Chemtrade Logistics Income Fund

Sound bite for Twitter and StockTwits is: Price reasonable to expensive, Debt Ratio vulnerability. It is hard to peg the price. A P/E of 36.16 is rather high for this sort of stock. I also wonder about the EPS estimate being too high and therefore the P/E being too low. The P/B Ratio does not use estimates and 1.70 is also the historical median P/B Ratio. There is more insider buying and insider selling. Low Liquidity Ratio makes a company vulnerable. See my spreadsheet at che.htm.

I do not own this stock of Chemtrade Logistics Income Fund (TSX-CHE.UN, OTC-CGIFF). I decided to investigate this stock after reading an article in the G&M in February 2012 about investing in small cap stocks that pay dividends. This was one of the stocks mentioned that I had never heard of before.

There has been a lot of research later that say that companies with high dividend yields produce the best returns over the longer term. This company still has a high dividend yield of $6.64% on a stock price of $18.08. The 5 year median dividend yield is also high at 7.6%. Some analysts are predicting a distribution increase for 2015 or at some point in the future.

This company still calls itself an income trust, but as with other Canadian Income Trusts it will be taxed as a corporation. The distributions are not taxed as dividends. The distributions are taxed partly as Other Income, Dividends and Foreign Non-Business Income.

This company started to pay dividends in 2001. It raised dividends most years until it decreased them in 2007 by 16.7%. The announcement for changes to income trusts occurred in October of 2006 for the new rules to come into effect in 2011.

Shareholders have done well over the past 5 and 10 years with total return to date at 11.04% and 15.06% over the past 5 and 10 years. The portion of this total return attributable to capital gain is at 3.61% and 5.43%. The portion of this total return attributable to dividends is at 7.43% and 9.63%. Note that yield has come down lately and are unlikely to reach as high as they had in the past.

The outstanding shares have increased by 17.4% and 11.3% per year over the past 5 and 10 years. This increase in shares makes per share values the most important ones for judging growth. Revenue growth is non-existent to good. Distributable Income growth has been low to moderate. There has been no EPS growth. Cash Flow growth is moderate to good. Note it is Revenue and Cash Flow growth that is good, not Revenue per Share or CFPS growth.

Revenue has grown at 17.1% and 13.3% per year over the past 5 and 10 years. Revenue per Share has grown at 0% to 1.8% per year over the past 5 and 10 years. Analysts expect Revenue to grow by 11% this year (and perhaps Revenue per Share by 10%). If you compare the 12 month period to the end of 2014 to the 12 month period to the end of the second quarter, Revenue is up by 6.1%.

Distributable Income (or what income is available for dividends) has grown by 7.54% and 1.2% per year over the past 5 and 10 years. However, DI has been rather volatile and if you look at 5 year running averages, the growth is just 2.3% and 1.9% per year over the past 5 and 9 years. Analysts expect growth of 4.8% this year. If you compare the 12 month period to the end of 2014 to the 12 month period to the end of the second quarter, DI is up by 13.3%.

EPS is down by 25.5% and 6.8% per year over the past 5 and 10 years. Because EPS has also been volatile we should also look at 5 year running averages. Using 5 year running averages EPS is up by 0.5% and 0.3% per year over the past 5 and 9 years. Analysts expect growth in EPS of around 43% for 2015. If you compare the 12 month period to the end of 2014 to the 12 month period to the end of the second quarter, EPS is down by 37%. You have to wonder about EPS estimates.

Cash Flow is up by 26.3% and 17.1% per year over the past 5 and 10 years. CFPS is up by 7.6% and 5.2% per year over the past 5 and 10 years. Growth in CFPS using 5 year running averages is similar. Analysts expect growth in Cash Flow to be around 49% in 2015. If you compare the 12 month period to the end of 2014 to the 12 month period to the end of the second quarter, Cash Flow is up by 34%.

Debt ratios are borderline fine. The Liquidity Ratio is 0.94 for 2014. If you had in cash flow after dividends it becomes 1.03. Basically with cash flow current assets match current liabilities. I prefer this ratio to be 1.50. Debt Ratio is fine at 1.59. Leverage and Debt/Equity Ratios are fine but a little high at 2.69 and 1.69. When you have low Liquidity Ratios, it shows that the company may be vulnerable to hard times. There are always companies that go bankrupt in recessions.

The Return on Equity has been very low in the past two years at 1.8% and 2.5%. However, ROE on comprehensive income is much better at 11.9% and 9.8% in the past two years.

The 5 year low, median and high median Price/Earnings per Share Ratios are 15.40, 16.79 and 18.17. The 10 year corresponding values are a bit lower at 13.91, 15.68 and 17.45. The current P/E Ratio is 36.16 based on a stock price of $18.08 and 2015 EPS estimates of $0.50. This stock price testing suggests that the stock price is relatively expensive.

I get a Graham Price of $11.97. The 10 year low, median and high median Price/Graham Price Ratios are 0.96, 1.11 and 1.27. The current P/GP Ratio is 1.51 based on a stock price of $18.08. This stock price testing suggests that the stock price is relatively expensive.

The 10 year Price/Book Value per Share Ratio is 1.70. The current P/B Ratio is 1.42 based on BVPS of 12.75 and a stock price of $18.08. This stock price testing suggests that the stock price is relatively reasonable and below the relative median.

Because dividend yields have been decreasing due to the change in income trust rules using dividend yield is probably not the best test. However, the 5 year median dividend yield is 7.60% and the current dividend yield at 6.64% is some 12.7% lower. This stock price testing suggests that the stock price is relatively reasonable but above the relative median. This result is not surprising as dividends have been flat for some time.

When I look at analysts’ recommendations, I find Buy and Hold recommendations. Most recommendations are a Buy and the consensus recommendations would be a Buy. The 12 month stock price consensus is $22.00. This implies a total return of 28.32% with 21.68% from capital gains and 6.64% from dividends.

A recent report on Dakota Financial News talks about the next dividend and some analysts change in recommendations. Note that this is an America site and therefore is showing the dividend as $0.076 per share for August. They do not say so, but this is in US$. The CDN$ distribution is still at $0.1 per Share for August. On BBN Keith Richards gives this stock as his top pick.

I will have only one entry for this stock as I must do on some stock because I cover too many stocks to do double entries on all that I follow.

Chemtrade Logistics Income Fund is a global supplier of sulphuric acid, liquid sulphur dioxide and sodium hydrosulphite and a processor of spent acid, particularly in the U.S. Gulf Coast region. Chemtrade is also a regional supplier of sulphur, sodium chlorate and phosphorus pentasulphide, and also produces zinc oxide at three North American locations. Its web site is here Chemtrade.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

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