Report from Scotia Bank - May 2-2013
Company Profile
Ainsworth Lumber Co. Ltd. (Ainsworth) is a leading pure-play manufacturer of oriented
strand board (OSB) with a focus on value-added specialty products for markets in
North America (~88% of sales) and Asia. The company has installed capacity of 2,540
million square feet (mmsf; 3/8" basis) from four facilities, making it the
sixth-largest producer in North America.
Business Mix (Based on revenues unless otherwise noted)
100% OSB
Comparable Companies (TSX unless otherwise noted)
NBD, LPX-N
Recent Update Text as of 2MAY13
. We have initiated coverage on the common shares of Ainsworth Lumber Co. Ltd.
(Ainsworth). Please see our full report, Ready to Board, available on ScotiaView
. We expect significant free cash flow over the forecast horizon on the back of
several years of elevated oriented strand board (OSB) prices - supported by
increasing U.S. housing starts - and significantly increased shipments stemming
from capacity additions.
. Ainsworth shares are currently generally trading at a discount to North American
building products comparables on an EV/EBITDA basis (2013E and 2014E). When
considering the potential to add capacity in Grande Prairie for a very low
capital cost, as well as significant tax loss carry-forwards in both Canada and
the United States, Ainsworth shares remain attractively priced despite their
recent strong performance.
. Our one-year target of $5.00 per share is supported by both an EV/peak EBITDA
and discounted cash flow (DCF) approach. Our 3.5x EV/peak EBITDA valuation
multiple is slightly lower than the 4.0x multiple we use for larger cap/more
liquid comparables Norbord Inc. and Louisiana-Pacific Corporation. These
multiples are in line with EBITDA multiples seen during the last peak (the
2004-2006 period) for this group.
. We rate Ainsworth Sector Outperform with a $5.00 per share one-year target price
based on 3.5x EV/peak EBITDA.
Benoit Laprade, CA, CFA (Scotia Capital Inc. - Canad