Scotiabank Sector Analysis 10:38 AM EDT, 06/21/2022 (MT Newswires) -- Analysts at Scotiabank said Monday that 2020 and 2021 have been record years in terms of profitability for every Canadian lumber and oriented strand board, or OSB, producer, and valuations have been attractive.
Lumber stocks trade at low enterprise value to its earnings before interest, taxes, depreciation, and amortization, or EV/EBITDA, multiples on 2022 estimates and 2023 estimates and below their long-term average multiples, the analysts said.
On a price-to-tangible-book-value, most lumber stocks have only been cheaper in 2020 during the COVID-19 pandemic, and during the Great Financial Crisis, the analysts noted. On EV/shipments, commodity producers trade in the bottom half of their historical range, suggesting more upside than downside.
Citing declining lumber production in British Columbia, the magnitude of the US housing deficit, strong demographics, and households' balance sheets, the analysts do not expect to "sustainably witness the same distressed market conditions" in the next 12 to 18 months that were seen in 2020 or during the GFC.
"Moreover, a housing downturn may be the catalyst needed to resume Canada-U.S. negotiations, which could eventually lead to a full or partial refund of the large amount of duty in deposits," the analysts noted.