West Fraser Timber Co Ltd T.WFG

RE:Fighting the Shorts

[dosperros]

Unreal.  There are some fraught businesses with iffy fundamentals here like the cannabis companies or sunset industry exposure as I believe Westshore moves a lot of coal.  Accidently thinking forestry of the bad old days and the 15-year Black Swan (the glut of basically free all-you-can-saw pine in BC, at the same time as US housing went from 2.0M starts fo 0.5 virtually overnight).  So, yes, it's been a bad 15 years.  But I have zero sympathies for whatever fund did such awful research they conflated the biggest name in an industry that's just getting moving as a short candidate.

To put some context in that opinion, I was playing around with the NYU Stern valuation multiples.  Below they're sorted from high to low.  With forestry trading at 5.79x vs. the total market at 20.0x, my thinking is we push that up steadily, which will be led by WFG chasing the 13x multiple afforded to building materials peers.  This rise will take time, but will be led by 

1. Professional mgmt.  It’s not the old lumberjacks at the helm in most cases now.  WFG has always been strong, and will continue to put daylight between more oafish peers like Canfor.  Resolute is looking good here, as is Interfor.
2. Shraehodler friendly (at least balanced) capital allocation.  It used to be all-in on new mills in booms, which led the way to busts in the past.  Like mining and homebuilding, this sector has learned a lesson.
3. Cash.  It's here to stay for all of 2021 as far as I can see.  It's a good problem to have and will make it awkward as the share prices don't increase fast enough, meaning the implicit multiples actually go down.
4. Robust demand drivers.  I ran the numbers and estimate the US has a shortfall of ~4M units based on a run rate of needing 1.5M annually.  They just underbuild for 15 years solid.  Toss in repair and reno and we're off to the races, and don't even get me started on non-res applciaitons like CLT that have good structural properties and great envrio cred.  
5. Demographics.  Bulge gen is early 30's.
6. WFH.  Not for all, but it gets people of of small apartments to the places where there is affordabiity.  A game changer.
7. Limited timber supply.  BC lost 20M M3 annually of cut, give or take.  That's 6 biillion fbm of capacity gone, which the US South can't make up due to labour and lead time on greenfields.

There's some yet, but you get the pciture.  I'm thrilled at the news on the short interest.  Wow.   That squeeze is gonna hurt those clowns.  Unreal --but I guess Gamestop showed the extent of the stupidity in that 

Industry Name	Number of firms	EV/EBITDA
Real Estate (Development)	25	47.57
Auto & Truck	19	45.73
Hotel/Gaming	66	38.32
Entertainment	118	36.26
Shoe	11	35.83
Air Transport	17	34.43
Retail (Online)	75	33.19
Information Services	77	31.70
Software (System & Application)	388	30.42
Heathcare Information and Technology	139	29.32
Healthcare Products	265	28.53
Investments & Asset Management	348	26.17
Real Estate (General/Diversified)	11	25.25
Software (Entertainment)	101	25.09
Computers/Peripherals	52	24.76
Restaurant/Dining	79	23.53
Green & Renewable Energy	25	22.94
R.E.I.T.	238	22.72
Recreation	69	22.59
Utility (Water)	17	20.92
Beverage (Soft)	41	20.74
Total Market	7582	20.02
Software (Internet)	36	19.21
Electronics (Consumer & Office)	22	18.96
Semiconductor Equip	40	18.69
Semiconductor	70	18.04
Beverage (Alcoholic)	23	17.61
Household Products	140	17.60
Electronics (General)	157	17.52
Business & Consumer Services	169	17.40
Machinery	125	16.70
Total Market (without financials)	6253	16.52
Electrical Equipment	122	15.96
Food Wholesalers	18	15.87
Chemical (Specialty)	97	15.56
Transportation (Railroads)	6	15.46
Construction Supplies	46	15.23
Environmental & Waste Services	86	14.98
Real Estate (Operations & Services)	61	14.82
Farming/Agriculture	32	14.71
Apparel	51	14.69
Education	38	14.43
Drugs (Biotechnology)	547	14.40
Drugs (Pharmaceutical)	287	14.32
Telecom. Equipment	96	13.92
Metals & Mining	86	13.90
Retail (Distributors)	85	13.88
Chemical (Diversified)	5	13.38
Building Materials	42	13.27
Transportation	21	12.96
Reinsurance	2	12.92
Food Processing	101	12.88
Retail (Building Supply)	15	12.59
Insurance (Life)	26	12.51
Retail (General)	17	12.29
Aerospace/Defense	72	12.15
Utility (General)	16	12.15
Power	55	11.89
Retail (Automotive)	30	11.56
Retail (Special Lines)	85	11.40
Diversified	29	11.37
Oilfield Svcs/Equip.	135	11.35
Cable TV	13	11.11
Engineering/Construction	61	10.85
Oil/Gas (Integrated)	3	10.77
Computer Services	116	10.70
Shipbuilding & Marine	11	10.67
Tobacco	15	10.48
Healthcare Support Services	129	10.36
Packaging & Container	26	10.34
Precious Metals	93	10.30
Telecom (Wireless)	16	10.14
Auto Parts	52	10.07
Trucking	35	10.06
Chemical (Basic)	48	10.01
Insurance (General)	21	9.99
Rubber& Tires	3	9.84
Publishing & Newspapers	29	9.77
Steel	32	9.74
Furn/Home Furnishings	40	9.73
Insurance (Prop/Cas.)	55	9.69
Homebuilding	30	9.54
Oil/Gas Distribution	57	9.12
Hospitals/Healthcare Facilities	32	8.97
Advertising	61	8.86
Office Equipment & Services	22	8.82
Broadcasting	29	7.84
Paper/Forest Products	15	7.71
Telecom. Services	58	6.76
Oil/Gas (Production and Exploration)	278	6.39
Coal & Related Energy	29	5.79
Retail (Grocery and Food)	14	5.75