TSX:WFG - Post Discussion
Post by
retiredcf on Jul 25, 2022 11:10am
RBC
These are all US targets so their fair value is US$120 and their upside scenario target is US$134.00. GLTA
July 22, 2022
West Fraser Timber Co. Ltd. What's a reasonable value for WFG shares?
Outperform
NYSE: WFG; USD 97.88; TSX: WFG
Price Target USD 105.00
Our view: In light of this week's Reuters article implying that Kronospan & CVC are interested in West Fraser, we thought we would examine fair value in a potential takeout scenario plus share a few interesting observations.
Key points:
We believe fair value is $120/share - Our base case NAV for West Fraser is $120/share (see Exhibit 1). This roughly breaks down as follows: $51/ share for lumber, $37 for NA EWP, $8 for Eur EWP, $9 for Pulp & Paper, $7 for non-core and $10 for cash. At $51/share, we value WFG's lumber capacity at $650/mfbm, a reasonable value given greenfield costs in the $800-900/mfbm range currently. We highlight the historical performance of the company's segments (see Exhibit 2) and believe our NAV estimates are reasonable. On our trend EBITDA multiple basis, we have lumber trading at 6.2x, NA EWP at 6.5x, Eur EWP at 4.5x and Pulp & Paper at 7.0x.
West Fraser's response is open for interpretation - On July 19th, West Fraser issued a press release stating that "although the Company has previously met with Kronospan and CVC Capital Partners, the Company has not received a proposal and there are no ongoing discussions regarding the terms of any transaction". It didn't refute the Reuters statement Kronospan and CVC submitted a joint expression of interest to acquire West Fraser, simply saying that they have not received a proposal.
Insiders likely feel that fair value is closer to $175/share - As we pointed our in our earlier note, the Ketcham family control over 91% of WFG's Class B shares. According to West Fraser's filings, "certain circumstances or corporate transactions may require the approval of the holders of our Common shares and Class B Shares on a separate class-by-class basis", which we think may imply that holders of the closely-held Class B shares may need to approve any transaction. We think it's fair that the founding family as well as other knowledgeable shareholders would put a far higher value on the company than our base case. Please see the Upside Scenario in Exhibit 1 to see our assumptions.
Is there really interest from Kronospan/CVC? - When Kronospan's investment vehicle Banasino initially took its 5.5% position (later increased to 9.4%) in WFG in early February, we figured it was for investment purposes. We suspected a combination would invite scrutiny from the European competition watchdogs and figured that Kronospan didn't have the financial resources to pull it off alone. Enter CVC Capital Partners with ~ $125B in assets. So the financial resources should be there, but the hurdles are still considerable.
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