West Fraser Timber Co Ltd T.WFG

Alternate Symbol(s): WFG

Forest Products Lumber & Wood Production

West Fraser Timber Co. Ltd. is a diversified wood products company. The Company is engaged in manufacturing, selling, marketing and distributing lumber, engineered wood products, including oriented strand board (OSB), laminated veneer lumber (LVL), medium-density fiberboard (MDF), plywood, particleboard, pulp, newsprint, wood chips and other residuals and renewable energy. Its products are used in home construction, repair and remodeling, industrial applications, paper, tissues, and box materials. Its segments include Lumber, North America engineered wood products (NA EWP), Pulp & Paper and Europe EWP. Its business comprises lumber mills, OSB facilities, renewable energy facilities, pulp and paper mills, plywood facilities, MDF facilities, particleboard facilities, LVL facility, treated wood facility, and veneer facility. The Company operates approximately 58 facilities in Canada, the United States, the United Kingdom and Europe. It also offers wood preservation services.

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West Fraser Timber Co Ltd

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Post by retiredcfon Oct 28, 2022 8:38am

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Post# 35055327

TD 2

West Fraser Timber Co. Ltd.

(WFG-N, WFG-T) US$74.66 | C$101.21

Q3 Earnings Back to Normal; Shipment Guidance Near Expectations

Event

West Fraser reported Q3/22 results after market close on October 26. Adjusted EBITDA of $426 million exceeded our estimate of $323.4 million and the consensus forecast of $365.8 million. The reported EBITDA figure included a retroactive recovery of $81 million related to an administrative review of lumber duty deposit rates. Excluding this item, adjusted EBITDA would have been between our forecast and the consensus estimate. Adjusted Q3/22 EPS of $2.50 was similarly above our forecast of $1.46 and the consensus estimate of $1.74.

Impact: NEUTRAL

Core Q3/22 operating results normalized from exceptional H1/22 levels, led by much lower wood product price realizations, volume curtailments, and cost pressure.

Contributions from the North American EWP and pulp & paper segments were higher than our forecast. OSB price realizations declined $228/Msf (-38%) q/q, which trailed our forecast decline of $283/Msf (timing lags). Pulp & paper segment EBITDA remains weak, but the Q3/22 contribution was the highest since Q4/18, led by lower downtime.
Small shipment guidance revisions are not surprising. Management expects that 2022 western Canadian lumber shipments will be below the bottom end of the previous 2.8-3.0 billion board feet range. 2022 Europe OSB shipment guidance is towards the bottom end of the previous 1.0-1.2 billion square feet target.
West Fraser is proceeding with a brownfield lumber expansion in the U.S. South. The company will build a 275 MMfbm capacity sawmill in Henderson, Texas, to replace the existing asset (net capacity increase of ~140 MMfbm). The capacity multiple for this project is $927/Mfbm - a modest premium to recent greenfield initiatives and ~40% higher than replacement cost five years ago. Management targets an after-tax IRR of 12%, based on mid-cycle commodity prices (in our view, relatively skinny). West Fraser ended Q3/22 with net cash of $9.68/share on its balance sheet and available liquidity of almost $2.4 billion.

TD Investment Conclusion

We remain positive on West Fraser's share-price prospects and expect that the company will retain its balanced capital-allocation approach, including aggressive asset-base investments, while sustaining a flexible balance sheet.