Interfor Corp T.IFP

TD 2

[retiredcf]

Interfor Corp.

(IFP-T) C$32.60

Eastern Canadian Assets Contribute to Strong Q2/22 Results Event

Interfor reported Q2/22 results after market close on August 4. Adjusted EBITDA of $428.6 million substantially outpaced our estimate of $385.1 million and the consensus forecast of $387.0 million. Adjusted EBITDA included a $17.3mm fair value adjustment related to the acquisition of EACOM Timber, which was consistent with our forecast. Adjusted EPS of $5.11 was above our estimate of $4.77 and the consensus forecast of $4.52.

Impact: SLIGHTLY POSITIVE

• Including the fair value adjustment, EACOM contributed adjusted EBITDA of $115.7 million in the first quarter of full ownership (27% of total Q2/22 adjusted EBITDA). We believe the I-joist facility in Sault Ste. Marie, Ontario, generated robust results (resilient pricing for that EWP product).

• Like for most peers, Interfor's Q2/22 lumber price realization decline was tempered by timing lags. Average realization of $1,104/Mfbm declined 22% q/ q versus the average decline of 33% for relevant cash market prices. The decline was less significant than expected.

• Interfor was able to lower inventories during Q2/22. Shipments increased 28% q/q (mostly reflecting a full quarter with EACOM, but still above our forecast), and aggregate inventories declined 66 million board feet during the quarter.

• The company is deploying capital at a rapid pace. Interfor generated Q2/22 FCF/share of $5.89 (an 18% yield for the quarter alone, after considering a large cash tax payment, augmented by seasonal working capital declines). The company completed its NCIB during the quarter and subsequently announced a $100-million SIB via a modified Dutch auction (5.4%-6.3% of current shares to be repurchased at a price range of $29.00-$34.00/share). Interfor ended Q2/22 with minimal net debt and abundant available liquidity of $726.5 million.

  TD Investment Conclusion

  In our view, Interfor's current valuation represents a compelling entry point for investors with anything beyond a short-term investment horizon. We forecast above- trend lumber prices through the end of 2023. Adjusted for expected FCF through the end of 2023, we estimate Interfor’s trend EV/EBITDA multiple at 2.9x — a steep discount to the company's historical trading range.