Water Treatment Expansion And Acquisitions Will Fuel Global Demand

Key Takeaways

• Strategic acquisitions and new facility investments position Chemtrade to benefit from rising water treatment and domestic semiconductor industry demand, supporting revenue growth and margin expansion.
  
• Strong pricing power, disciplined capital allocation, and sustainability focus enhance earnings stability, cash flow, and growth flexibility despite input cost volatility.
  
• Structural demand declines, input cost volatility, acquisition integration risks, and exposure to macro and regulatory uncertainties threaten Chemtrade's margins, revenue stability, and financial flexibility.

Catalysts

Offers industrial chemicals and services in Canada, the United States, and South America.

• Chemtrade's expanding focus on water treatment solutions, reinforced by the Polytec and Thatcher acquisitions, positions the company to benefit from persistently rising demand from municipalities and food processing industries, supporting durable revenue growth and improved earnings stability as water scarcity and regulatory pressures intensify globally.
  
• The commercial ramp-up of Chemtrade's ultrapure acid facility in Cairo, Ohio, is a direct play on the accelerating buildout of domestic semiconductor manufacturing infrastructure and North American onshoring, aligning the company with long-term growth drivers that are expected to enhance top-line growth and expand EBITDA margins.
  
• Ongoing organic investments-such as new specialty water chemical lines and debottlenecking projects-are targeted at higher-margin, value-added segments and are well supported by long-term sustainability trends, which should drive incremental improvement in overall net margins and free cash flow.
  
• Chemtrade's ability to pass through elevated input costs (notably sulfur) and benefit from risk-sharing mechanisms with customers demonstrates enhanced pricing power and resilience, which is further supported by the trend toward supply chain regionalization, and should underpin stable or improving net margins over the cycle.
  
• The company's accelerated deleveraging and disciplined capital allocation (including continued share buybacks and sustainable distributions) provides flexibility to pursue further high-return growth opportunities, supporting higher earnings per share and distributable cash per unit, and suggesting the current valuation may not fully reflect these forward earnings catalysts.

Chemtrade Logistics Income Fund Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Chemtrade Logistics Income Fund's revenue will grow by 6.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 6.9% today to 8.6% in 3 years time.
• Analysts expect earnings to reach CA$193.6 million (and earnings per share of CA$1.57) by about September 2028, up from CA$129.1 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 9.1x on those 2028 earnings, down from 11.3x today. This future PE is lower than the current PE for the CA Chemicals industry at 11.3x.
• Analysts expect the number of shares outstanding to decline by 6.62% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.61%, as per the Simply Wall St company report.

Chemtrade Logistics Income Fund Future Earnings Per Share Growth

Risks

• Accelerating environmental regulations and the global shift toward decarbonization and the circular economy could structurally reduce long-term demand for Chemtrade's legacy chemical products, particularly sulphur-based and electrochemical products, leading to lower sales volumes and compressing margins.
  
• Chemtrade's exposure to volatile input costs, especially sulfur prices-which have recently tripled-poses ongoing risks to net margins, as persistent or repeated spikes may not be fully offset by pricing mechanisms or contract resets, especially if customers resist cost pass-through.
  
• Significant non-cash impairments in segments such as sodium nitrite (due to loss of anti-dumping protections) and permanent curtailment of sodium chlorate production at Prince George highlight secular demand decline risks and customer concentration issues, potentially causing further EBITDA declines and revenue volatility.
  
• Integration of recent acquisitions (Thatcher Group and Polytec) at higher multiples without disclosed synergy targets could pressure future returns, while short-term leverage increases from acquisition financing may constrain future capital allocation and reduce financial flexibility, impacting net earnings.
  
• Macro uncertainties, including potential USMCA renegotiation, softness in specific product pricing (e.g., chlorine), exposure to cyclical end markets (like pulp and paper), and risks from global trade or competition from lower-cost jurisdictions, create revenue unpredictability and ongoing risks to future EBITDA growth.

Valuation

• The analysts have a consensus price target of CA$15.5 for Chemtrade Logistics Income Fund based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$17.5, and the most bearish reporting a price target of just CA$14.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CA$2.3 billion, earnings will come to CA$193.6 million, and it would be trading on a PE ratio of 9.1x, assuming you use a discount rate of 7.6%.
• Given the current share price of CA$12.93, the analyst price target of CA$15.5 is 16.6% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.