TSX:WFG - Post Discussion
Post by
retiredcf on Oct 29, 2021 8:46am
TD 2
Decided to remain cautious. GLTA
West Fraser Timber Co. Ltd.
(WFG-N, WFG-T) US$82.72 | C$102.02
Resilient Panel Margins Drive Better-than-expected Q3/21 Results Event
West Fraser reported Q3/21 results after market close on October 27. Aggregate adjusted EBITDA of $786 million was above our estimate of $621 million and also exceeded the consensus forecast of $768 million. Q3/21 EPS of $4.20 was similarly above our forecast of $2.97 and the consensus forecast of $3.97.
Impact: POSITIVE
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Engineered wood product (EWP) segment contributions were much better than our expectations, offsetting lower-than-expected margins for the lumber and pulp/paper segments. North American EWP earnings benefited from OSB price-realization timing lags, relatively stable specialty markets, and well-managed unit costs. European panel results were stellar; we significantly underestimated positive regional price momentum — particularly in the U.K.
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West Fraser is putting its balance sheet to work at a faster pace than most peers. The company exited Q3/21 with net cash of $1.6 billion and available liquidity of $3.1 billion — the latter was close to the $3.4 billion figure at the end of Q2/21 despite the company repurchasing 10% of the total number of shares outstanding in Q3/21 for $892 million. Subsequent to quarter-end, West Fraser announced agreements of two tuck-in acquisitions (aggregate consideration of $580 million). We believe that West Fraser is positioned to consider further asset- base growth initiatives, with a focus on wood products in North America and Europe.
Our BUY rating and US$110.00 target price are unchanged. We have increased our mid-term earnings/free cash flow outlook (reconciliation of robust Q3/21 results, modest price-realization spread changes, and inclusion of the Allendale OSB mill acquisition), but we are lowering our target multiple, given the recent deceleration of North American wood product prices.
TD Investment Conclusion
After a sharp recovery since August, we believe that current North American wood product prices are ahead of near-term underlying fundamentals, but we remain constructive on North American wood products markets over the mid-term. We do not expect lumber and OSB industry capacity growth to be a material headwind until 2023. Our 2022 earnings estimates are above our assessment of mid-cycle potential. We expect that West Fraser will remain aggressive on asset-base investments and opportunistic M&A initiatives, while returning surplus capital to shareholders
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