Interfor Corp T.IFP

Alternate Symbol(s): IFSPF

Forest Products Lumber & Wood Production

Interfor Corporation is a Canada-based forest products company. The Company and its subsidiaries produce wood products in Canada and the United States for sale to markets around the world. It operates through the solid wood products segment. The Company’s product categories include Dimension Lumber, Specialty Lumber and Engineered Wood Products. Its products include Spruce-Pine-Fir, Douglas Fir-Larch, Hem-Fir, Southern Yellow Pine, Western Red Cedar, Douglas Fir-Larch, and P3-Joist. Its sawmills provide a diverse range of sustainable products to supply North American markets with a complete offering of framing materials. Its Western Red Cedar products include Elite Decking, Elite Fascia & Boards, Elite V-Joint Paneling, Elite Fineline Paneling, Elite Channel/Lap Siding, Elite Bevel Siding and Elite Shadow Gap Siding. It has an annual lumber production capacity of approximately 5.0 billion board feet and offers a diverse line of lumber products to customers around the world.

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Interfor Corp

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Post by retiredcfon Feb 08, 2021 10:04am

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Post# 32499573

TD

Interfor Corp.

(IFP-T) C$27.95

Exceptional Q4 Results; Capital Deployment Picks Up Pace Event

Interfor reported Q4/20 results after market close on February 4. Headline EBITDA of $248.6 million included a non-recurring recovery of $38.4 million tied to retroactive reduction in softwood lumber duty rates. Excluding this item, our calculation of Q4/20 adjusted EBITDA is $210.2 million; close to our forecast of $208.7 million and the consensus estimate of $210.0 million. Adjusted EPS of $2.03 (excluding the positive impact from the duty rate reduction) was near our estimate of $2.04 and was slightly above the consensus forecast of $1.95.

Impact: SLIGHTLY POSITIVE but lowering rating on share price appreciation

Earnings moderated from record Q3/20 levels, but Q4/20 results were still exceptional, bolstered by robust productivity. Lumber price realizations were a little below our estimate, but record production levels were impressive, given staffing challenges related to the pandemic.
Interfor transitioned to a net cash position of $75 million at the end of 2020. Q4/20 FCF was $2.81/share (a 10% yield for the quarter alone). We forecast incremental cumulative FCF of $7.08/share through the end of 2022 (annual average yield of 13%).
The company is taking a measured approach to capital allocation. Interfor was busy on its NCIB in Q4/20 and indicated ongoing interest in asset-base growth (both organic expansion and prospective M&A), with a focus on sawmills. Management suggested that opportunistic buyback activity could be augmented with special dividends if outsized FCF generation continues.
We are raising our target price to $36.00 from $34.00, but downgrading our rating to BUY from Action List Buy. The target-price revision reflects higher mid-term FCF estimates (no commodity deck change; favourable price spread, volume and unit-cost assumptions offset by higher cash taxes). The downgrade follows a spectacular share-price run; +488% from the March 2020 lows.

TD Investment Conclusion

Lumber market momentum is positive and prices are revisiting all-time peak levels. We expect prices to sustain well-above trend levels over our forecast horizon. Adjusted for exceptional mid-term FCF forecasts, we believe that IFP shares are trading at an excessive discount relative to both peers and the company's historical trading range. We see a compelling mid-term investment opportunity.