CIBC likesWhat's Changed
Interfor reported Q4/2014 results with adjusted EBITDA of $37.4 million and net earnings of -$5.2 million or -$0.08 per share compared to our estimates of EBITDA of $40.9 million and net income of $11.3 million or $0.17 per share.
Lumber shipments for the quarter of 620 mmfbm were 4% above our estimate of 595 mmfbm. Log shipments for the quarter at 358,000 cubic meters were 33% above our estimate of 270,000 cubic meters.
Implications
Interfor continues to grow both through acquisition as well as investment in the modernization of its existing asset base.
In December 2014, Interfor announced the acquisition of four sawmills in the US from Simpson Lumber with closure of this deal expected by March 1, 2015.
Interfor also announced in Q4/2014 that it will spend $50 million in 2015 on a modernization of its Castlegar sawmill. Upon completion of this project in late 2015, Interfor will have modernized/rebuilt its entire mill system in the BC Interior, in addition to completing strategic positioning of its mills in the US PNW and integrating over 1.6 billion fbm of capacity from an aggressive acquisition programme in the US in the past two years.
Valuation
Interfor trades at 6.5x our expected 2015 EBITDA and at 4.7 expected mid-cycle EBITDA. Notwithstanding the high level of capex expenditure planned for 2015, we still see Interfor generating free cash flow of $124.9 million. At mid-cycle lumber pricing and with normalized capex, we see free cash generation at $285.5 million or about $4.00 per share.
We continue with our SO rating and increase our price target from $26.00 to $30.00 to reflect the expected NAV by the end of 2015. We continue to expect Interfor to deliver strong results that will support a growing valuation on this name.