TSX:WFG - Post Discussion
Post by
retiredcf on Feb 27, 2023 8:15am
RBC
Have been away so catching up. Their upside scenario target is US$125.00. GLTA
Outperform
NYSE: WFG; USD 82.32; TSX: WFG
Price Target USD 110.00
West Fraser Timber Co. Ltd.
The OSB market won’t let me be, or let me be me, so let me see
Our view: West Fraser reported Q422 Adjusted EBITDA of $70MM, slightly below our estimate of $76MM and well below FactSet consensus of $123MM, although the company reported ~$39MM of inventory write- downs in its lumber business in the quarter. We think recent OSB supply news and positive commentary on demand at the margin should drive somewhat stronger sentiment; we reiterate our Outperform rating.
Key points:
Reiterating our $110 price target and Outperform rating – Our price target is based on a blended ~6.2x multiple on our Trend EBITDA of $1,450MM (85% weighting) and our 2023E EBITDA of $698MM (15%).
A tough environment to bring up Allendale, but they might as well get started – While management stopped short of giving a definite answer as to how and when Allendale will be restarted, we think their comments suggest that since they expect the mill to eventually be among the company’s best- positioned and lowest-cost assets, West Fraser may prefer to begin ramping up the facility as soon as possible.
OSB capacity outlook improving at the margin – While we have expected a multi-year overhang from new OSB capacity additions (until recently, we had forecast North American capacity additions of +7.4% in 2023 and +2.3% in 2024, excluding the restart of Tolko’s High Prairie mill), two recent announcements indicate that the outlook may be improving.
• Huber: Huber Engineered Woods recently canceled its plans to build a 700 mmsf OSB plant in Minnesota that was aiming for completion in 2025, and it will instead look to build its next plant in another state, which should delay the project.
• Wawa: We think the status of the 500 mmsf mill project being undertaken by Wawa OSB, Inc. in Ontario is now highly uncertain given that Forex Inc., Forex Amos Inc., and Wawa OSB Inc. filed with the Superior Court of Quebec a motion pursuant to the Companies’ Creditors Arrangement Act (CCAA), which was granted on February 7. While CCAA processes provide a path for restructuring, we think the project is likely to face a significant delay at the very least. The project had accounted for roughly one-quarter of our forecast 2023 capacity additions.
Supply chains for capital projects remain under tension – Management noted that while supply chains are generally improving (and input costs such as energy, chemicals, resin, and fiber are generally moderating), the availability of equipment for capital projects remains constrained. The completion date of the Allendale mill has been pushed to the end of Q223 (vs. the end of Q123) due to supply chain delays. The Henderson modernization continues to track to a Q224 start-up, and West Fraser included $100MM (of $255MM) for the project in its 2023 capital budget
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