October 21, 2013 Comments

The week has started out not too badly on the markets. The S&P was flat awhile Toronto was up 0.4%.

On the weekend there was a report in the Edmonton Journal about a company that owns a facility that loads oil onto trains just outside of Edmonton. Currently the oil is trucked in but soon they will be loading from a pipeline. 100,000 barrels per day capacity. (Which is a lot). It seems like that could be a good business.

The company is Canexus Corporation. They are mostly a company that manufactures Sodium Chlorate and it looks like they got into the oil loading business simply because they already had a train loading facility. I took a quick look but there were some things I really don’t like. Recently they swung from profits to losses on their core operations the Chlorate operations. The loss is definitely a negative but there was something else that bothered me a lot more. The company talks about something called “Cash Operating Profit”. In Q2, this cash operating profit was $23.0 million despite an actual profit of negative $14.8 million. It turns out that “Cash operating profit” is really EBITDA plus non-cash compensation expense. In my opinion it is outrageous and mis-leading to refer to this as a “profit”. And especially when they focus on this number as the headline number. It is not unusual to refer to EBIT as operating income, but to call EBIT, much less EBITDA profit is just not right in my opinion. I can’t trust a company that does this. I was intrigued by this oil to rail loading facility. It is a large facility and I suspect it could be quite profitable. But it comes along with a commodity chlorate business that is losing money at this time. Possibly I could take another look after the Q3 earnings, but it may just be wise to keep away from a company that takes this much liberty with the definition of the word profit. Also the sight of burning train cars just West of Edmonton this weekend is a worry for all the plans regarding shipping oil by rail. (In this case it was not oil that burned, but still the images are damaging). In addition to all that, the company appears to be trading at close to four times book value.