Conifex Timber Inc T.CFF

RE:Saved by the bell, but what is Conifex now?

[dosperros]

Reposting this.  It's an excellent take.  Had they taken action on this (clearly option #1 is best) we would have seen a much more rapid recovery in the share price I think.  The absence of a clear message to investors has been unfrotunate (e.g. where are the presentations?)

I'm going to be at the RBC conference on Dec. 2 and Ken is speaking.  Maybe that's where the vision will be laid out.  

sculpin2 wrote:

January 14, 2020
 

Conifex Timber Inc.
 

Saved by the bell, but what is Conifex now?
 

Our view: Conifex Timber Inc. ("Conifex") announced the sale of its US

lumber mills to Resolute Forest Products for US$163MM on December

24, 2019. In our view, the deal saved the company from a worst-case

scenario (i.e., restructuring), however, we expect investors to now focus

on the future of the company. At Q4 reporting, we expect management

will provide a new medium- to long-term vision for the company.
 

Key points:
 

We increase our rating and PT for Conifex and remove our "Speculative

Risk" qualifier: Our $1.00 PT is based on a blended ~4.5x EV/EBITDA

multiple on our Trend EBITDA (weighted 85%) of $27MM and our 2020E

EBITDA (15% weighting) of $1MM. We have reduced our Trend EBITDA to

reflect the sale of the company's US sawmills.
 

What is Conifex Timber?
 

In our view, Conifex has three primary strategic options:
 

1) Become a cash cow: In our view, the company's primary asset is now

its biomass facility located in Mackenzie, BC. While there is still financial

leverage associated with the facility, Conifex could use the remaining

cash flow to return cash to shareholders. Profits from the lumber mill

will be cyclical, but we could see the company instituting a variable

dividend policy (similar to Norbord), whereby excess cash flow is paid to

shareholders in strong years through a special dividend. This path would

likely result in multiple expansion as investors attribute more value to the

company's utility-like biomass business.
 

2) Become an acquisition vehicle for lumber assets (again): Conifex has

historically been a highly acquisitive company and is run by a consummate

deal maker in Ken Shields. The company's attempted expansion into the

US South was stymied by an ill-timed turn in lumber markets, but we could

see the company attempting to grow (albeit at a more conservative pace).

The key to this path would be to maintain conservative financial leverage

while growing through more modest, bite-size acquisitions.
 

3) Privatization: Despite our expectation that the company will deleverage

significantly once the deal with Resolute has closed, we think the Conifex

story remains too "hairy" for most investors. Given the strong historical

EBITDA generation of the biomass asset and the potential upside from

the lumber mill, we expect private buyers with some experience in forest

products could find Conifex attractive. In addition to private equity, we

could see companies such as Tolko, Hampton Lumber, Millar Western, or

EACOM having interest at the right price due to their geographic proximity

and the likelihood of not being blocked by the BC government.
 

In our view, the cash cow or privatization paths are the most likely

courses of action for Conifex. We expect the company to provide an

update at its upcoming Q419 results release (likely in mid-February).

RBC Dominion Securities Inc.

Paul C. Quinn (Analyst)

[phone]

[e-mail]

Marcus Campeau

(Associate)

[phone]

[e-mail]

Sector: Paper & Packaging