Scotiabank! Oh my. Friday morning humour. Here is the BNS take. My comments are in red.
OUR TAKE: After closing out F2016 on a strong note, results gave up some ground
in Q1/F17. The down tick was mostly due to scheduled maintenance undertaken in
the specialty cellulose segment and weakness in the forest products segment.We
reiterate our $1.50 target (1) and Sector Underperform rating based on the company's
high financial leverage (2) and expected limited free cash flows available for
deleveraging and/or capitalize its wood products assets (3). In addition, the ongoing
lumber dispute adds a layer of uncertainty.
(1) So this updated report is based on the forecast of $173MEBITDA in 2017. With Debt at end-of-year in 2017 being ~ $550M, this gives D+E of (550+150). This is an EV of 700. 700/173 = 4.0 times. Why would this be the cheapest in the forestry universe? Nobody is trading that low. RYAM trades at 7.0x. BNS, seriously. A multiple of 5.5 to 6.0 is fair in 2017.
(2) Wrong. This was right a year ago with liquidity raising flags and <$65M. Now it's about $160M. Above the top end of mgmt targets. All good; and deleveraging is progressing ahead of schedule.
(3) Wrong. Update your narrative, guys. You are forecasting $173M in cash equivilent in 2017. How is that "limited"? It's more than CFX and WEF; two firms with an equity value that is 3x and 4x TMB's.