Scarcity and valuation on a MBF basisAs you known,Stelco dutch auction was announced on Dec.21st 2021.The tender price was between $31 and $37
It went up and then down in the first two months.But fast forward 4 months after the announcement and it's trading at $52
Steel prices are booming, that explain a big portion of the SP increase.
As for the lumber company, most major ones(here and in the US) are all buying back their shares at a furious pace.
This buying is creating scarcity of available stocks.In the end this is very good.
If these lumber company had a huge pile of debt,or trading at many multiple of their net asset value
then it wouldn't make sense to do these buyback.it would make sense to allocate excess cash toward debt reduction.but most of these lumber comapny have very little debt
The money is coming in so fast, that allocating some to buyback makes a lot of sense.
This is value creation not short term financial engineering.
Taking in the sales of Acorn, IFP is trading at $430,000/ MBF.
IFP paid an average of $563,000 for their 3 acquisitions in 2021.
Canfor paid $667,000 for Millar
West Fraser paid $908,000 for their latest acquisition and in the press release, they said
it would take 3 to 4 years to ramp up production to 305 MBF.
The WFG acquisition is a recently build mills so it's not comparable to IFP assets and i don't have
the knowledge to assess the Millar one but one thing is sure in my mind is that with the high
profitability of IFP, their assets are certainly worth much more than $430,000.
At $600,000 i get a valuation of $51.50 for IFP. At $700,000 i get $60.05 and at
$800,000 i get $68.65.
If IFP were to do a SIB of 4 million shares then the valuation goes to $51.52, $64.77 and $74.05
at $600,000,$700,000 and $800,000
One more thing,with the supply chain problems,with the price of steel, equipments,labour shortage...to build a greenfield plant must be a very costly endeavor.Can you imagine building
and staffing a new mills in the actual environment we are?
Yes there are a few greenfield mills in the works in the US but the ROE on these plant may not be what was expected originally.
No wonder, these lumber company are buying their own shares.
I can't tell you were IFP will be trading in the very short term but i am very confident that with time,
it will be properly valued and trading at a much higher price.