• Net income in the Q2 2021 stood at CAD 7.5 million as compared to CAD 1 million in Q2 2020.  

Risks associated with investment

The company is exposed to price risk concerning the price of gold, silver, platinum, and palladium held as assets. Commodity price risk is defined as the potential adverse impact on the earnings of the Company. Other risks involved are like Foreign Currency Risk, Interest Rate Risk, and Liquidity Risk, etc. 

Stock recommendation

The company expect that the precious metal markets would continue with the strong performance in H2 FY21, with gold and silver prices trending upward from strong demand as investors grapple with the pandemic and low-interest-rate environment's economic impacts. The company is building long-lasting relationships with a global base of clients by making precious metals-backed savings accessible to all. On the valuation front, the stock was trading at P/BV multiple of 1.04x on LTM basis as against the Industry median of 4.1x, reflecting that the share price is under deep discount. In the future, we believe the company would realize the higher revenue numbers along with squeezed expenses that would reflect the expansion in the margins. Hence, we considering the aforementioned facts, we have given a "Speculative Buy" rating at the closing price of CAD 2.52 on December 24, 2020.

 1-year Price Chary (as on December 24, 2020). Source: Refinitiv (Thomson Reuters)

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.