Canfor Pulp Products Inc T.CFX

RBC Upgrade

[retiredcf]

Raised their current price target by two bucks to $8.00. And their upside scenario target is now a whopping $13.00. GLTA

July 18, 2022

Canfor Pulp Products Inc. Starting to get positive on Canfor Pulp

Our view: We expect significantly higher pulp pricing to accelerate Canfor Pulp's cashflow in H222 after the company struggled in H122 with production, transportation and logistical issues. As such, we see upside in the share price from current levels and upgrade to Outperform.

Key points:

Business fundamentals are improving - With commodity pulp prices reaching new records around the globe, strengthening NBSK pulp prices will be a benefit to Canfor Pulp once operational and transportation/logistics issues are in the rear view mirror. We believe that time is now, forecasting a significant financial turnaround in H2 vs. H1. And although we anticipate that pulp has reached its peak, we expect that prices will only gradually weaken going forward. These factors should ensure robust cashfow into 2023 for the company.

Operational issues expected to be behind CFX - Canfor Pulp has struggled operationally over the last 18 months. Recovery boiler issues, digester problems and difficult BCTMP market conditions have weighed on the stock. Newly appointed CEO Kevin Edgson should be a strong addition to the Canfor Pulp team given his operational focus and clear leadership style.

Canfor Pulp will report Q2 earnings on July 28 - Our Adjusted EBITDA estimate for Q222 of $18.4 million is modestly below consensus of $19.3 million. However, we expect increased pulp prices and fewer operational issues will provide strong tailwinds to H222 results, with our FY22 Adjusted EBITDA estimate sitting considerably above the current street consensus.

Very attractive valuation - Canfor Pulp is trading at a huge discount to its replacement value and at EV/EBITDA multiples of only 2.6x 2022, 2.0x 2023 and 4.8x trend. Domtar's recent sale of their Kamloops pulp mill for $300 million equates to $750/mt. If we assume a $100 million value for CFX's paper business, its pulp assets are currently valued at $230/mt, a 70% discount to the Kamloops sale value.

Increasing price target to $8 and introducing our 2024 estimates - We continue to employ a 3.25x EV/EBITDA valuation multiple for CFX. However, while 85% of our EBITDA for valuation purposes is still driven by our trend estimate of $175 million, we have rolled forward our 15% weighting to our 2023 EBITDA estimate of $169 million. We are also introducing our 2024 estimates; please see Exhibit 1 on page 2 for details.

[woodwise]

Lets hope for some good numbers from Q2 and a great forcast for Q3 and Q4. Thigs should be headed in the right direction. Pulp Prices High, Transportation slowly coming back on line, reduced inventories and a low Canadian Dollar. Looking better and better.

[Catscratch]

This is a good report from RBC.  Much better than most sellside research.  Interesting to see the comp on the Domtar/Kamloops mill sale.... using that valuation CFX would be worth ~$17 per share. 

[Fiberman]

The valuation piece is great. Just another reason why this stock will increase. Pulp fundamentals for NBSK are holding well Q3 and will likely hold up well into Q4. Shares will increase if Canfor has the ability to produce and ship in this market. There have been so many negative hits over the last couple of quarters. Will we finally see positive change with Q2 results ending this week?