RBC This is from their 27 May report. ANS is rated Sector Outperform with a $5.00 target. GLTA
Company Profile
Ainsworth is the fifth-largest producer of Oriented Strand Board (OSB) in North America, with 3.1 billion
square feet of capacity (including unfinished and idled mills). OSB is a structural panel product for the
construction industry. Brookfield Special Situations has a 55% ownership interest in the company.
Investment Rationale
Significant leverage to a recovery in US housing - We believe the US housing market has begun its
long journey to recovery, and will slowly build on current activity through 2013 and into 2014. We
expect North American residential demand for OSB to grow at a CAGR of 21% from 2011 to 2016E.
We expect the industry to be rational in adding back idled capacity.Key risk is US housing market -
Lower-than-anticipated new-home building in the US would affect the expected recovery in OSB
demand and prices.
Valuation
Our price target is based on a blended 6.5x EV/EBITDA multiple of our trend EBITDA estimate of $204
million (85%) and our revised 2013 EBITDA estimate of $231 million (15%). We believe the shares
should trade at a multiple at the top-end of the typical Canadian Paper & Forest Products trading range
(4.5 to 6.5x), reflecting the near-peak OSB pricing and solid recovery in the US housing market.
Price Target Impediments
Lower than anticipated new home building activity in the US would impact the expected recovery in
OSB demand and pricing. Higher raw material costs, including fiber, energy and resin, would
substantially increase operating costs and impact results negatively. Greater-than-expected OSB
capacity additions and/or slower-than-expected market share gains for OSB versus plywood would
reduce OSB prices. A stronger-than-expected Canadian dollar may decrease margins as most products
are priced in US dollars while Ainsworth's operations are all located in Canada.