Interfor Corp.

(IFP-T) C$28.42

IFP Announces $100 Million SIB with a Premium Price Range Event

Yesterday, after market close, Interfor announced a $100.0 million substantial issuer bid (SIB) that will be affected by way of a modified Dutch Auction. The tender price will be between $29.00/share and $34.00/share (a premium range of 3.5-21.3% to the 20-day VWAP). This would represent 5.4-6.3% of the company's total shares outstanding as of July 25, 2022. The tender offer period extends from August 2, 2022 through September 8, 2022. The offer will be financed with available cash on hand.

Impact: POSITIVE

  • This initiative is not surprising, given Interfor's flexible balance sheet and positive near-term free-cash-flow prospects. On a pro forma basis, Interfor's net debt-to-cap ratio increases to 20% from 16% at the end of Q1/22 and available liquidity declines to $383.3 million. Recall that Interfor's leverage increased in Q1/22 following the $731.2 million acquisition of EACOM Timber and aggressive NCIB activity ($194.3 million of share repurchases during the quarter). Our Q2/22 free-cash-flow forecast is more than $200 million (i.e., we expect that leverage will decline rapidly). Including this SIB, since Q4/20, Interfor will have returned $599.0 million of capital to shareholders via an April 2021 special dividend and buybacks (NCIB + SIB). At the midpoint of the SIB offer, aggregate share repurchases would be equal to 23% of the total at the end of Q3/20.

  • Returns of capital to shareholders complement Interfor's asset base growth initiatives. The 10% NCIB (scheduled to expire in early-November) was completed in April. The February acquisition of EACOM was followed up by a 16% equity investment in GreenFirst (an eastern Canadian lumber producer) in early- May for $55.6 million. We forecast 2022 capex of $275 million, up 56% y/y.

  • Lumber prices have normalized in July following declines of ~55% over the preceding three months. Random Lengths published a mid-week price update last night. The cash market Western SPF 2x4 benchmark price closed at US$660/ Mfbm — down 1% from last Thursday, but 19% higher than seven weeks ago. Compared with last Thursday, the mid-week reference price for Southern Yellow Pine improved 3%, while the reference Eastern SPF price was unchanged.