RE:CIBCAnOther nice InterView with Our CEO Amar Doman__especially like his take on the reno market
retiredcf wrote: Have a $10.00 target. GLTA
EQUITY RESEARCH
January 23, 2022 Flash Research
DOMAN BUILDING MATERIALS GROUP
LTD.
Key Highlights From CIBC’s Western Investor Conference
On Friday, we hosted a fireside chat with Doman CEO Amar Doman and
CFO Jay Code at CIBC’s Virtual Western Institutional Investor Conference.
Key Takeaways
Upbeat On Demand Backdrop: CEO Doman characterized the outlook as
very strong ("never been busier"), with prices having benefited from light
channel inventories and favorable weather in the United States for building in recent months. With channel inventories still not elevated heading into
spring, the only clouds on the horizon DBM pointed to were i) the effect rising mortgage rates could start to have on demand in coming months, and ii) the challenge labor shortages pose to increasing treating capacity and securing truck drivers in the South. While the company tends to agree with more conservative forecasts calling for a mid-single-digit volume decline in R&R volumes this year, CEO Doman believes this largely reflects some degree of consumer shock to elevated quotes for decks/fences, and the company views this as largely delayed demand, which will materialize as retail lumber prices eventually moderate. Interestingly, the company pointed to Hawaii being very busy, with labor shortages the biggest challenge facing Honsador (which now has a two-year backlog at its electrical division). Doman was also upbeat on the long-term demand outlook for its Canadian business, which is expected to remain strong, given Canada's high immigration targets.
Focused On Integrating Hixson This Year: While the company's balance
sheet remains healthy (excess availability on its credit facility of ~$200MM), management downplayed prospects of major M&A this year as it remains focused on integrating Hixson Lumber. The company characterized integration of the Hixson business (which closed seven months ago) as going extremely well, with further synergies expected to be realized from the imminent roll-out of new ERP systems at Hixson through the end of 2023. That being said, the company is seeing more acquisition opportunities come its way given its bigger scale, and expects to remain disciplined with its valuation parameters [seeking to transact at 4x-6x normalized EBITDA (based on lumber in the US$400-US$500/mfbm range)].
Forestry Assets Represent A High Multiple Business Within The
Portfolio: Within its Forestry category, Doman has seen profitability gains
over the past 18 months by transitioning to 100% contractor-based crews,
which improves returns and minimizes capex in the business. The reduced capital expenditure has helped contain annual capex (even with Hixson) to only $10MM-$12MM (on a sales base of $2.5+ billion). Management views its private timberlands (117K acres in B.C.) as core for the company and noted that they are undervalued on the balance sheet. The business' revenues are quite stable, with the majority of harvest logs sold to a large sawmilling partner (under a long-term contract)