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RYAM - Rayonier Advanced Materials


kfh227
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Just read about this spin off.  I think the ship may have sailed on this opportunity.  I'm to busy this exact moment to do more research so I thought I'd bring the idea here to see if others have any thoughts.

 

This article pretty much sums it all up:

http://www.gurufocus.com/news/266867/rayonier-advanced-materials-ryam--will-an-unnatural-shareholder-base-create-an-opportunity

 

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You just make $4 / share in FCF year-in-year-out. Hard to lose in that scenario really. If out-year pricing surprises (i.e. inflects to 0%+ in FY16+) the stock is off to races. I can realistically see $65 and found it quite palatable @ $36. Oh well.

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The end markets are fairly mature. With the top 3 producers controlling 60+% of the market shares, I am surprised that there hasn't been more pricing discipline. I wonder if there is any significant pent-up pricing power. The reason that Micron and Sandisk worked was that their products were significantly underpriced relative their historical levels. Industry consolidation was the catalyst that resulted in product repricing.

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  • 3 weeks later...
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  • 1 month later...

Any updates, folks? Stock came off.

 

Nantong renegotiation is gonna hurt their pricing. W/ all the capacity coming on from Sateri, Buckeye, and dick & harry pricing won't hold @ 1650 / ton. I doubt we see 30%+ EBITDA margin soon. I'm under-writing @ 28% and that gets us 280 mm EBITDA or ~110 mm FCF. That's ~30 / share at 7.5x EV/EBITDA or 7-8% EV/uFCF. I think it might be worth a punt 3-4 bucks lower. Looking in the rear-view mirror is not prudent in my opinion, given that we had a some-what super cycle as Cosmo & IP both exited the market between 04 and 07 while pulp prices remained low. I think bringing the new guy to target 3-4% growth end market is wise, but w/ the China crack-down in corruption, secular decline in cig volume, and pending pricing pressure I don't see the stock working too well at least the next few months.

 

And meanwhile all the event-driven HFs get all hyped up about spins, go figure.

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they do seem to have the highest quality cellulose. And that write up states that customers asked them to expand with them. Any more info on that? If they are better then everyone else then they will still have pricing power. They also did by far the largest expansion of them all..

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they do seem to have the highest quality cellulose. And that write up states that customers asked them to expand with them. Any more info on that? If they are better then everyone else then they will still have pricing power. They also did by far the largest expansion of them all..

 

Their customers did ask them that, but allegedly just one signed a contract on any of the new supply and has since reneged (this is according to mgmt. at a recent conference). I agree RYAM produces the best fiber but Sateri has made great strides in catching up. Customers will buy RYAM fiber and blend it with others, too. Sateri produced 106k tons last year and can produce an additional 100-200k tons, annually. There is a lot of excess capacity out there for a market that isn't growing very fast. RYAM does not expect to gain any incremental volume this year while Sateri volumes were +13% YOY in 1H14 and they expect to gain more share in the remainder of '14 and '15. What does that tell you?

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  • 4 weeks later...

On the Celanese call, it is noted that acetate tow demand is peaking in China and still has not recovered from the step-down it experienced earlier this year. CE expects lower level of acetate tow demand to persist for some time (secular). That's 10% of RYAM's cellulose specialties volume.

 

If I were long, I'd think very hard whether I want to keep the shares into the quarter.

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On the Celanese call, it is noted that acetate tow demand is peaking in China and still has not recovered from the step-down it experienced earlier this year. CE expects lower level of acetate tow demand to persist for some time (secular). That's 10% of RYAM's cellulose specialties volume.

 

If I were long, I'd think very hard whether I want to keep the shares into the quarter.

 

very good point, i think acetate tow accounts for 60% Ryam's revenue...

 

usually at this Q management will be talking about pricing for the next year...

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Bad print. Weakness all across. Management doesn't sound like they can combat the price decline and instead resorts to diverting volume to other areas. I think there's more pain ahead and don't think EBITDA margin has stabilized yet. The leverage ratio will start to look pretty terrible. Any bull case out there?

 

When Sateri doesn't give a damn and has a cost advantage it's hard to compete.

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Where does the company say that some of their customers asked them to add capacity? That might be interesting. There might be some quality differentiation here. Why else would they increase capacity like this if they cannot fill demand. Except I cannot find this statement anywhere.

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Where does the company say that some of their customers asked them to add capacity? That might be interesting. There might be some quality differentiation here. Why else would they increase capacity like this if they cannot fill demand. Except I cannot find this statement anywhere.

 

i think the clients made a very good move, creating some overcapacity. i think they persuaded RYAM based on past demands...

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yea but it is not like demand is that unpredictable. There was obviously going to be a supply/demand gap. So I wonder why would management at RYAM be stupid enough to add so much capacity if there is clearly not enough demand for it?

 

ohh boy people are greedy... they looked at specialty prices and viscose prices and made the decision , the should have signed an agreement with all of those customers to place the extra capacity... but they didn't...

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  • 2 weeks later...

So, my preliminary read here is that RYN has been over-paying their dividend by both over-harvesting and selling peripheral acres to generate cash. This is typical, IMHO, in retail yield products, but when it can't be sustained anymore, the bottom really falls out of the stocks.

 

To what extent does this affect RYAM? Certainly it changes my view of the CEO's motivation for the spin-out. But the operations are unaffected? Do any lawsuits make it back to RYAM?

 

TIA

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How much can we trust RYAM CEO? RYN is clearly pointing a finger at him even though they don't do it directly. If he was inflating RYN results, can we trust RYAM results at all? Or will he inflate them, sell his stock at inflated price and then leave/whatever? Is the company cheap enough and attractive enough to be worth investment based on what we know about CEO now?

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The recent RYN conference call made the following two points re: the re-statement:

(1) over-harvesting for a decade - IIRC, they said no one was aware of this, but I find that VERY hard to believe!

(2) erroneously categorizing some acreage as "harvestable" - this might be intentional, and the hit to "inventory" was ~10%.

 

IMHO, over-paying the dividend is the way retail yield vehicles work. Add some leverage, trade above book, issue shares, and repeat. I'm not sure I can fault the RYAM CEO for that. Further, taking a "big bath" to lower expectations upon assuming control is also a commonplace tactic.

 

IIRC, a similar thing happened when PII management transitioned to Wine. The prior CEO had been pretty aggressive and there were some minor issues. But the biz is tremendous and the stock has done well.

 

Bottom line: It's important to get a handle on the value of RYAM's biz first; then maybe discount it a touch more given these management questions. For that, I guess we have to wait for RYAM's next call regarding pricing...

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