Opinions
Michael Simpson, CFA
Westshore Terminals Inc.
WTE-T
PAST TOP PICK
Jul 04, 2019
Stock price when the opinion was issued
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(A Top Pick Oct 25/19, Down 31%) They have been in deep negotiations with TECK.B-T. The market was pricing in a $16 stock for them. This is the base case for this stock. There has been tax loss selling. They are now in negotiations with other bulk commodities companies. He still likes it.
Billy Kawasaki’s Insights - Billy’s most-liked answers from 5i Research. A fairly unique company in Canada that is in the shipping and port sector. The stock has done very well this year, and is still cheap. Would be okay to buy here for income investors. Unlock Premium - Try 5i Free
WTE operates a coal storage and unloading/loading terminal in British Columbia. The company has contracts to ship coal from mines in British Columbia, Alberta, and the United States. WTE pays a high yield of 5.84%, and has a relatively cheap forward price-to-earnings ratio of 14.9x. The stock price has been essentially flat over the last year with a small decline, while the high yield has created slight gains. Forecasts suggest that WTE will see a decline across EPS and revenue over the next few years. WTE pays out a high percentage of free cash flows in dividends at about 86% over the last twelve months, while also paying out 46% of cash from operations. Debt is moderate and the company has also paid special dividends the last two years and will do so again this year. We think it is an OK income option that has grown it's dividend at nearly a 30% annualized rate over the last three years. Declining results are cause for concern in the future in addition to size risk, but WTE performed well in 2023 displaying top and bottom line growth. It is seeking to ship/load new products to alleviate its dependence on one.
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De-globalization is an issue, as WTE's port facility is a major route to Asia. But we think on-shoring is mostly for industrial companies, and we are not particularly concerned about commodity shipment declining in volume. WTE has a nice advantage in location, but it should be considered an income, not a growth, stock. Yield is 6.5% and may vary. It has paid three special dividends in the last four years as well (totalling $2.35 per share). The balance sheet is OK but growth is low. EPS for 2025 is expected to be $1.56, slightly less than it was in 2016. We would consider it 'ok' but not really exciting. But for income investors willing to hold a smaller, somewhat cyclical company, we think it would be suitable.
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