RE:RE:RE:RE:Kevin Edgson's Comments Canfor's announcement on their earnings call that they plan to invest over $500mm in improving their plup assets over the next couple years was a bluff. That's all.
If we know anything, Canfor's current managment team is not the one who should invest such a significant sum of money into pulp assets. They can't manage those assets even if they were brought up to state of the art. They have demonstrated poor performance. The market has no convidence in them. Better off selling to Mercer, Paper Excelleance, or Mondi and letting them run them. Maybe even Suzano would expand to Canada....
CIBC's report on CFX from today:
July 31, 2023
Earnings Update
CANFOR PULP PRODUCTS INC.
The Continuous Capital Digester?
Our Conclusion
We remain on the sidelines on Canfor Pulp and reduce our price target to
$2.25 (from $2.75) on lower estimates and constrained free cash flow
generation for the next few years. With global pulp markets expected to
remain challenged over H2 (given weak Chinese demand and LatAm
capacity adds), we see no catalysts on the horizon.
Key Points
Expecting Another Tough Quarter In Q3: Following weak Q2 performance,
our third quarter EBITDA estimate moves ~$20MM lower to ($26MM) [down
$10MM Q/Q], reflecting the effects of BC port disruptions and weaker
demand in Asia. We are lowering our full-year 2023 EBITDA estimate by
$24MM to ($39MM), while reducing our 2024 estimate by 5% to $55MM on
reduced shipment and higher cost assumptions.
Global Pulp Prices Remain Depressed: With global producer pulp
inventories at 57 days (tonnage at all-time high) and additional capacity
ramping up in LatAm, prices have fallen sharply YTD. On the BEK side,
UPM’s Paso de los Toros mill in Uruguay (2.1MM mtpy) and Arauco’s MAPA
mill (1.56MM mtpy) in Chile both came online in H1 and are ramping up per
plan. Since the beginning of the year, BEK prices in China have plunged as
much as US$350/tonne through May, and are still down US$290/tonne (to
US$510/tonne) after seeing some sequential improvement over the past two
months. Earlier today, Suzano announced a further US$20/tonne increase in
China for BEK from August. While hardwood prices have bounced off their
lows, Canadian NBSK prices in China remain at YTD lows of US$670/tonne
(down US$230/tonne YTD).
As we expect sluggish global paper demand and BEK capacity additions to
weigh on softwood markets through year-end, our price deck assumes NBSK
prices average US$650/tonne in Q3 and Q4 (for a full-year average of
~US$720/tonne), with prices expected to average US$740/tonne in 2024
(+3% Y/Y).
Pulp Precedents Generally Support Higher Long-term Valuation: On a
capacity basis, we estimate CFX is trading at only US$150/tonne, an ~80%
discount to the two most relevant industry comps for Canadian softwood pulp
capacity. Earlier this year, Domtar announced the sale of its Dryden, ON
NBSK mill to First Quality for ~US$735/tonne, right in line with the capacity
valuation attributed to Domtar’s sale last year of its Kamloops, BC NBSK mill
to Kruger. If we account for the planned ~$500MM of capital investment CFX
is planning over the next few years to improve its cost position, applying a
similar metric to a refurbished CFX mill complex would imply equity value of
~$5.25/share.