Have a $141.00 target. GLTA
WEST FRASER TIMBER CO. LTD.
Lumber Platform Getting A Bit Bigger In Alberta
Impact: Slightly positive. While the mid-cycle consolidated EBITDA impact
of WFG’s latest tuck-in transaction in lumber is negligible (~1%), we like the
company’s move to further expand its platform in Alberta, a Canadian
jurisdiction with an attractive stumpage regime which supports consistent
sawmill operations throughout the cycle. With SPF lumber prices currently in
the low-$400s, stumpage rates in Alberta this month are only C$2.24/m3
(with YTD stumpage averaging <20% of BC levels).
Adding A 35th Sawmill To The Fleet: On Wednesday evening, West Fraser
announced it had entered into an agreement to acquire Spray Lake Sawmills
in Cochrane, AB for C$140MM (~$103MM). The transaction is expected to
close later this year following completion of Canadian regulatory reviews.
Compared to relevant Canadian sawmill precedent transactions, the capacity
valuation multiple of ~$660/mfbm is similar to the price Interfor paid for
Chaleur FP in New Brunswick last year (~$675/mfbm), but more expensive
than Canfor’s 2021 purchase of Millar Western’s three Alberta sawmills
($520/mfbm). By comparison, we estimate greenfield costs today are in the
$800-$950/mfbm range.
Spray Lake Sawmills produces treated wood products, dimensional lumber
and residuals/biproducts, with lumber capacity of 155 mmfbm/yr and two
Forest Management Agreements (FMAs) in Alberta with a total Annual
Allowable Cut (AAC) of ~500K m3.
Based on FEA figures, we estimate this transaction will increase WFG’s
share of the province’s 4.4 Bbf/yr of lumber capacity from 39% to 42%. The
deal will also increase WFG’s total NA lumber capacity by ~2% to 6.85 Bbf/yr
(~9.5% of NA industry capacity).