RBC’s $47 target and “conviction” thesisHere is the narrative re: conviction:
Relatively aggressive growth strategy – Relative to publicly traded peers, Interfor has opted to aggressively grow its production base by deploying the recent cash into acquisitions and increased capital spending. We think that it takes the market some time to digest acquisitions, but longer-term we think that the shift towards the US South will position the company for success. Already, the increased weighting to the US South is providing a meaningful advantage vs. BC-based producers given the very high stumpage rates. Interfor has also actively deployed capital to improve its sawmills and make them competitive with the best in the region.
Building for the long-term – Taking a longer-term perspective, we think that Interfor is setting itself up to be a premier lumber producer in North America. Over the past 10 years, Interfor has on average added >200 mmfbm of production capacity per year (mostly in the US South) through a combination of organic capital projects and acquisitions. We expect that Interfor will continue to follow this formula while being more aggressive than West Fraser and Canfor, providing more direct exposure to lumber prices. As long as management keeps the balance sheet healthy, we think Interfor is well positioned to create more shareholder value through a strong building cycle.