Post by
ValueCap on Mar 05, 2021 11:16am
Call with Ken Update
Had about an hour long call with the man himself Mr Ken Shields, along with a fellow investor. Went much better than I would have thought
Ken owns >3 million shares. Another board member owns >1 million.
Between myself and the other investor, who was involved with the Dunkley mill sale, we have around 1 million.
From Ken’s mouth - "we are the cheapest lumber company in the world". He feels fair value is 4.50 -5 bucks a share and he would be happy with that price, either by the market or takeover.
What are their plans to get the value gap closed?
Bottom line, aggressive buyback, then a special buyback, and re branding/ highlighting the renewal power asset. And also being open to a takeover by another company.
Power plant not being valued appropriately by analysts or market. Should be a much higher multiple.
The reason for the ESG note on the last call is, they are considering a bit of a rebrand for the renewable power generation marketing, as there is an appetite for renewal energy assets in the market. And also as a way to feature the power plant as the key asset from a valuation perspective. He gets it.
They hope to have a corporate presentation with these things in mind in 3-4 weeks time.
Re: earnings. Bottom line, a forced dead pine harvest by the BC government lowers margins. More costly to harvest, reduces efficiency at the mill. A greener log diet changes this.
This is in place because Mackenzie was the last jurisdiction to get hit by the line beetle relative to other areas in BC. They have been lobbying the BC government to move on the change.
Their ebitda margins are closer to above $500 US versus the others in the $400 range.
Later this year the forced harvest mix changes in their favour, unlocking higher margins.
Ebitda would have been $10 million in the quarter if not for power plant outage plus a few other one time items that were below the $1 million threshold for reporting.
They expect to have ebitda of 40 million this year, free cash produced of over 30 million with which they could buy back even more shares through something like a Substantial Issuer Bid after the NCIB.
Re: duties, q1 will see the full impact of the duties reduction. They have currently 10 million US recoverable. They expect to have 18 million in US duties recoverable if and when there is arbitrage and refunds. They are highly leveraged to that recovery given the recoverable duties are high relative to the value of the company.
The expect q1 to be around 10 million ebitda.
Power plant insurance recovery q2-3.
Overall I think it's reasonable to hold out for 4-5 bucks a share. Whether from buybacks and market revaluing the company, or a takeover. There's a lot of upside here.
Ken and the board are aligned with shareholders as shareholders themselves. I do like the plan articulated.
Also if anyone has pull with BC forester to get them to change the log diet for CFF sooner, that would be great too!
Comment by
ValueCap on Mar 05, 2021 11:22am
Should also note the specifics of the NCIB have certain blackout periods. So they bought back as much as they could in December, nearly 600k shares, and will now be resuming buybacks again, with the attempt to hit the daily limit and weekly block limit. I didn't really understand the mechanics of how that worked before.
Comment by
ElmerFudd69 on Mar 25, 2021 2:02pm
I already thought this company was a buy before knowing the information you posted. Thanks for the info!
Comment by
horseshoefalls on Mar 26, 2021 8:38am
The price action has been a little strange lately, but is still being supported. I tried to get a fill at $1.80 when it dropped yesterday and couldn't. It'll be interseting to see what sort of buybacks are happening when they report again.
Comment by
ElmerFudd69 on Mar 26, 2021 2:57pm
It's also quite bold of the CEO to price the stock near $5 per share. Looks like the financials are already reflecting that behind the scenes.