On Tuesday, BMO Capital Markets updated its outlook on Chemtrade Logistics Income Fund (CHE-U:CN) (OTC: CGIFF), raising the price target to Cdn$15.00 from the previous Cdn$12.00. The firm has maintained an Outperform rating on the stock. The adjustment follows a post-third-quarter analysis and a roadshow featuring the company's CEO and CFO in Toronto.
The analyst at BMO Capital cited an improved caustic dynamic and growing confidence in the company's long-term prospects as reasons for the price target increase. The new target is based on a multiple of approximately 5 to 5.5 times the 2025 expected enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA), assuming a year-over-year consistency in EBITDA.
Chemtrade's new price target suggests a yield of around 4.5%, with an expected payout ratio between 40-45%. The analyst expressed a positive outlook on the company's future, particularly noting the low probability of losing earnings from the North Vancouver chlor-alkali operations, with a potential resolution anticipated in 2025.
Despite the positive assessment, Chemtrade may still fall slightly short of inclusion in the Toronto Stock Exchange index this week. The analyst's comments reflect a belief that the company's valuation multiples remain 2 to 3 times lower than those of U.S. commodity chemical companies such as Olin Corporation (NYSE: NYSE:OLN), Westlake Chemical Corporation (NYSE: NYSE:WLK), and LyondellBasell Industries (NYSE: NYSE:LYB).
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