Interfor Corp T.IFP

Alternate Symbol(s): IFSPF

Forest Products Lumber & Wood Production

Interfor Corporation is a Canada-based forest products company. The Company and its subsidiaries produce wood products in Canada and the United States for sale to markets around the world. The Company operates through solid wood products segment. The Company offers its products across two categories, which include Dimension Lumber and Specialty Lumber. The Company's products include Interfor machine-stress rated (MSR) Lumber, Interfor Western HQ Lumber, Interfor Stud Lumber, Interfor Elite Decking, Interfor Elite Fascia & Boards, Interfor Elite V-Joint Paneling, Interfor Elite Fineline Paneling, Interfor Elite Channel and Lap sidings, Interfor Elite Bevel Siding and Interfor Elite Shadow Gap Siding. It produces quality joist products for both residential and commercial floor and roof projects. The Company has annual lumber production capacity of approximately 5.2 billion board feet and offers a diverse line of lumber products to customers around the globe.

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Interfor Corp

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Post by retiredcfon Sep 26, 2022 8:38am

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Post# 34985885

TD

Have a $39.00 target. GLTA

Interfor Corp.

(IFP-T) C$25.19

Tour Provides Context on Growth Path and Value Creation Event

Last week, Interfor management hosted analysts, investors, and other stakeholders for presentations plus tours of three U.S. South sawmills and a logging operation. Discussions provided useful context on the company's growth strategy (current focus on organic expansion in the U.S. South) and details on returns associated with discretionary capex. Presentations also gave insights regarding capital structure targets as the company pursues long-term expansion initiatives.

Impact: NEUTRAL

Management has a 2025 lumber production objective of 4.8 billion board feet (14% above the current run rate) and an aspirational 2027 target of 7.0 billion board feet. The 2025 target is mostly based on organic growth in the U.S. South. The long-term objective would be dependent on prospective M&A activity. Aside from B.C., management is open to growth in each core region.
We do not expect meaningful diversification outside lumber, but the long- term benefits of a balanced regional platform are evident. Management disclosed that over the past seven years, the average EBITDA/Mfbm in each core region (U.S. South, B.C. Interior, Pacific Northwest, and eastern Canada) is relatively level, with different regions leading from year-to-year. By our measure, the company's ROCE has narrowed the gap with sector leaders.
Interfor indicated willingness to take on leverage, but we expect adherence to minimum liquidity thresholds. Management targets net debt-to-cap ratio of 5-25% through the cycle (trailing ratio of 5% and covenant maximum of 50%). This framework would provide options to keep returning capital to shareholders, while continuing discretionary capex and prospective M&A.
Our $39.00 target price and BUY rating are unchanged. Despite the company's earnings passing a cyclical peak, we believe that Interfor offers attractive value, given the steep trading discount to replacement cost and long-term parameters.

TD Investment Conclusion

We believe that Interfor has several characteristics that differentiate it from its peers: low earnings leverage to softwood lumber trade restrictions; concentration on lumber (i.e., no exposure to volatile pulp downtime schedules); and volume torque to organic initiatives plus acquisitions. In our view, Interfor is undervalued versus its mid-cycle earnings and cash-flow potential.