RE:RE:Balance? Finally?? After 3 mo of selling pressure? Buckle up Alphaseeker1984 wrote: dosperros,
The difference in valuation between TMB and its industry peers is significant. As previously noted, the EV/EBITDA multiple for the forestry sector is currently averaging 7.2. TMB's LTM EBITDA is currently 171mm. The EV at 7.2x is $1.23 billion. With approximately 650mm of debt the equity should be worth 580mm or $5.80 per share based on LTM EBTIDA. Looking forward this pitcure only gets brighter given the margin expansion in SC and lumber.
Some other factors to consider how good the future looks for TMB compared to industry peers are:
1) TMB's operating margin is currently at 8.1% vs. a peer average of 6.1%. .
2) TMB's cash flow to sales ratio is currently 15.2% vs. a peer average of 10.4%.
3) TMB's return on capital is currently 8.5% vs. a peer average of 4.5%.
TMB is clearly showing the benefits of their CAPEX program, strategic positioning in the SC market and a good niche product in coated board. These factors should continue to justify a higher valuation for TMB. The current uptick in lumber and continued bouyancy in paper pulp are helping the rapid deleveraging and also should justify a much higher equity value.
TMB may still by a bit of a show me story given their results over the last 5 years. The gaps in the above mentioned ratios have only occurred in the last 12-24 months. Perhaps a few more quarters will encourgae folks to see the true value in TMB.
This is some solid financalin'. I'm pretty sure that's a word. I agree on all fronts. The wait and see ethos will likely prevail, but there is a favorable black swan potential as well. Specifically, what would a take-out look like? I dont mean this in the sense of the blue-sky navel gazing that often is posted on boards like this ('why won't a white knight come and make me rich!?!! See WEF for a sad board with some sad dudes hoping for white knighrs). Rather, what's a minimum of $170 in EBITDA worth? Coming out of an asset base worth north of 2 billion, that could be had for much less?
Specifically, an organization like fund would be looking at getting between a 10% (conservative) to 20% (aggressive) return on their investment per year. Let's do this as case 1 and case 2. We also have the base EBITDA ($171 - (conservative) and the more likely case of over $200 (aggressive -- let's say $220 for analysis).
I can't do a 2x3 consultant-type matrix here b/c posting images is the bane of my existence. I'll just do it old school is 4 scenarios of declining awesomeness for shareholders. Assuming Berkshire or another deep value play wants this. Which is likely as wait and see develops.
Case 1: 10% return needed. $220M ebitda. Willingness to pay = 2.2B, less $650M in debt = $15.50 for shareholders as a takeout. Extreme overkill, lol.
Case 2: 10% return needed. $171M ebitda. Willingness to pay = 1.7B, less $650M in debt = $10.50 for shareholders as a takeout.
Case 3: 15% return needed. $220M ebitda. Willingness to pay = 1.467B, less $650M in debt = $8.517for shareholders as a takeout.
Case 4: 15% return needed. $171M ebitda. Willingness to pay = 1.133B, less $650M in debt = $4.837for shareholders as a takeout.
Case 5: 20% return needed. $220M ebitda. Willingness to pay = 1.10B, less $650M in debt = $4.40 for shareholders as a takeout.
Case 6: 20% return needed. $170M ebitda. No dice on these economics. Good thing 171 is conservative and the debt is declining rapidly, so this is a red herring.
In short, I would be willing to spend about $1.5 as a fund to take this out if I was looking for an easy return and billions of assests. That's about $8 a share currently. It is actually bad for us in the long run, but that's life. The scary thing is they could likeyl get this for $6 a share. That's just a lot of cash flow for cheap.