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Interfor Corp T.IFP

Alternate Symbol(s):  IFSPF

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 4.7 billion board feet and offers a diverse line of lumber products to customers around the world.


TSX:IFP - Post by User

Post by retiredcfon Jun 22, 2021 9:04am
208 Views
Post# 33426219

TD

TDHave a $45.00 target. GLTA

Interfor Corp.

(IFP-T) C$29.86

Investor Meetings Give Context on Capital Allocation Priorities Event

Last week, we hosted virtual meetings between Interfor management and institutional investors. Discussions covered a wide array of topics: context around the current lumber price correction; mid-term capital-allocation priorities as the company puts its strong balance sheet to work; and more details behind the pending acquisition of four U.S. sawmills from Georgia-Pacific (GP).

Impact: NEUTRAL

Discussions were informative, but give us no cause to change our estimates, target price, or positive investment thesis.

 Management likened the current lumber market correction to the pullback from September-November last year. The peak-to-trough correction for the composite lumber price over the past four weeks is 26%, led by seasonal factors and a buildup of inventory at big-box retailers. Management expects that the steep cost curve, generally lean inventories through the supply chain, ongoing robust demand, and constraints on the industry's ability to add mid-term production will support an extended above-trend price cycle.

 Interfor has a clear pecking order for capital allocation: 1) accelerating discretionary capex; 2) prospective sawmill acquisitions; and 3) ongoing returns of capital to shareholders. Interfor remains active on its 10% NCIB, which extends through November 10, 2021.

 The pending US$375 million acquisition of four U.S. sawmills from GP is significant, adding 23% to Interfor's lumber capacity. Management acknowledged a relatively high capacity multiple for the acquisition (US$521/ Mfbm versus the 10-year U.S. precedent average of US$436/Mfbm), but positioned the assets as relatively high margin. The company has further acquisition aspirations, with a focus on expanding its U.S. lumber footprint.

TD Investment Conclusion

The current lumber price correction aligns with our forecasts. Even with a tempered commodity market, we still believe that Interfor is well-positioned to generate exceptional free cash flow over our forecast horizon. 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.


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