Chemtrade Logistics: A High-Yield, Undervalued Infrastructure Play with 10% Higher EBITDA Guidance

Chemtrade Logistics Income Fund (TSE:CHE.UN) has emerged as a compelling infrastructure play, combining a robust 6.4% yield with a valuation that appears undervalued relative to its intrinsic worth. The company’s recent 10% upward revision to its 2025 Adjusted EBITDA guidance—from $430–$460 million to $475–$500 million—underscores its resilience in a high-margin industrial logistics sector. This analysis evaluates Chemtrade’s investment case through the lens of discounted cash flow (DCF) valuation and capital allocation discipline, revealing a stock that balances growth, sustainability, and shareholder returns.

EBITDA Guidance and Performance: A Foundation for Growth

Chemtrade’s Q2 2025 results, reported in August 2025, demonstrated exceptional momentum. Adjusted EBITDA surged 19.9% year-over-year to $138 million, driven by a 20% increase in electrochemicals segment revenue and a 50% rise in distributable cash after maintenance capital expenditures [1]. This performance prompted management to raise full-year 2025 guidance to $475–$500 million, a 10% increase from prior forecasts and the third-highest in the company’s history [2].

The revised guidance reflects strong demand in key segments, including water treatment chemicals and ultrapure acid production, as well as strategic investments in growth areas. For instance, Chemtrade plans to allocate $40–$60 million in 2025 for capital expenditures, focusing on expanding its water treatment platform and upgrading production facilities [2]. These initiatives are critical for sustaining long-term margins in a sector where Chemtrade’s EBITDA margins have historically outperformed peers.

DCF Valuation: A Discount to Intrinsic Value

A two-stage DCF model suggests Chemtrade is trading at a discount to its intrinsic value. According to a recent analysis, the company’s fair value is estimated at CA$13.03 per share, compared to its current price of CA$11.27 [1]. This implies a potential upside of 13% for investors. The DCF assumptions include:
- Discount rate: 7.8%, derived from a levered beta of 1.225 and industry benchmarks [1].
- Terminal growth rate: 2.5%, reflecting conservative long-term industry growth expectations [1].
- Cash flow projections: A 10-year forecast period with a present value of cash flows estimated at CA$680 million and a terminal value of CA$1.7 billion (discounted to CA$792 million) [1].

The model’s robustness is further supported by Chemtrade’s strong balance sheet. With a net debt to LTM EBITDA ratio of 1.8x and over $600 million in liquidity, the company is well-positioned to fund growth without overleveraging [1]. Additionally, its Price-to-Earnings (PE) ratio of 11.3x is significantly below the peer average of 18.1x, suggesting undervaluation relative to industry benchmarks [1].

Capital Allocation: Discipline and Shareholder Yield

Chemtrade’s capital allocation strategy is a cornerstone of its appeal. The company recently increased its monthly distribution by 5% to 5.75 cents per unit, effective January 2025, supported by a 27% payout ratio in Q2 2025 [1]. This low payout ratio—well below the 50% threshold often cited as a sustainability benchmark—ensures the distribution remains resilient even in downturns.

Beyond dividends, Chemtrade has prioritized buybacks under its normal course issuer bid (NCIB), contributing to a total shareholder yield of -20.4% in Q2 2025 [1]. These repurchases, combined with the distribution hike, reflect a disciplined approach to returning capital to unitholders. Meanwhile, the $150 million acquisition of Polytech—a water treatment company—signals strategic growth in high-margin markets [1].

Risks and Considerations

While Chemtrade’s fundamentals are strong, investors should remain mindful of external risks. Proposed U.S. tariffs on Canadian exports could pressure margins, though the company’s 2025 guidance excludes such scenarios [2]. Additionally, the industrial logistics sector is sensitive to macroeconomic cycles, which could impact demand for water treatment and electrochemical products.

Conclusion: A High-Yield, Undervalued Opportunity

Chemtrade Logistics combines a compelling yield, disciplined capital allocation, and a valuation that appears undervalued relative to its DCF-derived fair value. The 10% upward revision to EBITDA guidance, coupled with strategic investments and a robust balance sheet, positions the company as a high-conviction play in the industrial infrastructure sector. For investors seeking a blend of income and growth, Chemtrade offers an attractive risk-reward profile—provided macroeconomic and trade policy risks remain manageable.

Source:
[1] A Look At The Fair Value Of Chemtrade Logistics Income Fund [https://finance.yahoo.com/news/look-fair-value-chemtrade-logistics-163755358.html]
[2] Chemtrade Announces Strong Results for Q2 2025, Raises Guidance for 2025 to $475M–$500M [https://www.businesswire.com/news/home/20250814686837/en/Chemtrade-Announces-Strong-Results-for-Q2-2025-Raises-Guidance-for-2025-to-%24475M---%24500M-Implementing-New-NCIB-Redeeming-Convertible-Debentures]