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Is CHE.UN stock a buy?

Shares of Chemtrade Logistics Income Fund (Chemtrade Logistics Income Fund Stock Quote, Chart, News, Analyst, Financials TSX:CHE.UN) have been up and down in the past year, bottoming in May before staging a semi-recovery to February highs of more than Ten dollars.

But is the stock a buy? Opinions differ.

On Friday, August 18, Scotia Capital analyst Ben Isaacson lowered his recommendation for Chemtrade Logistics Income Fund to “sector perform” from “sector outperform.”

“Chemtrade has made tangible strides forward over the past year, irrespective of commodity price moves,” the analyst argued. “Examples include: improved leverage, more evident capital discipline, a clear growth strategy, better disclosure/messaging, etc. But, while all of that is true, it is equally true the near-term outlook for Chemtrade has, not only deteriorated, but continues to do so. We recommend investors take profits now and look to reload at a more attractive entry point.”

But not every analyst was as skeptical about CHE.UN. A day earlier, Desjardins analyst Gary Ho reiterated his “Buy” rating on the stock.

“2H23 could see lower caustic soda prices, a weaker pulp industry impacting sodium chlorate and higher turnaround activity. 2024 will face tough comps in 1H and a North Vancouver turnaround in 2Q. … We believe it will take some time for investors to digest the swing in results given the moving pieces. We reduced our 2024 EBITDA to $388-million (was $400-million), driven by a more tepid outlook. … Our positive view is based on: (1) multiple chemicals in CHE’s portfolio having relatively recession-resistant attributes; (2) tremendous ultra-pure and hydrogen opportunities; and (3) consistent execution and a repaired balance sheet should restore investor confidence and warrant a valuation rerate.

On August 14, Chemtrade reported its Q2, 2023 results. The company earned $87.3-million on revenue of $470.0-million, a topline that was up five per cent over the same period a year prior.

“We are proud of the results that we generated in the second quarter, including the highest quarterly adjusted EBITDA in Chemtrade’s history,” CEO Scott Rook said. “Our record start to the year speaks to the quality and execution of our team and the strength of our diversified product portfolio. We are confident in the long-term strength of our business; however, as can be observed from our guidance, we are expecting the second half of 2023 to be softer than the record first half. This is due to weaker market conditions for the Western Canadian pulp industry, which affects demand for our sodium chlorate. Also, while conditions for chlor-alkali remain well above historic levels, we expect that conditions in the second half of 2023 are likely to be weaker than the first half of the year. Areas where we saw notable strength in the second quarter included sodium chlorate pricing and margins, water solutions product pricing and margins, regen acid volumes, chlorine, and hydrochloric acid (HCl) pricing. Based on our strong performance, we are reiterating our June guidance for our 2023 financial results.

“Given our product portfolio’s compelling combination of defensiveness and growth, we believe that Chemtrade is favourably differentiated from other chemical companies and well positioned for the current macroeconomic environment,” Rook concluded. “In a typical recession, many of our key products — including water solutions products and regen acid — have seen a limited impact on demand. Concurrently, we remain focused on taking advantage of the attractive opportunities across our portfolio, including a global energy cost advantage benefiting our electrochemical products, a significant increase in demand expected in ultrapure acid from semiconductor production onshoring in North America and ongoing demand growth in water chemicals.”

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