Post by
retiredcf on Jun 17, 2022 9:00am
CIBC
Rated as Outperform with a $146.00 target. GLTA
EQUITY RESEARCH
June 16, 2022 Flash Research
WEST FRASER TIMBER CO. LTD.
On The Road With West Fraser
Our Conclusion
We present our takeaways from marketing in B.C. with West Fraser CEO
Ray Ferris and CFO Chris Virostek. We rate WFG Outperformer with a
C$146 price target. As one of the lowest-cost lumber and OSB producers,
WFG is well positioned to navigate volatile wood products markets.
Key Points
Upbeat On Long-term S/D Fundamentals: Although the company did not
opine on near-term market conditions, West Fraser highlighted its favorable
view on long-term supply/demand conditions for both lumber and OSB.
Consumption should be supported by an ageing U.S. housing stock,
demographic trends and growth of mass-timber projects. On the supply side,
industry output has faced challenges expanding given labor constraints in the
South (~52% of WFG’s lumber capacity) and declining fiber supply in B.C.
(~24% of WFG’s lumber capacity).
Similar to peers, West Fraser expects B.C. supply to see further material
declines over the next few years both from long-anticipated factors (pine
beetle effects) as well as some of the more recent policy supply shocks (old
growth, caribou and species at risk). CEO Ferris stressed that the BC
government’s old growth policies are not just an issue for the coastal
industry, but will also have a meaningful impact on the Interior.
Low-cost Platform Still Has Room To Improve: While West Fraser has
made substantial investments in the South over the past 15 years. CEO
Ferris still sees lots of opportunities for cost improvement across the
southern operations.
On the log cost front, West Fraser pointed to stumpage in British Columbia
(which lags lumber prices by five months) increasing by C$40-C$50/m3 in
July (which we suspect will help set a floor for SPF pricing), with some relief
in BC stumpage from Q4. In the South, while West Fraser sees abundant
fiber supply continuing, fiber costs have been impacted by other inflationary
pressures (logging and trucking