Join today and have your say! It’s FREE!

Become a member today, It's free!

We will not release or resell your information to third parties without your permission.
Please Try Again
{{ error }}
By providing my email, I consent to receiving investment related electronic messages from Stockhouse.

or

Sign In

Please Try Again
{{ error }}
Password Hint : {{passwordHint}}
Forgot Password?

or

Please Try Again {{ error }}

Send my password

SUCCESS
An email was sent with password retrieval instructions. Please go to the link in the email message to retrieve your password.

Become a member today, It's free!

We will not release or resell your information to third parties without your permission.
Quote  |  Bullboard  |  News  |  Opinion  |  Profile  |  Peers  |  Filings  |  Financials  |  Options  |  Price History  |  Ratios  |  Ownership  |  Insiders  |  Valuation

Bullboard - Stock Discussion Forum West Fraser Timber Co Ltd T.WFG

Alternate Symbol(s):  WFG

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... see more

TSX:WFG - Post Discussion

View:
Post by retiredcf on Jul 23, 2021 10:20am

RBC Notes

July 22, 2021

Forest Products
A Chaotic Era – Do cash lumber prices matter less?

Our view: Lumber stocks have behaved very differently during the pandemic, being far less sensitive to moves in the cash lumber prices. In particular, Interfor, Canfor, and West Fraser are showing far less "beta" to lumber while Resolute Forest Products has become much more sensitive. Until lumber producers re-lever their balance sheets and commodity price volatility falls, we think producers will remain less sensitive to moves in lumber. Longer-term, we think that the equity values will begin to reflect both the cash on the balance sheet and the earnings power of the underlying business.

Why aren't lumber stocks moving with lumber prices? – One of the most common questions we receive is: "why aren't share prices rising as quickly as lumber prices?" Historically, the playbook has been that lumber stocks display an ~1:1 relationship with lumber prices. Between 2015-2019, this worked quite well; however, that relationship has largely broken down since the start of the pandemic. With so many extreme moves in lumber, share prices have been slow to react on both the upside and the downside.

What does this mean for the coming months? – While lumber prices have already fallen >60% from the peak in May, lumber stocks have only fallen by ~12% over the same period. One reason for the reduced sensitivity to changes in lumber prices is the dramatically reduced leverage. For example, Interfor has historically run its business at a net debt to capital ratio in the 20-25% range. Because it has generated so much cash over the past year, Interfor is running net cash. We also sense that investors are taking a longer-term view on the stocks and less focused on day-to-day fluctuations. In our view, this is healthy and will allow producers to make more value-creating capital allocation decisions going forward.

What should we expect over the coming months? – We think lumber producers are significantly undervalued, but directionally are likely to remain under pressure until lumber begins to rise again. On timing, we feel like lumber is likely to catch a bid once builders look to wrap up projects before the fall. In addition, Q2 earnings being reported over the next three weeks should show record results. Thereafter, lumber prices (and stocks) usually bottom seasonally around late-October/early-November.

 
Be the first to comment on this post
The Market Update
{{currentVideo.title}} {{currentVideo.relativeTime}}
< Previous bulletin
Next bulletin >

At the Bell logo
A daily snapshot of everything
from market open to close.

{{currentVideo.companyName}}
{{currentVideo.intervieweeName}}{{currentVideo.intervieweeTitle}}
< Previous
Next >
Dealroom for high-potential pre-IPO opportunities