CIBCEQUITY RESEARCH
October 4, 2022 Earnings Update
INTERFOR CORPORATION
Updating Forecast For New Platform In Atlantic Canada
Our Conclusion
We are maintaining our Neutral rating on Interfor and $32/share price target. As we noted in our sector downgrade yesterday, we see limited catalysts over the next six months given global demand headwinds for lumber caused by higher mortgage rates. At the same time, declines in home prices and inflationary pressures are likely to weigh on the R&R market in 2023 (before an anticipated rebound in renovation activity in 2024).
Key Points
Revising Estimates For Chaleur: We expect the Chaleur acquisition to
close at the end of November and assume a modest contribution in Q4
(though there will likely also be some purchase accounting noise). Assuming mill operating rates in New Brunswick of ~90% next year, we have raised our 2023 EBITDA estimate on Interfor by $43MM to reflect the additions of the two sawmills in Atlantic Canada. We see the mills’ contribution rising to $50MM in 2024 as IFP realizes the targeted ~$5MM of annual synergies and benefits from a stronger pricing environment. We have also increased our mid-cycle estimate by $55MM to $505MM.
Upcoming Expert Call With FEA Today: Please join us for a discussion on
lumber and OSB markets with Paul Jannke and Greg Lewis of Forest
Economic Advisors (FEA) on October 4 at 11 a.m. ET.