West Fraser Timber Co Ltd T.WFG

Alternate Symbol(s): WFG

Forest Products Lumber & Wood Production

West Fraser Timber Co. Ltd. is a diversified wood products company. The Company is engaged in manufacturing, selling, marketing and distributing lumber, engineered wood products, including oriented strand board (OSB), laminated veneer lumber (LVL), medium-density fiberboard (MDF), plywood, particleboard, pulp, newsprint, wood chips and other residuals and renewable energy. Its products are used in home construction, repair and remodeling, industrial applications, paper, tissues, and box materials. Its segments include Lumber, North America engineered wood products (NA EWP), Pulp & Paper and Europe EWP. Its business comprises lumber mills, OSB facilities, renewable energy facilities, pulp and paper mills, plywood facilities, MDF facilities, particleboard facilities, LVL facility, treated wood facility, and veneer facility. The Company operates approximately 58 facilities in Canada, the United States, the United Kingdom and Europe. It also offers wood preservation services.

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West Fraser Timber Co Ltd

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Post by retiredcfon Oct 29, 2021 8:46am

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Post# 34062347

TD 2

Decided to remain cautious. GLTA

West Fraser Timber Co. Ltd.

(WFG-N, WFG-T) US$82.72 | C$102.02

Resilient Panel Margins Drive Better-than-expected Q3/21 Results Event

West Fraser reported Q3/21 results after market close on October 27. Aggregate adjusted EBITDA of $786 million was above our estimate of $621 million and also exceeded the consensus forecast of $768 million. Q3/21 EPS of $4.20 was similarly above our forecast of $2.97 and the consensus forecast of $3.97.

Impact: POSITIVE

Engineered wood product (EWP) segment contributions were much better than our expectations, offsetting lower-than-expected margins for the lumber and pulp/paper segments. North American EWP earnings benefited from OSB price-realization timing lags, relatively stable specialty markets, and well-managed unit costs. European panel results were stellar; we significantly underestimated positive regional price momentum — particularly in the U.K.
West Fraser is putting its balance sheet to work at a faster pace than most peers. The company exited Q3/21 with net cash of $1.6 billion and available liquidity of $3.1 billion — the latter was close to the $3.4 billion figure at the end of Q2/21 despite the company repurchasing 10% of the total number of shares outstanding in Q3/21 for $892 million. Subsequent to quarter-end, West Fraser announced agreements of two tuck-in acquisitions (aggregate consideration of $580 million). We believe that West Fraser is positioned to consider further asset- base growth initiatives, with a focus on wood products in North America and Europe.

Our BUY rating and US$110.00 target price are unchanged. We have increased our mid-term earnings/free cash flow outlook (reconciliation of robust Q3/21 results, modest price-realization spread changes, and inclusion of the Allendale OSB mill acquisition), but we are lowering our target multiple, given the recent deceleration of North American wood product prices.

TD Investment Conclusion

After a sharp recovery since August, we believe that current North American wood product prices are ahead of near-term underlying fundamentals, but we remain constructive on North American wood products markets over the mid-term. We do not expect lumber and OSB industry capacity growth to be a material headwind until 2023. Our 2022 earnings estimates are above our assessment of mid-cycle potential. We expect that West Fraser will remain aggressive on asset-base investments and opportunistic M&A initiatives, while returning surplus capital to shareholders