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 dosperroson Feb 10, 2023 3:23pm

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Interfor Corporation

IFP-T: C$26.58
Target: C$32.00
Old: C$30.00
Rating: Sector Outperform

Q4/22 First Take: EBITDA Miss on Larger-than-Expected Inventory Write-Down

OUR TAKE: Mixed. IFP reported Q4/22 adj. EBITDA of -$69M, below our -$38M estimate and below the consensus of -$28M due to an inventory write-down of ~$58M during the quarter ($45M expected). This compares with $103M in Q3/22 (10% margin) and $150M (22% margin) in Q4/21.

Production growth continues despite market weakness with Chaleur acquisition. Lumber production of 874Mbf declined 11% q/q to better align production with demand, but increased 15% y/y, despite the sale of the Acorn sawmill (Q2/22) due to the Chaleur acquisition completed in Q4/22. Similarly, shipments were down 12% q/q but up 31% y/y. IFP has extended production curtailment to Q1/23 to the tune of 100Mbf (mostly outside the U.S. South), returning to normal operating schedules in April 2023, subject to market conditions.

We reiterate our Sector Outperform rating and increase our target to $32.00 as we rolled over to 2024 for target EBITDA. Valuation remains very attractive (Exhibit 2). IFP’s lumber production is up ~40% from Q1/20 while shares o/s have dropped by ~24% over the same period. Our revised 2023-2024 estimates reflect an expected minor reduction in lumber duty deposit rates from Q4/23 onward as per published preliminary rates (from 8.59% to 8.24%).

KEY POINTS

Variance analysis. The adj. EBITDA variance vs. our forecast was mainly driven by higher-than-expected COGS (-$39M, which includes higher-than-expected inventory write-down of -$14M), duties (-$5M) and SG&A (-$2M), partially offset by higher-than-expected log and residuals sales (+$9M) and lumber shipments (+$5M).

Capital allocation update. In 2022, IFP generated CFO of ~$732M (~$10M in Q4/22). It returned $328M through share repurchases (no shares repurchased under current NCIB of ~5.1M shares in Q4/22 and no dividends in 2022), while spending ~$971M on acquisitions. The company also incurred capital spending of ~$306M (+73% y/y), ~$190M of which were geared towards discretionary projects. At December 31, IFP's net debt to invested capital ratio stood at 26% with a net debt of ~$720M. Given weaker market conditions, management expects to lower capex to $250M for 2023 (down from the $300M we were previously forecasting).

Conference call. February 10, 2023, at 11:00 a.m. (ET). Dial-in: 888-396-8049.

Historical price multiple calculations use FYE prices. All values in C$ unless otherwise indicated.
Source: FactSet; company reports; Scotiabank GBM estimates.