RE:CIBC Upgrade Good to see. Did you get a chance to see the assumptions in this by any chance? I'm curious given the fact we are largely forward sold for the first 3-4 months of 2021 at $1000+, meaning the analsys' price forecast at $590 consensus will be less and less likely to be in thr ballpark. Planning for price moderation is apt but there is no sign of a "fall off the cliff" style adjustment on the horizon. This is fundamental driven after all, so the macro
environment would need to implode.
The link below is the Corten PDF. It looks suspect but it's ok -- you can always find it by getting to the site and going to "Publications". This is the March $1000 lumber article.
https://img1.wsimg.com/blobby/go/62e29ba5-3add-49d4-9f82-9403ad6efdd1/downloads/CORTON%20Global%20Timber%20Fund%20-%20Special%20Report%20-%20%20.pdf?ver=1614788175382
Interfor at $600 lumber and a very low multiple (6x) target gets you this type of price target which is fair for the coming months But anything beyond that it's pretty undersized. Without seeing rhthe article and just bashing text on a phone, I'd expect that this close to but just below $100/mfbm ebitda margins. So, using $400 as safe all in subject to duties and all else, that's implies $500 as a heavy baseline.
Interfor is worth $1.7b and the target here is for it to be $2.6b. That's not unreasonable and implies their assets are at least priced at replacement cost New sawmill capacity is $650/mfbm us today, so call it $800 CAD -- so pretty much in the $2.5b range To me, that's a floor as the new reality emerges where demand is growing by a more than NA lumber capacity and will continue to do so for 3-5 years.
All said, Interfor at sustained $700 lumber would be worth a lot more. That would be $300 margins near term which of course shrink as log costs would rise
steadily come 2023 or so (US South finally has the "drain" exceed the "growth"). So maybe that erodes the margin to $200/mfbm. I'll just use the same 6x multiple as that will only change with time, once this sector pulls up its socks and quits being such awful strategic thinkers and avoid running the business in a race to the bottom way. It's headed that way.
So, in this case assuming equal weight between $200 and $300, you'd see IFP making $750m annually. That's a $4.5b company so $69/share.
What if we use the Corten forecast? I'm bullish and have a deep understanding of the drivers of the possible lumber super cycle, and I'd never dared be that bold. So as above, assume $875 for the coming years, and it will modestly to a greater degree, say to $675. Means earning $1.1b near term and $825m long run. This
takes us to a $5.8b company or $90/share.
That all assumes the same number of shares outstanding. They can do 10% for the buyback this year, and that will at least continue. They could very well jam in a Substantial Issuer Bid should a scenario like this play out. So realistically, my thinking of the above scenario is for about 2 years out, and I assumed 65m shares. It may well be down to 53m or fewer in early 2023. Doesn't matter of your a $4.5b company then, or a $5.8b company. I can live with dividing either of those by 53m. It's pushes a $90 share to $109, and a $69 share to $85.