Steady growth in revenue and cash flow for Chemtrade Logistics Income Fund should help maintain an 8.1% yield for investors. That’s despite the trust carrying long-term debt equal to 87% of its market capitalization. Chemtrade is a buy.
CHEMTRADE LOGISTICS INCOME FUND (Toronto symbol CHE.UN; www.chemtradelogistics.com) is one of North America’s largest providers of removal services for those resource firms, such as oil refineries and base metal processors, creating sulphur, acid and other by-products. Chemtrade converts these substances into useful chemicals, like sulphuric acid.
In the three months ended September 30, 2015, the trust’s revenue rose 16.1%, to $364.4 million from $314.0 million a year earlier. The gain mainly came from the lower Canadian dollar, which increased the value of Chemtrade’s sales in the U.S.
Overall cash flow rose 4.4%, to $67.2 million from $64.4 million, but cash flow per share declined 7.6%, to $0.97 from $1.05, on more shares outstanding.
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Chemtrade’s long-term debt is a high $868.4 million, or 87% of its $1.0-billion market cap. Most of its debt came from its $900-million all-cash purchase of General Chemical in January 2014.
General makes a range of chemicals, including aluminum sulphate, aluminum chlorohydrate and ferric sulphate (all of which are used in water treatment), as well as ingredients for prescription drugs, nutritional supplements and veterinary products.
Even though its debt is high, the trust’s steady cash flow will help pay it down, and Chemtrade’s distribution looks safe: its monthly payout is $0.10 a unit, for a high 8.1% yield.
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