On Friday, BMO (TSX:BMO) Capital Markets maintained a positive outlook on Chemtrade Logistics Income Fund (CHE-U:CN) (OTC: CGIFF), reiterating an Outperform rating with a steady price target of Cdn$11.00. The firm's stance comes after Chemtrade reported a second-quarter performance that surpassed expectations and increased its full-year guidance by 7%.
The analysis by BMO Capital follows Chemtrade's announcement, which reflected a strong quarterly outcome and an optimistic outlook for the year. The company's upward revision of its fiscal year guidance suggests a robust financial trajectory. BMO Capital has adjusted its models to align with Chemtrade's 2024 EBITDA guidance midpoint of Cdn$445 million, which includes the potential impact of some Western Canadian rail disruptions.
Looking further ahead, BMO Capital has also increased its estimates for Chemtrade's performance in 2025. The updated estimates suggest a slight earnings contraction, which is considered conservative by the firm, given that 2025 will not be affected by a North Vancouver operational turnaround. Despite this, BMO Capital notes that Chemtrade's trading valuation appears attractive, citing a roughly 4 times 2024 estimated EV/EBITDA ratio.
The financial institution highlights Chemtrade's strong free cash flow, which supports a payout ratio of approximately 40-45% and offers an estimated yield of around 7%. This financial position enables Chemtrade to continue its share buyback program and fund other corporate initiatives.
BMO Capital also points out that while Chemtrade is on the cusp of index inclusion, the ongoing share repurchase activity may shift the threshold for this goal.
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