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Canfor (CFP-T) (Industry (AD Duty: (Canfor is a mandatory respondent in…
Canfor (CFP-T)
Industry
"Longer term we have strong conviction we are in the early stages of a multi-year run in lumber pricing, of which Canfor will be an obvious beneficiary" - Raymond James, February 2018
End of 2017 showed near record high US NBSK prices and strong BCTMP pricing - Raymond James, February 2018
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In Q1 2018 lumber prices were off to a "torrid start" with WSPF up to $533/mfbm (US).... Showing no signs of slowed momentum, SPF lumber prices hit $655US/mfbm in June 2018 due to mismatch between Canadian supply and US demand, thin end-user inventories, extended order files and the very real risk of another devastating fire season, and transportation issues due to rail car availability tapped out. BENCHMARK WSPF PRICES WERE UP 112% IN 18 MONTHS ENDING JUNE 2018... At January 2019, prices look to be around $350/mfbm... or down ~50% from June 2018... "A KEY GRIPE FROM GENERALIST INVESTORS DABBLING INTO THE FOREST SECTOR HAS BEEN THE EXTREME COMMODITY AND HENCE EARNINGS VOLATILITY" - Raymond James NoV 2018
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"very weak lumber segment results from competitors Weyerhauser (WY-NYSE) and Resolute FOrest Products (RFP-NYSE).... Weyehauser reported Q4 2018 lumber results of just $5M EBITDA/MFBM versus $107 EBITDA/MFBM in Q3 2018.
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Business
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Debt
Maturity: Extended loan maturity to April 2022... interest is payable at floating rates based on total debt/capitalization ratio.
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Two segments: (1) Lumber (69% of EBITDA), (2) Pulp (31% of EBITDA)
In the 3rd quarter of 2018, operational issues impacted production and there was downtime + regular maintenance downtime.
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Management
March 5, 2018: NCIB for 5% of shares outstanding. Expires March 2019.
Acquisitions:
2018...Canfor to acquire majority stake in VIDA (Europe)...5.7x EBITDA... buying 70% for $580M CAD)... owners remain in place and own 30% and operate day-to-day... VIDA expected to generate $145M in EBITDA (before synergies)... - $30M in CAPEX = $115M EBIT = $84M NOPAT = 10% A/T unlevered ROIC
2018....Canfor to Acquire Elliot (South Carolina) for US $110M... 4.3x EBITDA... 49% acquired initially, then 51% acquired 1 year later... = 26M in EBITDA - CAPEX of $3M - taxes ta 27% = 15% unlevered ROIC.
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Pattison owns 50%. He has been an owner since the early 2000s. He bought $3.7M worth in November 2017 at $16.72/share and $6.5M in March 2017 at $13/share, $4.2M in March 2017 at $12.90/share, $26.7M in February 2017 at $12.66/share
Internal Investment
Greenfield Mill: Constructing a new Mill in Georgia for $120M.. expected to generate $35M in EBITDA, or 3.4x EBITDA ($2-3M/year in CAPEX) = $20M in FCF, or a 19% unlevered ROIC (5 YEAR PAYBACK)....THESE PLANS HAVE SINCE BEEN SHELVED DUE TO ISSUES WITH CONTRACTOR
Valuation
Canfor typically guides MAINTENANCE CAPEX of $2M to $3M/mill... CAPEX for VIDA mill $25-$30Million "which is fairly close to depreciation" rates (Nov 18 transaction)
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