CIBC's Hamir Patel on Canfor CIBC's Hamir Patel on Canfor:
Cheap Valuation Could Entice CFP’s Largest Shareholder To Consider
Another Privatization Attempt Later Next Year: Canfor is trading at only
1.5x our mid-cycle EBITDA estimate, well below West Fraser (3.6x) and
Interfor (3.7x). While we believe Canfor’s BC platform (~35% of its lumber
capacity) will generally be profitable over the cycle, if we simplistically
assume zero value for the sawmills and pulp mills in the province, CFP’s
current share price implies the market is valuing the remaining ~4.8 Bbf/year
of 2024E sawmilling capacity (U.S. South, Sweden and Alberta) at
~US$235/mfbm, or a 70% discount to replacement. This non-BC capacity
valuation drops to US$160/mfbm if one assumes ~US$370MM of value for
CFP’s duty deposits (tax affects an 80% refund of the ~US$640MM on
deposit at the end of Q3). By contrast, greenfield capacity is being built at
over US$800/mfbm, with the latest industry announcement from West Fraser
expected to cost ~US$925/mfbm. At the same time, Kruger’s recent
purchase of BC NBSK pulp capacity at US$735/tonne suggests Canfor Pulp
is being valued at a ~64% discount to the latest industry precedent.