CHEMTRADE LOGISTICS INCOME FUND $21.19 (Toronto symbol CHE.UN; TSINetwork Rating: Speculative) (416-496-5856; www.chemtradelogistics.com; Units outstanding: 60.1 million; Market cap: $1.2 billion; Dividend yield: 5.7%) 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.
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.
However, environmental regulations are becoming increasingly strict, which should keep increasing sales of Chemtrade’s removal services. As well, the trust reduces its risk by signing long-term agreements with its customers.
Chemtrade Logistics Income Fund is a buy.
