Algoma Central will be reporting Q3/22 financial results on Thursday, November 7th before market open. We are expecting another strong quarter from ALC, which has built a track record of exceeding our expectations over the last two years. We are expecting the quarter to be driven by continued growth in the GSS JV, a rebound in product tankers due to the higher oil price, and slight declines from DDB and OSU due to lower freight rates and normalizing trade mixes.

For Q3/22, we are expecting:

• Total revenue of $165.2M (-5% YoY due to reverting trade mix)

  • Domestic dry bulk revenue of $105.7M

  • Product tankers revenue of $25.4

  • Ocean self-unloaders revenue of $33.0M

  • Corporate and investment properties revenue of $1.2M

• Total adjusted EBITDA of $67.3M (-4% YoY)

  • Domestic dry bulk EBITDA of $35.9M

  • Product tankers EBITDA of $7.6M

  • Ocean self-unloaders EBITDA of $11.2M

  • Global short sea shipping EBITDA (attributable to ALC) of $11.7M

  • Other EBITDA of $0.9M

Our Thoughts: When we look back at previous recessions, ALC’s EBITDA has proved to be fairly resilient and exhibits a strong rebound in the years following. ALC’s EBITDA declined only 19% in 2009, followed by a +9% growth in 2010 and +66% growth in 2011. Furthermore, ALC’s EBITDA declined just 7% in 2000, before rebounding 31% higher in 2001. While freight rates have pulled back significantly this year, ALC remains fairly sheltered from this as their domestic contracts are long-term and the Baltic Dry Index still remains at elevated levels compared to the ten year average.

Subsequent to Q2, ALC announced that it has entered into a 50% owned JV with Sweden based Furetank AB to construct four product tankers that will operate internationally. This highlights the outsized growth that will continue in ALC’s international segments and continues to diversify ALC’s business. ALC trades in line with its peers at 4.5x 2023E EBITDA, however we think that a premium multiple is warranted due to ALC’s proven market share in the Great Lakes and superior margin profile. We are maintaining our BUY rating and our $22.00/share target price based on 6.0x 2023E EBITDA.