Research Note - Algoma Central Corporation (ALC:TSX|BUY $23.00 TARGET ) - Strong Demand And Pricing Throughout All Segments

Algoma Central Corporation announced Q3/22 financial results this morning before market open that beat our expectations on revenue and EBITDA. ALC reported revenue of $199.3M (+14% YoY, +29% over 2020), beating our estimate of $165.2M and EBITDA of $73.6M, in line with our estimate of $67.3M (+6.0% YoY, +11.8% over 2019). Growth continues to be driven by international volumes and charter pricing.  Management suggests that full year results beyond earlier expectations on the tail winds of strong demand and operating performance across segments.

 

Domestic Dry-Bulk: DDB EBITDA came in at $37.0M vs. our estimate of

$35.9M and $39.5M in Q3/21. Revenue came in at $116.0M vs. our estimate of $105.7M and $109.6M in Q3/21. The increase in revenues was driven by increased fuel recoveries and improving overall base freight rates. Despite lower revenue days during Q3/22 overall volumes were slightly higher offsetting lower utilization.

 

ALC deployed two vessels late in the quarter that had been in lay-up due to decreased gain demand as a result of the 2021 drought. These vessels have been deployed to meet the demand for additional cargoes.

 

Ocean Self-Unloaders: OSU EBITDA came in at $14.6M vs. our estimate of $11.2M and $16.9M in Q3/21. OSU revenue was $49.9M vs. our estimate of $33.0M and $41.2M in the same quarter last year. The large beat was driven by increased pool volumes, higher freight rates and increased fuel recoveries.

 

Product Tankers: PT EBITDA was $9.6M vs. our estimate of $7.6M and $6.8M in Q3/21. Revenue for the segment came in at $32.7M vs. our estimate of $25.4M and $21.2M in the same quarter last year. The beat was driven by fuel cost recoveries and improved customer demand. Additionally, one vessel was added to the fleet in Q2/22; the fleet experienced a 32% increase in revenue days due to the increase in demand.

 

Global Short Sea Shipping: GSS EBITDA attributable to ALC came in at $15.2M vs. our estimate of $11.7M and $11.1M in Q3/21. GSS reported revenue of $73.0M vs. our estimate of $73.2M and $71.1M in Q3/21 (attributable to the JV). The revenue miss was due to a reduction of the mini bulker fleet size by 3 vessels, which was mostly offset by large freight rate increases from that fleet. Cement and handy-size fleets saw an increase in earnings YoY. Strong demand for global short sea is expected to continue into Q4/22. Costs are expected to remain impacted due to global fuel prices and inflation.



20221107 - M Partners - ALC - Q3 Financials
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