Post by
ValueCap on Sep 11, 2020 1:16pm
Call with JN
Had the call yesterday with Jordan Neeser. Lasted about an hour. Just in the middle of a busy work day but will reply with more detail this weekend.
Nice guy. Very open and transparent. Understands our position.
Bottom line he realizes the huge valuation discount. As an example we talked about sum of the parts valuation. The power plant, as a utility and infrastructure asset, should have a multiple in the teens at least in this low rate environment and can be expected to generate closer to 14 million ebitda a year (this is what they expect to do now that they have operations going well) on a fixed contract for the next 15 years. That's a 200 million dollar value. And the market cap is less than 60 million. They did try to sell the power plant instead of the US mills last year but couldn't.
From a management perspective they spent beginning of the year transitioning out of the US assets, then dealing with COVID, and now making sure they can maximize the sales of lumber in this environment. They have only recently started to think about shareholder value initiatives like the NCIB discussed on the last quarterly call.
The prices we see today, with lumber in the 900s, is what they're selling into October, so we won't see those on the books until q4. Right now their order book is 6 weeks ahead, as with most of the canadian players.
He is of the mind that he generally prefers the "show me" approach to closing the valuation discount, ie good operational results in the next few auarters. But he does certainly recognize that they need to "get the word out there" and large part of the valuation discount exists because they're too small to be owned by institutions. He realizes he needs to speak more to shareholders and do more to get the word out.
Next board meeting is November 10 but they aren't likely rushing to a buyback because they want at least some tailwind with this good lumber environment and good operations. And the TSX application for NCIB will take time. So we probably won't see this until 2021.
I discussed the dividend and power plant sale. He certainly gets that dividend payment and or asset sale would exercise a lot of value for shareholders, but it didn't seem that the board wanted that as the current way to allocate capital. NCIB versus other internal capital allocation, eg a 1 million dollar allocation which would be recouped in 2-3 months. He did mention the steady powerplant earnings do help to keep cash coming in to a single geographic entity if lumber prices fall below economically viable levels for production. There is no plan for another mill acquisition like the US South acquisitions.
Polar and Blue Wolf still own their large share positions. Something like a combined 36%. They own at higher prices than the current stock price. So there's incentive for them to get their value.
More to say but overall he's on our side and I am comfortable owning these shares. I will probably add more on dips. Anyone want to sell me some at $1? lol.
Comment by
horseshoefalls on Sep 11, 2020 2:11pm
Thanks for providing the intiial info. If they do end up with a cash windfall, I would like to know what exactly the board plans to do with it as I'm sure Polar and BWCP do as well. Nice to hear there are no plans for another US acquisition, not like they have any money to do that anyway. Still good value here, just a matter of realizing it in the share price.