Chemtrade Logistics Income Fund is a buy, says Desjardins

Ahead of quarterly earnings, Desjardins analyst David Newman is staying bullish on Chemtrade Logistics Income Fund (Chemtrade Logistics Income Fund Quote, Chart, News, Analysts, Financials TSX:CHE.UN). In an update to clients on Friday, Newman maintained his “Buy” rating and $12.00 target for CHE, which Newman called an excellent pandemic recovery trade.

Industrial chemicals and services company Chemtrade Logistics is one of North America’s largest suppliers of sulphuric acid, inorganic coagulants for water treatment, sodium chlorate, sodium nitrite, sodium hydrosulphite and phosphorus pentasulphide and spent acid processing services, while its industrial services involve processing by-products and waste streams.

The company saw serving CEO Mark Davis retire at the end of February, with Scott Rook taking the helm, a move which puts Chemtrade heading in the right direction, Newman said.

“We believe CHE’s new CEO Scott Rook and the management team are on the right track to grow the business on the back of a far more stable chemicals outlook. Instead of focusing on acquisitions (once every few years), which was CHE’s previous strategy, the company plans to turn its focus inward to improve operational execution, invest in organic growth opportunities, drive cash flows and deleverage,” Newman wrote.

“Management aims to reduce its net debt/EBITDA by more than ~0.25x a year, driven by expected EBITDA growth of at least ~five per cent per year (obviously quicker on a sustained caustic soda and HCl recovery), and targets a ratio of