Every Monday we feature “A Stock to Sell” as our daily post. With every stock we recommend as a sell, we give you a full explanation of why we advise against investing in the stock at this time.
Westshore Terminals Investment Corp. (symbol WTE on Toronto; www.westshore.com) owns a coal storage and loading terminal at Roberts Bank, B.C., about 30 kilometres south of Vancouver. The terminal started up in 1970.
Teck Resources accounts for 56% of the terminal’s volume, and other Canadian coal producers supply 12%. The remaining 32% comes from U.S. customers.
Producers ship their coal to the terminal by rail. Westshore then loads it onto ships that deliver it to customers in over 20 countries. The company does not purchase the coal. Instead, it receives a handling fee for loading it.
Westshore is now replacing some of the terminal’s equipment, including ship-loading systems and maintenance facilities. These upgrades will cost $275 million and should be ready by 2018. At that point, they will add around 3 million tonnes to the terminal’s annual capacity of 33 million. In addition to these costs, the company spends $12 million or so annually on regular maintenance.
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Stock tips: Shutdown or strike by one of Westshore’s coal customers could endanger dividend payment
In the three months ended September 30, 2014, Westshore’s revenue rose 8.8%, to $88.5 million from $81.3 million a year earlier. Coal volumes rose 4.5%, to 8.6 million tonnes from 8.2 million, while the company’s average loading rate per tonne increased 5.4%, to $10.03 from $9.52.
Earnings jumped 48.6%, to $43.8 million, or $0.59 a share, from $29.5 million, or $0.40. The increase came from the higher loading rates and $8 million of insurance proceeds after a ship damaged one of Westshore’s berths.
The company is debt-free and holds cash of $74.7 million, or $1.01 a share.
Westshore pays quarterly dividends of $0.33 a share, for a 3.8% annualized yield. The stock trades at 19.3 times the $1.78 a share that Westshore is forecast to earn in 2015.
The company’s terminal expansion gives it growth prospects, but its focus on a single facility and commodity adds considerable risk. Major operational difficulties or an unexpected shutdown or strike at one of its coal customers—especially Teck—could force it to cut or halt its dividend payments.
We don’t recommend Westshore Terminals. If you own the shares, we think you should sell.
Tomorrow in Best Canadian Stocks we look at two big acquisitions for a leading power generation firm.
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