Up and Down Interfor Corp.’s (IFP-T) US$435-million acquisition of four U.S. sawmill operations from Georgia-Pacific Wood Products LLC and GP Wood Products LLC is “fairly priced, given the high asset quality and the point in the cycle,” according to Raymond James analyst Daryl Swetlishoff.
“We estimate modest synergies in the $5-10-million range, offset by modest near term capital requirements,” he said in response to the deal, announced late Thursday.
“The transaction will easily be funded with cash on hand and we highlight that post acquisition, our model forecasts Interfor to remain in a net cash position. While we previously forecast $5 per share in special dividends we now expect further specials will be contingent on the length of the lumber rally.”
Touting its “incredibly inexpensive valuation (1.2 times 2021 and 2.4 times 2022 EV/EBITDA) with an anticipated blowout 2Q21 on deck,” Mr. Swetlishoff hiked his target for Interfor shares to $63.50 from $60 with a “strong buy” recommendation, emphasizing: “we continue to advocate investors opportunistically take advantage of potential volatility introduced by volatile lumber pricing.” The average is $49.50.
“A pure-play lumber producer with attractive regional diversity, demonstrated growth ability and strong ESG credentials, Strong Buy rated Interfor is a top pick featured on the Raymond James’ Annual Best Picks list for 2021,” he added.
Elsewhere, CIBC’s Hamir Patel reduced his target to $54 from $56 with an “outperformer” rating.
“While Interfor is clearly buying assets near the top of the market (and just as SYP lumber prices appear to be pulling back), we believe valuation is reasonable given above mid-cycle medium-term cash flows and the company’s strong track record of execution on the M&A front,” he said. “The transaction will also reduce the company’s exposure to U.S. lumber duties as 77 per cent of the company’s lumber capacity will be U.S.-based (up from 72 per cent presently).”