Post by
retiredcf on Jan 19, 2023 9:19am
CIBC
Have a $27.00 target. GLTA
EQUITY RESEARCH
January 19, 2023 Flash Research
INTERFOR CORPORATION
Highlights From CIBC’s Western Institutional Investor
Conference
On Wednesday afternoon, we hosted a fireside chat with Interfor CFO Rick Pozzebon and VP Corporate Development & Treasury Mike Mackay at CIBC’s Western Investor Conference.
Key Points
Slower Year Ahead For New Res: Interfor is continuing to adjust production to the slowdown in new home construction (~30% of lumber demand) since the starts peak last year of 1.8MM in April. CFO Pozzebon sees downside risks to consensus U.S. housing forecasts this year of 1.2MM-1.3MM (vs. CIBCe 1.15MM), but remains upbeat on demand prospects for 2024.
R&R Holding Up: On the R&R side (~40% of lumber demand), IFP notes
continued strength and retailer takeaway. The EACOM acquisition has given Interfor a greater window into the R&R channel through a major customer with end-markets in Canada and the U.S. (both of which are holding up). This year, the R&R space is expected to be “flattish” Y/Y, supported by higher rates keeping homeowners improving in place.
Pricing Expected To Be More Challenging in H1, Pointing to Better H2:
Over the last decade, IFP has realized a C$130-C$140/mfbm margin and is targeting a C$100/mfbm trend margin going forward (likely equating to a commodity price in the US$450-US$500/mfbm range). With pricing currently in the mid-US$300s, most regions are below the cost floor, except for the U.S. South. While channel inventories are thin, IFP’s inventories have also remained at or below its targeted 18-19 days of production.
Backdrop This Year More Like 2019 Than 2008: While low inventories
have supported the recent uptick in activity, IFP sees the macro set up in
2023 as potentially accelerating permanent BC curtailments that could take an additional 1.0-2.0 Bbf of capacity out of the province (with none of that expected to come from Interfor).
New Brunswick Acquisition Performing Ahead of Expectations:
Interfor’s Chaleur FP 310 mmfbm/yr acquisition in New Brunswick
(US$675/mfbm) has performed ahead of expectations, aided by low fiber
costs. The acquisition is supportive of IFP’s aspirational goal to grow output to 7.0 Bbf by 2027 (vs. 4.5 Bbf today and another 600 mmfbm expected to come online between now and 2025). M&A continues to be viewed more favorably for growth compared to greenfields given high build costs (US$850- US$900/mfbm).
Demand Upside From Mass Timber: While mass timber remains in the
early innings, Interfor pointed to industry studies suggesting the market could represent an additional 5+ Bbf in lumber demand by the mid-2030s