Bullboard - Stock Discussion Forum West Fraser Timber Co Ltd T.WFG

Alternate Symbol(s): WFG

Forest Products Lumber & Wood Production

West Fraser Timber Co. Ltd. is a diversified wood products company. The Company is engaged in manufacturing, selling, marketing and distributing lumber, engineered wood products, including oriented strand board (OSB), laminated veneer lumber (LVL), medium-density fiberboard (MDF), plywood, particleboard, pulp, newsprint, wood chips and other residuals and renewable energy. Its products are used... see more

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West Fraser Timber Co Ltd > TD Notes

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Post by retiredcf on Jan 09, 2023 8:34am

TD Notes

Trees Weekly

FP Equities Start Year on Positive Note Following Tough 2022 Lumber Prices Still Falling as Curtailments Lag Demand Erosion

Forest product equities started 2023 with across-the-board gains. The average share-price increase for our coverage universe last week was 4.2%, which outpaced gains of 2.2% for the S&P/TSX Composite and 1.4% for the S&P 500. We attribute some of last week's positive sector sentiment to moderating mortgage rates and catch-up following strong relative gains for U.S. homebuilder equities in recent months. On average, share prices in our coverage universe declined 21.5% in 2022 versus declines of 8.7% for the S&P/TSX and 19.4% for the S&P 500 Composites.

Softwood lumber price declines continue, albeit at a slowing rate. The Western SPF 2x4 (#2 & better) cash price declined another 3% from last week to US$335/Mfbm — down 76% from the March 2022 peak and the lowest level since May 2020. Prices are well below our estimate of cash costs for most sawmills. Downtime plans for Q1/23 are being announced, but have not kept pace with demand weakness, especially from the new home construction end-market.

OSB prices have levelled off following sharp declines in early December. The benchmark North Central OSB price ended last week at US$220/Msf — down 83% from the end of Q1/22, but steady in the past four weeks. Reports noted anemic volumes, with order files extending only 1-2 weeks. We believe that capacity curtailments are inevitable at these price levels.
Expected capital-allocation themes for 2023: 1) Less aggressive returns of capital to shareholders. On average, wood-focused companies in our coverage universe have repurchased 23% of their shares over the past three years, often supplemented by dividends. With an expectation of neutral sector free cash flow, we anticipate that returns to shareholders will moderate. 2) Ongoing M&A activity. The lumber sector is fragmented and, with substantial industry liquidity, we believe that consolidation is inevitable. 3) A focus on sustaining balance-sheet flexibility.