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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Post by retiredcfon May 28, 2021 9:03am

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Post# 33284850

TD

As can be seen, their lowered price target simply reflects the payout of the special dividend. GLTA

Interfor Corp.

(IFP-T) C$31.35

IFP Agrees to Acquire Significant U.S. Sawmill Portfolio Event

Last evening, Interfor announced an agreement to acquire a portfolio of U.S. sawmills from Georgia-Pacific (a private company). Interfor will acquire four sawmills with annual capacity of 720 million board feet for a total consideration of US$375 million. The acquisition is scheduled to close in Q3/21 and will grow Interfor's annual lumber capacity by 23% to almost 3.9 billion board feet. On a pro forma basis, the U.S. will comprise 77% of the company's capacity.

Impact: NEUTRAL

We believe that Interfor is paying fair value, but acknowledge challenging optics around peak-of-cycle timing in a competitive process. The implied capacity multiple of US$521/Mfbm is a 19% premium to U.S. sawmill precedent transaction over the past decade. We estimate a trend EV/EBITDA consideration of 6.8x, also a premium to our estimate of ~6.0x average for sawmill precedents.
Notwithstanding our perception of valuation, we expect that this transaction will be accretive to mid-cycle EPS and FCF/share. We forecast 19% accretion to our trend EPS estimate and 12% accretion to our trend FCF/share forecast. These estimates are partly tied to Interfor funding the acquisition via available cash.
In our view, this transaction does not compromise Interfor's strong balance sheet. Adjusted for the acquisition and the pending special dividend of $2.00/ share, Interfor's pro forma net debt-to-cap ratio increases to 22%. With ongoing exceptional lumber markets, even as prices pullback from records, we expect that the company will transition back to net cash in the near term.
Our lower target price adjusts for the pending special dividend of $2.00/ share. Expected mid-cycle FCF/share accretion tied to the acquisition is offset by a slightly more conservative target multiple as lumber prices start moderating.

TD Investment Conclusion

This is a material, if not transformative, acquisition for Interfor. The transaction consideration equals 25% of the company's current EV. Although we do not believe that current lumber prices are sustainable, this cycle is exceptional in terms of both magnitude and duration. Adjusted for mid-term FCF forecasts, we believe that IFP shares are still trading at an excessive discount relative to both the company's peers and historical trading ranges.