acumen capital f11 f12 f13e f14e canexus … · 2014-10-29 · working capital $6.2m ... caustic...

ACUMEN CAPITAL FINANCE PARTNERS LIMITED | SUITE 700 – 404 – 6th AVENUE SW | CALGARY, AB | T2P 0R9 MAIN PHONE: 403.571.0300 | TOLL FREE: 1.888.422.8636

March 18, 2013 Event. Financial results for period ending December 31,

2012.

Summary. Q412 results were below our estimates as pricing and volume for the chlor-alkali business unit came in weaker than expected and offsetting progress for CUS’ NA sodium chlorate business unit. F13 operating plan unchanged with numerous drivers. Management expects F13 cash operating profit of ~$155MM - ~$165MM (vs. $135MM - $140MM for F12) and targeted payout ratio of ~65% - ~75%. Recapping y/y growth drivers:

Consistent pricing and additional sodium chlorate

production for NA sodium chlorate.

Higher mix of HCL (90K wet metric tonnes), larger

chlor-alkali production/sales volume and increased

realized netback prices for N.A Chlor-alkali unit.

NATO truck-to-railcar transloading to expand to 30K

bbls/day in 2013 vs. 8K bbls/day in 2012.

2013 cap ex program. CUS is making the following commitments:

~$100MM to expand NATO (for a total of $125MM)

~$11MM for North Vancouver acid growth.

~$5MM for Brandon debottlenecking project.

~$24MM expected in maintenance capital.

Recommendation. The market fundamentals for chlor-alkali are creating near term resistance but expected to change in H213. More important to investors, this will be a turning point year with NATO contributing to the longer term value of the business. We remain BUY rated with a target of $10.20 (old target $10.10).

CANEXUS CORPORATION (CUS:TSX) Small-Cap Growth Research

DESCRIPTION:Canexus Corporation(“Canexus”, or “CUS”)produces sodium chlorate and chlor-alkali products for consumption in North

and South American markets. Four plants are in Canada and one plant is in South America. Canexus is also transforming its former plant site in Bruderheim, AB for transloading and storage purposes to service Alberta resource sectors.

ACUMEN CAPITAL | RESEARCH ENERGY.GROWTH.VALUE.

Brian D. Pow, MBA |Vice President Research and Equity Analyst | (403) 571-0303 | [email protected] Stephen J. Cardon |Research Associate| (403) 410-6840 | [email protected]

Recommendation: Buy 12-Month Target: $10.20

Implied Total Return: 14.0%

S/O (Dil.): 134.0m Last Close: $9.43

Market Cap: 1263.9m 14.0%

Current EV: $1646.1m $0.1368

Year End: Dec. 31 5.8%

F11 F12 F13e F14e

Revenue $539.6m $582.4m $637.6m $677.1m

Gross margin 37.3% 37.4% 38.6% 40.0%

Cash Operating Profit $123.4m $134.1m $157.3m $182.2m

Net Earnings $33.0m $39.8m $73.1m $92.0m

F11 F12 F13e F14e

Distributable Cash $73.7m $80.1m $90.1m $99.0m

Payout Ratio 86.0% 82.9% 73.7% 67.1%

F11 F12 F13e F14e

Working Capital $6.2m $114.3m -$5.8m $4.6m

Debt $419.6m $474.8m $446.3m $416.3m

D/E 2.9x 2.1x 1.8x 1.5x

Debt/EBITDA 3.4x 3.5x 2.8x 2.3x

Key Personnel

Gary Kubera Chief Executive Officer and President

Richard McLellan Chief Financial Officer

Source: Acumen Capital Partners, Sedar

Note: Figures subject to rounding

Implied Total Return:

Quarterly Dividend:

Current Yield:

mailto:[email protected]

mailto:[email protected]

March 18, 2013 ACUMEN CAPITAL | RESEARCH

ENERGY.GROWTH.VALUE.

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Brian D. Pow, MBA |Vice President Research and Equity Analyst | (403) 571-0303 | [email protected] Stephen J Cardon |Research Associate | (403) 410-6840 |[email protected]

Acumen Capital Finance Partners Limited #700, 404 – 6 Avenue SW | Calgary, AB | T2P 0R9| Main Phone: 403-571-0300

DISCUSSION Q412 results were below last year and our estimates with the underperformance for CUS’s chlor-alkaki business the main difference to our estimates and LY. F12 numbers were up over F11 from y/y volume and sales increases for both North American business units and consistent margins.

FIGURE 1| CANEXUS CORPORATION F12AND Q412 RESULT COMPARISON

Source: Company Filings, SEDAR, Acumen Capital Partners, Figures subject to rounding

SEGMENT COMMENTS North America Sodium Chlorate

F12 revenue increased 6% y/y with a 6% increase in realized netback prices on consistent sales volume.

Cash operating profit (“COP”) remained consistent at 29% y/y with higher realized netback prices and lower salt

costs offset by higher electricity rates and fixed costs.

Q/q sales revenue increased 3%; sales volumes up 5% while netback prices down 2%.

Q412 COP increased 300bps q/q with production volumes up 18% (23% at Brandon plant) and fixed costs down.

Q4 y/y sales increased 4% driven by sales volume up 3% and realized netback prices increased 2%.

COP increased from 29% to 30% y/y from higher production volumes, sales volumes, and netback prices offset by

increased electricity and salt costs.

North America Chlor-alkali

F12 sales increase 16% y/y; caustic soda sales and net back prices up 5% and 17%, HCL net back prices up 78%,

and higher transloading and logistics revenues from NATO. This was offset by lower HCL (9%) and chlorine (3%)

sales volumes and lower realized chlorine prices (76%).

COP decreased 100bps y/y to 20% as higher MECU netback prices and lower natural gas costs were offset by

higher electricity rates, purchased caustic soda product costs and fixed costs.

Q412 vs Q312 sales decreased 4% due to lower HCL (12%) and chlorine (19%) sales volumes and a 9% and 10%

decrease in HCL and Chlorine netback prices. This was somewhat offset by revenue from NATO.

Q412 COP decreased from 24% to 20% q/q due to 14% lower MECU production volumes and higher caustic soda

purchased product costs.

Y/y quarterly sales revenue increased 4% as added revenue from NATO combined with higher netback prices for

caustic soda and HCL offset lower caustic soda and HCL sales volume and lower chlorine netback prices.

Q412 Actual Q412 Estimates Variance Q411 Actual Variance

Total Revenue $145.7m $153.1m -4.8% $143.8m 1.3%

Gross margin % 39.3% 40.1% -0.7% 39.8% -0.4%

Cash Operating Profit $35.3m $37.6m -6.2% $37.3m -5.4%

Net Income $14.8m $17.6m -16.1% $24.6m 39.9%

EPS (Dil.) $0.12 $0.14 -16.1% $0.20 39.0%

F12 Actual F12 Estimates Variance F11 Actual Variance

Total Revenue $582.4m $594.3m -2.0% $539.6m 7.9%

Gross margin % 37.4% 38.1% -0.7% 37.3% 0.0%

Cash Operating Profit $134.1m $136.4m -1.7% $123.4m 8.6%

Net Income $39.8m $42.7m -6.7% $33.0m 20.8%

EPS (Dil.) $0.33 $0.35 -6.7% $0.26 23.7%



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COP decreased ~$4.2MM y/y as lower MECU production volume resulted in higher caustic soda purchased

product costs and higher fixed costs.

South America

2012 revenue decreased 4% y/y as caustic soda, chlorine and sodium hypochlorite sales volume decreased 4%,

17%, and 5% respectively and netback prices decreased for caustic soda (5%), sodium chlorate (2%) and sodium

hypochlorite (3%). This was partially offset by higher HCL sales volumes.

COP remained constant at 23%.

Q/q revenue decreased 5% primarily due to lower caustic soda sales volumes (14%) and lower netback prices for

caustic soda (6%) and sodium chlorate (5%).

COP increased to $6.6MM from $6.1MM as a result of lower electricity, caustic soda purchase product and salt

costs.

Q412 sales decreased 9% vs Q411 as a 11% drop in caustic soda sales volumes combined with lower caustic soda

(13%) and sodium chlorate (10%) realized netback prices could not be offset by a 6% increase in sodium chlorate

sales volumes.

COP was up 17.9% y/y due to lowered electricity, caustic soda purchase product and fixed costs, partially offset

by lower realized MECU netback prices and higher salt costs.

NATO

CUS is advancing the project at Bruderheim with unit trains shipment expected to start in the later part of Q313. Connection to MEG Energy’s Stonefell terminal is progressing and expected to be completed this summer. The estimated cost of $125.0MM still appears achievable which is good news considering the project is ~2 months behind. Management expects to have additional contracts signed over the next 6 months to use the terminal capacity as well as have an additional pipeline coming into the terminal. We think the symbolic importance of completing these additional contracts cannot be ignored. ESTIMATES Management’s guidance seems achievable as long as pricing on its chlor-alkali business can firm up. We are pulling Q113 unit prices back given the weakness seen in Q412 which brings the cash operating profit to the low end of guidance. The sodium chlorate business and will contribute to growth from the additional volumes and NATO seems reasonably on track to bring in new revenue in Q3.

FIGURE 2| CANEXUS CORPORATION ESTIMATES

Source: Acumen Capital Partners, Figures subject to rounding

F13 New F13 Old F14 New F14 Old

Revenues $637.6m $641.1m $677.1m $693.7m

Cash Operating Profit $157.3m $160.4m $182.2m $187.8m

Net Earnings $73.1m $83.9m $92.0m $105.0m



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VALUATION We justify our target pricing using the simple average of peer group multiples and DCF analysis. The peer derived target is more reserved on where the stock is heading over the next 12 months. DCF brings in the benefit of the growth drivers in F14 and beyond.

FIGURE 3| CANEXUS CORPORATION PEER GROUP

Source: Bloomberg, Acumen Capital Partners, Figures subject to rounding

FIGURE 4| CANEXUS CORPORATION VALUATION SUMMARY

Source: Acumen Capital Partners, Figures subject to rounding

SUMMARY AND RECOMMENDATION CUS’ business improved in F12 with growth contribution from the North American business units. Moving forward investors will be able to embrace NATO’s influence as the numbers will be broken out starting in Q113. We expect the numbers to show how NATO will change the cash flow mix and strengthen the foundation of the business.

Shares/Units Market EV/EBITDA EV/EBITDA

Company Ticker FD Cap EV 2013 2014

Chemical Manufacturing (50%)

Chemtrade Logistics Income Fund ca:che.un 41.7m $709.5m $1121.6m 7.1x 7.2x

Methanex Corporation ca:mx 94.4m $3766.2m $4329.7m 6.4x 7.2x

O&G Midstream (50%)

Keyera Corporation ca:key 77.7m $4021.4m $4783.6m 15.9x 13.7x

Gibson Energy Inc. ca:gei 120.1m $3040.3m $3612.9m 12.2x 9.6x

Mean Multiples 10.4x 9.4x

Valuation Metric FactorImplied 12-month

share price ($)

2014 Peer Group EV/EBITDA 9.4x $9.62DCF Analysis 10.25% | 8.5x $10.73Target (rounded) $10.20



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ISSUER: CANEXUS CORPORATION (CUS:TSX)

Disclosure Requirements

Is this an issuer related or industry related publication? Issuer Industry

Does the Analyst have a financial interest in securities of the subject issuer? If yes, nature of interest:Shares indirectly and debentures directly

Yes No

Does the Associate have a financial interest in securities of the subject issuer? If yes, nature of interest:

Yes No

Is Acumen Capital Partners a market maker in the issuer’s securities at the date of this report?

Yes No

Does Acumen Capital Partners beneficially own more than 1% of any class of common equity of the issuer?

Yes No

Does Acumen Capital Partners or the Analyst/Associate have any actual material conflicts of interest with the issuer? Explanation:

Yes No

Does the Analyst/Associate or Household member serve as a Director, Officer, or Advisory Board Member of the issuer?

Yes No

Has the Analyst/Associate received any direct compensation from the subject company in the past 12 months?*

Yes No

Has Acumen Capital Partners managed or co-managed an offering of securities by the issuer in the past 12 months?

Yes No

Has Acumen Capital Partners received compensation for investment banking and related services from the issuer in the past 12 months?

Yes No

Other disclosures:

* Acumen has a pool for compensation purposes, which includes research analysts, investment banking personnel, sales people and institutional traders. Revenue in the pool includes trading commissions, advisory fees, new issue commissions and broker warrant proceeds.

Acumen Recommendation Structure: Buy , Speculative Buy , Hold, Reduce , Under Review , Tender Full Recommendation Structure explanation can be found at the Acumen Capital Partners website: www.acumencapital.com

The information transmitted is privileged, confidential, may be subject to copyright and is intended solely for the use of the individual or entity to which the transmission is addressed. This transmission is provided for informational purposes only, and does not constitute an offer or solicitation to buy or sell any securities discussed herein in any jurisdiction where such would be prohibited, nor in any jurisdiction where Acumen is not registered to do so. The views expressed are those of the sender and not necessarily those of Acumen Capital Finance Partners Limited or its subsidiaries. Any unauthorized use, distribution, review or disclosure is prohibited. If you received this in error, please notify the sender and delete or destroy this message and any copies. Acumen does or seeks to do business with companies covered in our research comments and reports. As a result, investors should be aware that the firm may be in a conflict of interest. Investors should consider this report as only a single factor in making their investment decision©2013.

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ACUMEN CAPITAL | STAFF LIST

ACUMEN CAPITAL | PARTNERS

RESEARCH

Brian D. Pow, MBA Vice President Research, Equity Analyst (403) 571-0303 [email protected]

Trevor Reynolds Oil and Gas Research Analyst (403) 410-6842 [email protected]

Stephen Cardon Research Associate (403) 410-6840 [email protected]

INSTITUTIONAL SALES

Brian Parker President & CEO, Institutional Sales (403) 571-2514 [email protected]

Douglas S. Gowland, C.A., CFA Vice President, Institutional Sales (403) 571-0317 [email protected]

Andre Drouillard, CFA Institutional Sales (403) 571-0685 [email protected]

Liam Farrell Head Trader (403) 571-0318 [email protected]

Larry Conn Institutional Trading (403) 571-0148 [email protected]

David Waite Institutional Trading (403) 410-6730 [email protected]

Crystal Bellefountaine Associate (403) 571-0314 [email protected]

INVESTMENT BANKING

Kelly Hughes Vice President, Investment Banking (403) 571-5036 [email protected]

Ian Thomson Vice President, Investment Banking (403) 571-0301 [email protected]

Ken Chow, CFA Associate, Investment Banking (403) 571-0319 [email protected]

RETAIL SALES

Robert Laidlaw Vice President (403) 571-2522 [email protected]

Imran Mulji Investment Advisor (403) 571-0112 [email protected]

Margaret MacBurnie Investment Advisor Assistant (403) 441-0536 [email protected]

Sheldon LeLievre Vice President, Sr. Investment Advisor (403) 571-0315 [email protected]

Craig Madill Investment Advisor (403) 410-6018 [email protected]

Erin Williams Associate (403) 571-2416 [email protected]

Donny Woo Vice President, Sr. Investment Advisor (403) 571-2510 [email protected]

Darren Fong Investment Advisor (403) 441-2754 [email protected]

Alan Tolg Investment Advisor (403) 410-2042 [email protected]

Ron Cairns Investment Advisor (403) 410-2040 [email protected]

Cory Jackson Investment Advisor (403) 571-2195 [email protected]

TREASURY AND OPERATIONS

Cindy Marthaller Operations Manager (403) 571-8045 [email protected]

Myja Miller CFO, COO, CCO (403) 571-0308 [email protected]

Michelle Martin Compliance Manager (403) 571-0689 [email protected]

Sarah Visser Client Services (403) 571-0300 [email protected]

Acumen Capital Finance Partners Limited | Suite 700, 404 – 6 Avenue SW Calgary, AB T2P 0R9 | Main Phone: 403-571-0300

www.acumencapital.com

acumen capital f11 f12 f13e f14e canexus … · 2014-10-29 · working capital $6.2m ... caustic...

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