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 Feb 13, 2023 9:50am

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Post# 35282840

RBC

Their upside scenario target is $44.00. GLTA

February 12, 2023

Outperform

TSX: IFP; CAD 25.78

Price Target CAD 35.00

Interfor Corporation Tightening its belt

Our view: Interfor Corporation (“Interfor”) reported Adjusted EBITDA of - $69MM, which was below our -$49MM forecast and FactSet consensus at -$28MM, although results included $59MM in log and lumber inventory valuation adjustments. We positively view Interfor's diversified operating platform and the steps it is taking to manage its cash flow as the downturn continues, and reiterate our Outperform rating.

Key points:

Reiterating our $35 price target and Outperform rating – Our price target is based on a 5.0x EV/EBITDA multiple on our trend EBITDA estimate of $525MM (85%) and our 2023E EBITDA of $283MM (15%).

Managing cash flow by reducing capex budget for 2023. Interfor is now targeting $240MM in capex for 2023, which is down from an earlier estimate of $300MM. Management stated that its ability to flex the budget lower is reflective of maintaining a capable and agile internal team, and that it could pivot again and reduce its budget further if appropriate. The company is also working to reduce its working capital, including through right-sizing inventories at the mills it acquired from EACOM and Chaleur, and expects to receive $104MM in 2023 through recouping over-installed tax payments made in 2022.

Capacity reductions helping to tighten the market; more likely to come. Management stated that it thinks additional capacity needs to come out of the lumber market, particularly in BC, which is in-line with our outlook given the long-term fiber supply challenges in the province. Since curtailments are largely impacting SPF production, Interfor thinks the market for SPF could come under more tension than the SYP market.

Destocking in distribution channels has left inventories historically low. Management stated that it believes that inventory destocking in distribution channels helped drive lower demand and rapid decreases in lumber pricing in Q4, with distributors trying to avoid holding inventory in a falling price environment. It now believes that inventories are at a historically low level, which could mean increased tension on supply as conditions stabilize.

Upcoming tenure transfers. Interfor noted it has requested that the BC Ministry of Forests subdivide and transfer a number of its forest tenures as part of its continuing strategic review of its Coastal BC timber harvesting rights, including ~559k m3 of timber harvesting rights to First Nation controlled entities and ~104k m3 to non-First Nation companies. Management noted "significant interest" in the tenures it wants to monetize, and expects transactions to occur over the next 24 months. Interfor previously sold a forest license for cash proceeds of $13.5MM in August 2022, and another forest license for $9.0MM in December 2021.