TD down target priceKPT-T C$8.50 (Prior C$9.00)
Our 12-month target price of $8.50 for KP Tissue is based on a 5.0x target EV/EBITDA multiple using our trend EBITDA estimate for KPLP. To capture the impact of changing net debt expectations, we adjust our enterprise value calculation with expected free cash flows through 2026, including all capex associated with the Sherbrooke expansion.
Our trend EBITDA estimate includes a full contribution from the TAD Sherbrooke asset, plus the LDC paper machine/converting line expansion of this site.
Key risks to our target price include: 1) the impact of COVID-19 on the AFH segment demand; 2) control of KPLP by Kruger Inc. — 86.3% ownership, majority Board and senior management representation; 3) commercial contracts between KPLP, KP Tissue, and Kruger; 4) sensitivity of the North American tissue market to growth in capacity; 5) input cost inflation; 6) negative exposure to weaker Canadian dollar; 7) equipment failure, production/labour disruptions, natural disasters, and environmental liabilities; 8) highly competitive markets; 9) risks associated with the Sherbrooke expansion project; and 10) high financial leverage.