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A sustainable 8% dividend and massive share price appreciation...what's not to like?

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August 06, 2014 – Comments (3) | RELATED TICKERS: CXUSF

I've been blogging here for months about Canexus.  It is currently the third largest position in myportfolio.  A few days ago Reuters published a really interesting, semi-bearish article on Canexus' oil-by-rail terminal. The piece provides excellent background information on the situation, but after extensive research on the subject I disagree with the author's conclusions.  I continue to strongly believe that the odds of another major pipeline being constructed in Canada, which theoretically would torpedo the value of oil-to-rail terminals, are being vastly overstated.

Canexus pays high price for winning Canadian crude-by-rail race

http://www.reuters.com/article/2014/08/04/canexus-railway-crude-idUSL2N0Q61RW20140804

Today Canexus announced its quarterly results. 

Canexus Announces Second Quarter Results

Canexus delivers solid Q2 results and progress on NATO expansion

http://www.marketwatch.com/story/canexus-announces-second-quarter-results-2014-08-05-2117323

Mr. Market certainly likes what it saw, the stock is up over 7%.  CXUSF (the U.S. OTC ticker for the company) saw its earnings rise 52% year-over-year.  Canexus still pays a massive 8.0% dividend, even after the stock's recent surge.  Many people believed that the distribution might be threatened  now that the company had to temporarily shot down its rail terminal to fix some issues.  So far, so good, its cash payout ratio Q2 was 92%.  That's obviously flying a little close to the sun, but we likely may only have less than one more quarter before the terminal is fully operational, cash begins gushing in and expenses fall off a cliff.  Per the quarterly release..."The Corporation expects to complete the shutdown and recommence loading unit trains in late August."  Canexus confirmed its $0.10/share dividend payable on October 15th. 

Investors may not even have to wait for the rail terminal to be fully operational before they see its under-appreciated value reflected in Canexus' stock...

"Canexus is continuing to advance discussions with parties that have expressed potential interest in certain of our assets. The Corporation is currently engaging financial advisors to assist with the discussions. There is no assurance that a transaction, if pursued, will be concluded."

This is excellent news.  Canexus realizes that it is not being given enough credit for NATO and it is doing something about it.  As a shareholder, what I would like to see Canexus do is sell only part of the project to an experienced operator.  The NATO project was an excellent idea for the company, but clearly Canexus did not have the necessary expertise in the field to get it constructed without many issues.  Bringing in a partner would help the market properly value the project, bring in much needed expertise, and potentially help Canexus use its valuable, ideally located land to expand the terminal even further in the future.

I leave you with the following statement from Doug Wonnacott Canexus' President and CEO. "2014 is a year that will position Canexus for the future. We expect to complete the unit train expansion at NATO in late August and then focus on ramping up operations. Canexus has an impressive portfolio of assets that provide a lot of opportunity and we continue to explore options to maximize their value."

Thanks for reading everyone.  Please share your thoughts on Canexus or any other cool special situation ideas you have.

Jason
Long CXUSF

3 Comments – Post Your Own

#1) On August 07, 2014 at 10:44 AM, TMFDeej (99.33) wrote:

And the Canexus news comes pouring in from the mainstream media:

Canexus in talks about potential sale of Alberta crude-by-rail terminal

http://www.reuters.com/article/2014/08/06/canexus-results-idUSL2N0QC1NC20140806

Canexus to start loading Cold Lake blend on rail cars in late August: CEO

http://www.platts.com/latest-news/oil/calgary/canexus-to-start-loading-cold-lake-blend-on-rail-21032262

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#2) On August 11, 2014 at 11:01 PM, XMFConnor (97.03) wrote:

Hey TMFDeej,

I love following your blog here-- great stuff. I'd love to send you some info on ELY, an idea I think you will really like. Shoot me an email at: connorhaley@gmail.com if you get a chance.

I'd love to chat ideas more in depth than this space allows.  

Best,

XMFConnor 

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#3) On August 12, 2014 at 10:23 AM, TMFDeej (99.33) wrote:

Great to hear from you Connor.  Thanks for the compliment.  I'll shoot you an e-mail.

Jason

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