RE: RE: RE: Solid Pricing continuesYou never know exactly why a stock moves when it does, when there is no news. The obvious answer is that there were more buyers than sellers, but WHY is the question.
1. End of Tax Loss selling
2. Pulp pricing rose sharply from very depressed pricing in 2008/2009 to gained back all those NBSK declines by early to mid 2010 and then, as global pulp supplies came back online it was then expected to decline substantially in mid to late 2010. That prediction did not occur. While it is possible that a NBSK decline has only been deferred, I think that the growing expectation of a global economic recovery, especially in India and China, has put the majority of those fears aside. At $900-$1,000/tonne for NBSK, all pulp producers will be making very good margins. Since their share prices were so depressed, it is very possible that over a relatively short period of time the entire industry will be re-priced to reflect the improved fundamentals of (NBSK) Pulp. FBK is one of the companies that have fundamentally improved their balance sheet, income statement, etc., yet their share price still reflects bankruptcy prices. $150M market value for a $500M+ mill and two other mills worth a few hundred million? Yes, $150M market cap plus $78M in LT Debt and $52M in debentures.
3. Operating cash flows was over $45M in the first 9 months of this year and a market cap of $150m? Hmmm? Who wouldn't call that cheap, even for a cyclical company? Maybe normalized operating cash flow is $10-20M per quarter on a go forward basis? $5M/quarter of $20M/year would support at $150M market cap yet Fibrek was close to doing $20M last quarter!!! and that was without their US operations contributing negative $1.5M. Turn that around a bit and big upside potential is possible.
4. Canfor is increasing their NBSK pricing suggesting improving, not declining fundamentals.
5. The market could be speculating on a business combination involving Fibrek. Abitibi spun off SFK Pulp as a separate entity in Aug 2002. SFK Pulp was an income trust and in May 2010 converted to a corporation and changed their name to Fibrek. In April 2009, Abitibi filed for Chapter 11 bankruptcy. Last month Abitibi emerged from bankruptcy and was re-listed on the TSX and the NYSE. Fairfax Financial owns a good chunk of Abitibi and is the largest shareholder of Fibrek at 25% or so. Abitibi is a major Quebec based supplier of wood chips and bark, which as I understand it is one of the largest inputs into the making of Pulp. It is possible that a combined entity of Abitibi and Fibrek would produce an even stronger, low cost producer of Pulp at the St. Felicien Mill in Quebec and could open up the possibility of realizing significant shareholder value by doing some sort of business combination. That may or may not involve the US operations. Selling off the US operations could produce enough cash to eliminate all debt and debentures at Fibrek. That would leave a company that is generating $10-20M per quarter or $40-80M/yr in operating cash flow with a market value of $150M. Abitibi coming out of bankruptcy could be significant, especially with Fairfax heavily involved in both. Fairfax Financial has an exceptional investment team and exceptional investment results. Executive management is HEAVILY incentivized at a much, much higher price.
There are lots of reason for the sharp rise in FBK but keep in mind the share price did go up by 13% but that was only on 500k shares. There are 130,000,000 shares or so and Fairfax owns 30M or so. There are 100M shares floating around out there, less a few for insiders. What would happen if someone wanted to take a 1M share position or a 1% position on the public float or maybe a 5% position?