RE:Lumber COs Major Move Up...First, I'm not sure this adds value. Posts should at least try to bring something to the able. Don't you have any hypoethis as to why? Posting that, however right or wrong, advances the diolange and adds value.
Borrowing from what I phone-typed on Yahoo the other day near term I expect to see the gap with IFP and WFG from the last two weeks close. That’s 14% and 16%. The resistance that's been seen (most figtue it's due to calls about to cost folks a lot of money trying to sell HARD) can have some impact but fades with time.
Lumber action was very good Friday in it was rolling over — but not finishing limit down. Other months even finished green. We just need to stop the wild ascent before it hits the point of pricing out Home Depot buyers. I’d it went sideways from here it would be awesome. You’ll get a lot more that +16% near term up lift should that occur.
Longer run, I the duty depots at $397m and the implicit effect of $190M net debt p;us pension liability crowd out of market cap, That’s max of ~600M, but the pension is only going to partially score against. It might just be a headwind on the valuation multiple in practicality. But I’d assume the combo of pensions and debt is offsetting market cap by at least $400m. Call 'er $800M of impicit market cap on the sidelines. You'd have $10/share likely to be recouped or realized in 2022. That’s wild — an upshot in increase market cap by 83% by basic inaction. You’d also have the earning torque to do a SIB at 20% of shares or so, plus the NCIB. Even at 30% higher avg share price that only would cost $364M (likely about 1/3 of 2022 earnings).
Going to $100m cash positive for optics takes market cap up by another $300M. That leaves say $100m for Ops plus $200m in to fund op and M&A. Then add in the cash from a any duty refund
For same of argument I’ll exclude M&A likelihood and pretned it stays as cash. Then, pretend it’s Dec 2022:
-Shares at 54M.
-net cash from ops retained at $400m
-duty refund of $400m.
-forward lumber normalized but still decent (eg $650/mfbm). No, $400 is not normal either it’s a historical aberration that is not in the cards to to costs and commons sense. $650 is a price in real terms that jives will with history.
That means today’s net debt of -$200M becomes +$600M net cash. I’d assume the EV is going to be flat to be conservative, so to stay at $1.1B market cap goes to $1.7B. Realistically that’s a silly assumption as there will multiple expansion but I digress. Over 54M shares that’s $31.48/share. Granted it’s higher as the overhand of the pension is gone which adds perceptual value and more as decent or good times are no longer viewed as a one time only, etc.
I mean sure the duty may not get refunded near term, but there’s a market for that (Conifex sold theirs open market for cash at risk and time value discount but it still was about 40% of the sticker prices which isn’t bad considering. It implies that RFP could find a bank to pay them $160m tomorrow in exchange for dibs on the future refund. It goes to show that even a conservative application of this scenario is very positive — you may settle for only doubling the share price in a year not tripling it.
Btw run that using the RBC trend EBiTDA of 275M as a baseline. That’s like $550 lumber so low. I’ll call it $300 to be very conservative realistically it’s like 2x that. So rather than being worth 6.5x that say it’s 8x.
That’s $2.4B add $600M cash for $3.2B of cap over 54M shares… almost $60/share.
All said keep in mind these guys weee $20/share in 2013 when they had 95M shares outstanding. Bit of this stuff is terribly far fetched.