Bullboard - Stock Discussion Forum 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... see more

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TSX:IFP - Post Discussion

Interfor Corp > TD Upgrade

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Post by retiredcf on May 10, 2021 10:51am

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Interfor Corp.

(IFP-T) C$36.92

Solid Q1 Results; Management Presents Optimistic Outlook Event

Interfor reported Q1/21 results after market close on May 6. Adjusted EBITDA of $392.1 million (an all-time high by a wide margin) was near our estimate of $395.8 million and the consensus estimate of $393.6 million. Adjusted EPS of $4.11 was a little below our estimate of $4.29, but was near the consensus estimate of $4.08. We underestimated interest expense and the effective tax rate.

Impact: SLIGHTLY POSITIVE

Record Q1 operating results were close to expectations, but anecdotal commentary on the conference call was strikingly positive. Management indicated no inventory buffer through the supply channel and ongoing North American demand strength, especially in the repair & remodeling market. The company believes that markets could sustain exceptional tightness into Q3/21.
At the end of Q1, Interfor's net cash position was $3.58/share and available liquidity was $943.6 million. Capex guidance is $150 million in 2021 and $150 million-$180 million in 2022. Q1/21 FCF was a record $3.81/share (a 10% yield for the quarter alone despite a sharp seasonal working capital increase). We forecast incremental FCF of $15.67/share between Q2/21 and the end of 2022 (cumulative yield of 42%).
The company is taking a measured approach to capital allocation. Interfor is biased to asset base growth (mostly organic), but complements those initiatives with opportunistic returns of capital to shareholders. Activity on the NCIB has continued into Q2/21. As liquidity builds, management indicated that a special dividend is a possible allocation option for surplus capital.
We are raising our target price to $47.00 from $44.00. The target-price revision reflects higher mid-term FCF estimates (no commodity deck change; favourable price spread, volume, and unit-cost assumptions).

TD Investment Conclusion

Lumber markets are surging and have set consistent new highs since last November. While we do not believe that current prices are sustainable, this cycle is exceptional in terms of both magnitude and duration. Adjusted for mid-term FCF forecasts, we believe that IFP shares are trading at an excessive discount relative to both the company's peers and the historical trading ranges. We see a compelling mid-term investment opportunity.