CHEMTRADE LOGISTICS INCOME FUND (Toronto symbol CHE.UN; www.chemtradelogistics.com) is one of North America’s largest providers of removal services for resource firms, such as oil refineries and base-metal processors.
These companies’ activities create sulphur, acid and other by-products that Chemtrade converts into useful chemicals, like sulphuric acid. The trust also offers a range of environmental services through its Marsulex subsidiary, such as improving air quality and handling and treating industrial waste.
Chemtrade’s revenue rose 30.4% in the three months ended March 31, 2014, to $273.9 million from $210.0 million a year earlier.
The gain was largely due to General Chemical Corp., which Chemtrade recently bought for $860.9 million U.S. 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.
Income funds: Cash flow from new assets helps Chemtrade sustain 5.7% yield
Excluding costs related to this purchase, Chemtrade’s cash flow per unit fell 13.8%, to $0.56 from $0.65. However, cash flows from these new assets will help the trust keep paying monthly distributions of $0.10 a unit, for a 5.7% yield.
Chemtrade recently agreed to sell its Montreal facility to Suncor Energy (symbol SU on Toronto). This operation sells sulphur-removal services to Suncor’s Montreal refinery. Chemtrade will receive $120 million when the sale closes.
The trust’s exposure to cyclical commodity and chemical prices adds risk. It also needs sustained economic growth to keep demand for its services high. The trust reduces its risk by signing long-term agreements with its customers.
In the latest edition of Stock Pickers Digest, we look at whether increasingly strict environmental regulations will keep raising sales of Chemtrade’s removal services enough to offset the risks of growing by acquisition. We conclude with our clear buy-hold-sell advice on this stock.
If you’re a member of Pat’s Inner Circle and you’d like to ask a question about today’s article, please go to the question page reserved for you (be sure you’re logged in first). Click here to ask your question.
COMMENTS PLEASE—Share your investment knowledge and opinions with fellow TSINetwork.ca members
Did you profit from income trusts during their heyday in the 2000s? Did you resent the government’s decision to tax distributions of as 2011? Or do you think that decision was best for Canadian companies and Canadian investors in the long run?
Comments
Ira
I think that the war on income and royalty trusts that the federal government waged in 2006 was wrong. At the time royalty trusts provided hefty monthly incomes to investors who needed the income, most notably seniors and pensioners at a time when interest rates were at rock bottom levels. Also the fact that the first day after the “Halloween Fight”, the prices of trusts collapsed by some $3.2 billion attests to the thoughts that investors had toward these unique income producing investments. They were fearful that they would loose all of their monthly incomes – which they did.
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CHEMTRADE LOGISTICS INCOME FUND (Toronto symbol CHE.UN; www.chemtradelogistics.com) is one of North America’s largest providers of removal services for resource firms, such as oil refineries and base-metal processors.
I think that the war on income and royalty trusts that the federal government waged in 2006 was wrong. At the time royalty trusts provided hefty monthly incomes to investors who needed the income, most notably seniors and pensioners at a time when interest rates were at rock bottom levels. Also the fact that the first day after the “Halloween Fight”, the prices of trusts collapsed by some $3.2 billion attests to the thoughts that investors had toward these unique income producing investments. They were fearful that they would loose all of their monthly incomes – which they did.