Interfor Corp T.IFP

Alternate Symbol(s): IFSPF

Forest Products Lumber & Wood Production

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

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Interfor Corp

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Post by retiredcfon May 13, 2022 8:54am

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Post# 34680850

TD 2

Interfor Corp.

(IFP-T) C$32.73

Capital Deployment Gaining Pace Event

Interfor reported Q1/22 results after market close on May 11. Adjusted EBITDA of $570.1 million was slightly below our estimate of $588.4 million and the consensus forecast of $603.6 million. Adjusted EBITDA included a $68.0 million fair value inventory adjustment related to the acquisition of EACOM Timber. Our estimate included a $70.0 million value adjustment; it is unclear to what extent this factor was embedded in the consensus forecast. Adjusted EPS of $6.61 was below our estimate of $6.94 and the consensus forecast of $6.97.

Impact: NEUTRAL

Excluding the EACOM fair value adjustment, recurring adjusted EBITDA of $638.1 million was 26% above our estimate of the company's annual mid-cycle (trend) potential. Surging lumber prices more than offset volume constraints and cost inflation. Interfor's lumber price realizations jumped $588/ Mfbm (+72%) q/q; this lagged our forecast but was consistent with the peers' trends.
EACOM generated material results out of the gate. Excluding the fair value adjustment, EACOM contributed adjusted EBITDA of $73.1 million in less than six weeks of ownership (11% of total Q1 adjusted EBITDA).
Interfor is deploying capital at a rapid pace. The company repurchased 5.0 million shares (8% of the total at the end of 2021) for $194.3 million in Q1 and completed its 10% NCIB in April. Despite share buybacks, the $731.2 million EACOM acquisition, higher working capital, and a large tax payment, Interfor ended Q1/22 with minimal net debt and abundant available liquidity of $483.3 million. Q1/22 FCF was $3.78/share (11% yield for the quarter).

We reiterate our BUY recommendation and $50.00 target price. Small revisions to our mid-term free cash flow outlook are not significant enough to warrant a target-price change.

TD Investment Conclusion

In our view, Interfor's current valuation represents a compelling entry point for investors with anything beyond a short-term investment horizon. We forecast above- trend lumber prices through the end of 2023. Adjusted for expected FCF through the end of 2023, we estimate that Interfor’s trend EV/EBITDA multiple is 2.8x — a steep discount to the company's historical trading range.