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Canfor Corp
> bns Q4/22 First Take – Below Expectations on CFX Miss & 2x4s
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dosperros on Mar 01, 2023 10:16am
bns Q4/22 First Take – Below Expectations on CFX Miss & 2x4s
Q4/22 First Take – Below Expectations on CFX Miss and Lumber Costs
OUR TAKE: Negative. CFP reported adj. EBITDA of -$17.3M (after paid duties of $10.6M), notably below our estimate of $53M and below consensus of $39M. This compares with $196M in Q3/22 and $284M in Q4/21 (after paid duties of $29M and $26M, respectively).
The EBITDA variance was significantly due to lower-than-expected results at CFX (-$47M) and higher-than-expected lumber manufacturing costs (-$30M), minimally offset by lower-than-expected shipping and distribution costs (+$7M), and higher-than-expected Europe lumber shipments (+$6M) and lumber prices (+$5M).
We reiterate our Sector Outperform rating and share price target of $30.00. Our revised estimates reflect higher manufacturing costs and lower shipments, partially offset by an expected reduction in lumber duties from Q4/23 onward (from 5.87% to 7.29%.) Our target is unchanged as we rolled over our reference period to 2024.
KEY POINTS
Excess Capital. CFP's net cash position stood at $1B. Our forecast suggests the company will remain in a net cash position throughout the forecast horizon despite elevated expected capex levels and declining profitability. CFP repurchased 1.5M shares ($33M) in Q4/22, for a total of 3.4M shares ($81M) for the year.
Lumber. Consolidated shipments of 1.2 Bfbm were down 6% sequentially; with W.SPF down 22%, Europe up 35%, and SYP down 11%. Unit sales realizations for W.SPF declined sharply as the US$ benchmark prices continued to drop and offshore unit sales realizations were lower, notably in Japan. This was partially offset by favourable time lags in shipments versus orders and a weaker C$. European unit realizations moderately declined due to weaker pricing and demand, partially offset by a weaker C$ (vs. the SEK). Unit manufacturing costs remained in-line q/q due to slight decreases in log and per-unit conversion costs, which were offset by the weaker C$. Log costs in Western Canada and Europe were lower on q/q basis.
Houston Project. To create a sustainable operating footprint, the company is closing its Chetwynd sawmill and pellet plant permanently, and the Houston sawmill is to be closed for an extended time for redevelopment of a new manufacturing facility. Financial analysis of the project is undergoing, with an investment decision targeted for Q2/23.
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