Fortress Global Enterprises Inc - Class A FTPLF

valuation exercise

[Nbsk]

Let’s do some rough FGE valuation. Quite easy now that it’s a single dissolving pulp plant.

 

With the 5th digester now running, the 2019 capacity is 182,000 admt/year.

 

Currently and for the last couple years, dissolving price is around $USD 935/admt.

 

Cost/admt has been trending towards the target of $CAD 850 delivered.

 

My assumption is that we will be there on price and cost for 2019.

 

Foreign exchange is around 0.76 $USD / $CAD for a while now. 

 

935 $USD / 0.76 = $CAD 1230 price/admt

 

182000 tons * ( 1230 - 850 ) = $CAD 69,160,000 EBITDA

 

Using a conservative EV to EBITDA multiple of 5x (could be 6x)

we get an entreprise value of $CAD 345,800,000.

 

We have about $CAD 200,000,000 of net debt (from memory),

so removing it from EV leaves a market cap of 145,800,000.

We have 14,950,000 shares so it means a value of $CAD 9.75/ share.

 

That’s my base scenario. DWP prices could rise to $USD 1200.

EV multiple could reach 6x. Xylitol project could yield nice results.

An extra 20% of productivity should be possible for power generation.

Same for extra pulp production over the next few years.

 

Recent trading is $1.50 and my target is $9.75, a multi-bagger!!

 

$9.75 is about 1.35x book value, so not unrealistic

 

Can you find holes in this valuation ?

[Contrarian333]

Hi - I've used a lower assumed production (175,000) for conservatism, higher costs, lower dp price, etc and followed it through all the way to free cash flow which I gave both a 5% multiple (again, highly conservative) and a more aggressive 15% cap rate applied to cash flow. This resulted in a price range of approx $6 to $8. I would say your rough calculation is certainly in the ballpark and

[Contrarian333]

sorry - should read 5X multiple

[RetireSoonerThanLater]

What does the valuation come out to if you assume an 8-10x EPS?

[Nbsk]

Assuming prior estimates in post id 29301542 are good and smooth sailing going forward (caveat emptor!): EBITDA $69M/year, less Interests $22M/year, less Taxes $0/year given all the prior losses, less Depreciation&Amortization $22M/year, results in $25M/year net earnings Using an 8x multiple on 25M we reach 200M market cap, or $13/share Please feel free to correct me, I am no expert. I don&

[Contrarian333]

I expect a balance sheet reorganization with the Quebec government allowing a carve out of the terms of their debt - which will allow the Company to rid itself of the convertible debt and instead term out that debt.  That should be good for the convert holders as well as the equity holders.

[Contrarian333]

Also, I think I know where about 70% of the shares are - and the holders are not necessarily equipped to privatize or hold a privatized entity.  I think it more likely that in the next upswing for dissolving pulp prices, the holders sell the business.  Given that it is a one mill operation with some incremental interesting technology - it should be an easy bolt on for an industry player

[Nbsk]

Chad holds like 18% and Ezra/Varana around 10%, lets say 30%. They likely have the means to privatize. I am curious about who you think may hold another 40% ? Institutions are out by now. My family never owned as large a slice of a public company. On our way to 1%!

[Contrarian333]

I believe friends and clients of Ezra/Varana own about 40% including the 10% reported.  I believe there is a secretive Canadian money manager with another 10%.  If you add Chad and other insiders you probably get to 70%.  I don't believe that structurally Varana is a private equity investor (to be confirmed).  As I said, I think the mostly likely outcome is a sale in the