TSX:IFP - Post Discussion
Post by
retiredcf on Nov 07, 2022 8:39am
TD
Interfor Corp.
(IFP-T) C$24.57
Q3/22 Results Near Expectations; Tempering Mid-Term Estimates Event
Interfor reported Q3/22 results after market close on November 3. Adjusted EBITDA of $129.5 million exceeded our estimate of $107.6 million and the consensus forecast of $109.0 million. Adjusted EBITDA included a $26.1 million duty recovery, related to a positive administrative review, which was not in our estimate. Adjusted EPS of $0.58 (including the duty benefit) was below our estimate of $0.74 (we matched consensus). The effective tax rate was higher than expected.
Impact: MIXED
There were no surprises in Interfor's Q3/22 results, but we are tempering our mid-term outlook to reflect more conservative volume, unit cost, and price spread assumptions.
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Excluding the duty recovery, Interfor's Q3/22 operating results were near expectations. Interfor's aggregate adjusted EBITDA/Mfbm compared favourably to key peers, which we believe reflects the company's relative margin progress tied to discretionary capex and value-accretive M&A initiatives.
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Average Q3/22 lumber price realization fell 28% q/q and was a little below our estimate. Q/Q pressure relative to benchmark prices was tempered by order- file timing lags, a weaker CAD, and mix. Aggregate lumber inventories declined 78 million board feet, which built on a 66 million board-feet inventory reduction in Q2/22.
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Interfor is deploying capital quickly. The company completed a $100-million SIB in September and announced the renewal of its 10% NCIB. On October 3, Interfor announced an agreement to acquire Chaleur Forest Products for $325 million plus ~$50 million for 55% of Chaleur's after-tax softwood lumber duty deposits to-date. Interfor ended Q3/22 with net debt-to-cap of 10.5% (23.1% pro forma for Chaleur) and abundant available liquidity of $601.4 million.
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We have lowered our 12-month target price to $35 from $39 and reiterate our Buy rating. We believe that Interfor's valuation discount is excessive.
TD Investment Conclusion
In our view, Interfor's current valuation represents a compelling entry point for investors with anything beyond a short-term investment horizon. The company has made strong relative ROCE progress over the past three years and retains a flexible balance sheet even as capital deployment has accelerated
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