Mumbo jumbo: a wolf in sheep's clothes?!? (7-fig profits)So, I read this from a darn respectable source:
"Valuation:
Tembec is currently trading at 4.5x 2018E TEV/EBITDA versus the peer-group average
of 6.8x. We consider the discount excessive in light of the company’s free cash flow
profile."
That's all it says. Seems pretty ho-hum.
Or, is it? I'll back-of the-napkin it just for fun. This report was issued at the $2.40 range. I'll revense engineer where things are now (or where, getting to 2.50).
| Multple | 4.5 | |
| EBITDA | $200 | million |
| EV (Implied; Multipe*EBITDA) | $900 | million |
| Debt (ballpark) | $650 | million |
| Implied Equity Value (EV-debt) | $250 | million |
| Implied current share price | $2.50 | /share |
| | | |
| | | |
So, what is the business about the industry average being 6.8? Is this true? Sure. Is it accurate? No. It's the got the spectre of the SLA war hanging over our heads. So it's depressed. We know that historic averages are 9.0 as I've noted.
But, let's take this above calcs and change one variable. Let's give TMB the same depressed, sad-sack 6.8 multiple that the average gets. I argue TMB is better than average given how tough the transition was, and that they have minimum exposure to the SLA. And barriers to entry; green timber tenures; no impending new entrants in the SPF side; few rivals; etc..
So, here is TMB "getting average". This will be in a few months' I think. Imagine TMB got "above average".
| | |
| Multple | 6.8 | |
| EBITDA | $200 | million |
| EV (Implied; Multipe*EBITDA) | $1,360 | million |
| Debt (ballpark) | $650 | million |
| Implied Equity Value (EV-debt) | $710 | million |
| Implied current share price | $7.10 | /share |
Anyway, just wanted to unpack that. It seems so innocuous. So comfortingly jargony and blase. But implied is that the SP can increase by (should increase by)
136% virtually overnight.