A bit  more conservative with CUS rated as a Sector Outperform with a $10 price target. GLTA



Canexus Corp.

Stable Cash Flows From Underlying Business, Capitalizing On Differentials

? We continue to believe CUS deserves a premium valuation owing to its solid earnings growth profile, stable cash flows from its underlying pulp chemicals business, and its dividend yield of 6.3%. We are maintaining our $10 price target and Sector Outperformer rating.

? MEG highlighted the growing importance of oil-by-rail and capitalizing on differentials as the company plans to ship 100,000 Bbl/d to the Gulf Coast in 2014. We expect CUS to sign more pipeline contracts over the next 12 months and fill current capacity of 70,000 Bbl/d for rail shipments.

? North American chlorate plants continue to operate within a tight range above a 90% operating rate. We forecast a modest price increase of ~1% in 2013 and flat pricing in 2014. We expect CUS's North American chlorate division to generate stable cash flows of $70 MM-$75 MM over 2013/14.

? Our forward estimates are unchanged as we are forecasting 2013 EBITDA of $158.1 MM (company guidance is $155 MM-$165 MM). However, we see further upside to our estimate if MEG begins shipping to the Gulf in 2013 (or allows the other Access pipeline owner to ship volumes)