Chorus fell 21 percent to C$2.89 by the 4 p.m. close in Toronto, its biggest single-day drop since Chorus -- previously known as Jazz Income Fund -- began trading in January 2006.
Chorus, based in Halifax, Nova Scotia, operates regional flights for Air Canada (AC/B), the country’s largest airline, under the Jazz and Air Canada Express banners. The two companies are in binding arbitration regarding a capacity purchase agreement, and Chorus yesterday cited the dispute as one of the reasons behind its decision to lower the dividend.
The payout cut is “a big surprise,” Kevin Chiang, an analyst at CIBC World Markets in Toronto, said in a note to clients late yesterday. “While the company is generating enough cash flow to pay its current dividend, it does face significant retroactive payments if Air Canada were to win the arbitration given how long it has dragged on.”
Chiang lowered his rating on Chorus to the equivalent of a sell from the equivalent of hold.
Chorus cut its dividend to 7.5 cents from 15 cents as it reported adjusted net income of 12 cents a share after the close of trading yesterday. On that basis, profit fell short of the 17 cent average estimate in a Bloomberg survey of five analysts.
“The longer this process continues without resolution, the larger the amount of any potential retroactive payment,” Chorus said in its statement.
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