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Black Gold Income Trust

Tuesday, September 15, 2009

Black Gold Income Trust

Westshore Terminals Income Fund (WTE.UN)
I have been following Westshore Terminals Income Fund for more than a year now and even recommended it in a previous article on this blog: Income Trust Picks for my TFSA.

The fund is based out of my home town Delta, BC and it has a very real and easy to understand business. Westshore operates a coal-storage and loading facility at Roberts Banks, British Columbia. It is an essential link in the coal chain between mines, rail, shipping, and the end user. Shipments are regular and go to around 24 counties and bring in $2 billion or more of wealth a year to Canada.

Currently and over the past couple of years Westshore Terminals has been upgrading its coal handling capacity and improving efficiency in handling the coal from the railcars to storage and onto ships. Westshore is now the leading export coal facility in North America. Coal exported through the terminal is mainly metallurgical coal that is used in making steel; it’s no wonder that China, one of the largest Steel makers, is a major customer.

One of the nice things about this company is the stability of cash flows leading to stable quarterly dividend payments. This is due to the fact that the fund derives its income from the volume of coal that passes through the port, not the price of coal and there are many long term contracts that have been signed with some of the largest coal miners in Canada. For example, Westshore’s major customer is Elk Valley Coal which is the second largest coal exporter of metallurgical coal in the world and is increasing mine capacity by 3 million tonnes to 28 million tonnes within a few years. Another interesting note is that coal shipments from Montana and Wyoming in the United States are also being railed 2000 kilometres to access Westshores Terminal.

Sounds like a great story, but what are analysts saying?

Looking at a consolidation of all known analysts that are currently following this stock, Westshore Terminals has received a 10/10 for the past month. I do like to use Thomson Reuters for this type of information since they consolidate all analysts’ opinions for a stock that follow the stock. The 10/10 rating is based on a collective analysis of 5 factors: Earnings, Fundamentals, Relative Valuation, Risk, and Price Momentum. The average for the Industrial Transport Sector is currently 8.5.

The current price of Westshore is around $13.55. The 52 week high is $16.50 and 52 week low is $7.02. The market cap is around $1 Billion and the current dividend yield is around 11.6% with quarterly distributions. Of the 6 analysts that follow the stock, the 12 month Price target ranges from a high of $15 to a low of $12.

I believe this type of investment is very well suited for a TFSA or an RRSP account due to the new tax rules coming in 2010 that will affect distributions. These new tax laws will only make Income Trusts that much more suited for tax sheltered accounts.

This is the most recent chart of WTE.UN from Google Finance.  As you can see the uptrend has been sustained for the past 6 months and WTE.UN is now pulling away from the trend line.  This may result in a steeper uptrend to into the future, but I think WTE.UN will likely pull back to the trend line in the coming weeks.

There is no time like the present to buy this for the long term.

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