RE:RE:RE:RE:Something gonna give.... It's funny, this is well timed as I'd been thinking to walk back my overly black and white outlook and position on this one. It's a function of the share price lull and then broad view that the sector has to walk on eggshells re: capital allocation lest they kill the golden goose.
Moreover there is a scarcity mentaility in the sector. I default to fractions (ie paltry pennies on the dollar) of sum of parts valuations to be on the safe side. But that's neither reasonable nor normal. I was looking at the strategies for steel and concrete and they are the same as wood -- balanced capital allocation and paying shareholders. No debt. Being cautious. Not careening into the next bust via reckless expansion.
A sharp guy at RISI summarized the commodities CAGRs in a tweet so I expect the peer industries to better maintain pricing power going forward. These guys have all sucked in the past. It's a brighter tomorrow.
https://twitter.com/dustyj87/status/1375781356182069248?s=21
My point is this: it's fully possibly forestry wises up and behaves. If we keep $600 lumber long run, IFPs asserts throw $600m annually. Sure, we can value them at replacement (basically current value, about $1.8B). But that's 3x Ebitda which is divorced from reality. So we will see more barriers to entry meaning this type of cash flow is worth at least 6x going forward. That's twice the share price today, but that's a misnomer given buybacks. Moreover 6x is very low when the median building material play is 10 to 12x.
But realistically we could normalize at $700 or $750 lumber. The latter is IFPs assets making $350 margins, USD, so that's $1.3B CAD. Give me 6x on that and this is 4.5x higher.
So that's the more reasonable case. The main issue of course is idiot-led businesses (often thr family run ones) are pigs at the trough and ruin it for everyone. Good thing the super predators CFP WFG and IFP (shoot event RFP and Tolko) can nuke a lot of them to enforce some discipline.
Frankly if IFP can be worth north of $5B it's better off by itself -- just taking out mom and pop mills one at a time. Moreover the competition board would mandate divestitures in a CFP IFP tie in (Kootneys mostly) and that's regressive. Keep icing the dumb and reckless -- then we all thrive.