New FBK

[Uccmal]

So Dazel, Knowing what we know about the investors in FBK what is your estimate of the takeout price?

 

I know my price but wont divulge so as not to anchor anyone.  Suffice to say it is much higher than the present price.

 

Al.

[SharperDingaan]

 

$4-6 base, plus something for the liquidation variables.

 

1) Lot more if the buyer can pay in a mix of stock &/or cash 

2) More again for a decision on the US plants. Sell for a gain & merge FBK into the buyer - or sell St Feliceon & keep FBK (either as a US coy, or as the Cdn sub of a US parent)

 

SD

[Myth465]

I sold a tiny bit to buy something else and we are up over the last few days. You guys owe me. I hold a decent chunk of FBK and its surprising that we are so cheap.

 

When do you guys see this happening, I see it being quite cheap. I would honestly take $2 - $2.50, and believe most shareholders would be happy to be done with it. FBK doesnt seem to respond to much of anything so it makes it hard to really hold based on fundamentals. I think most holders have thrown in the towel and would like to have the capital to put in other things, especially considering the massive rally over the year in pulp and in the general markets (perhaps im really just speaking for myself).

[Guest Dazel]

 

I think the $3 to $3.50 range....sad but true...

If the management were to market a sale it would be higher but it is likely to be ABH

who will offer shares....Fairfax will broker the deal...offering upside to FBK holders when they

exchange for ABH shares.

I would take it.

 

Dazel.

 

[Uccmal]

I sort of had 4 to 4.50 in mind.  Thought we might get there today...

[Guest Dazel]

 

 

I hope you and SD are right...and I can see how you get to those numbers....We are still trading at BK ranges...surely

someone will notice....sooner or later.

 

Dazel.

[SharperDingaan]

 

The reality is that nothing is going to occur unless FFH iinitiates it, which is unlikely until the year-end AGMs are over. That it will occur, is largely a foregone conclusion. In the meantime you get to trade off a rising valuation, that will suddenly spike at some point.

 

SD

[mscotten]

SD

 

I don't understand your point about why nothing is likely to happen until after the respective AGMs. Could you enlighten me as to the dependency?

 

Thanks

 

Mike

[SharperDingaan]

 

3 reasons.

 

- AGM's are to formally present the audited year-end financials - until then we're all just taking managements word that the numbers are actually representative. If you have a choice, you want to start from independently confirmed numbers.

- The AGM is a formal coming out party, where management will present its vision & announce its major changes. If its your last one you want it to be a good one, & if you have any material forthcoming transaction you'd like to formally announce them. Counterparty transactional details, due diligence, etc. will of course have been worked out well before then.

- Lot of friendly schmooze gets done at AGM's - but you have to press the flesh, show some class, walk the talk, etc. If you want to be fair & friendly, some of those friends may well turn out to be future partners - & how you act will have an impact as to whether they would want to do business with you.

 

SD

 

[Myth465]

Lol, I just had to post this.

 

http://adventuresincapitalism.com/post.aspx?id=c7d009ac-2654-4751-af96-2962a32041c9

 

Kuppy always has interesting takes on things.

[gordoffh]

Myth  -  that was good  - first laugh of the day and a valid arguement to boot :D  - might have to add to my already substantial postion

[cwericb]

Ok Myth, That was GOOD, and informative. I would recommend this to everyone here that has an interest in FBK.

 

Might this explain the recent end of the constipation in FBK's share price?

 

And at one time I thought this had been my most sh*tty investment.  

 

I have a sh*tload of this stuff, should I add more?

 

I could go on....

[Myth465]

I like to think my sale is what is pushing up the price, but I am sure some stuff is going on behind the scenes or perhaps it is running like it always does prior to the release.

 

I have been thinking about adding but think its properly sized. After my small untimely sale its about 7% of my portfolio. I am fairly pessimistic because I honestly have no idea where pulp prices are going. Unlike Oil I am not long term bullish (or bearish, I just have no idea). Its just too cheap not to own a small bit of.

 

I am happy and if we get the $4 you guys expect, I will be very happy.

[cwericb]

I had regreated not dumping this when it was just shy of $2, but who knew it would drop back to a buck. Like you, at $4 I would be very happy.

 

Aside from the toilet paper factor (which is a good point), I think that there are more reasons for prices to stay steady or increase than they are to drop. And even if they did drop back a bit the company should be able to remain profitable - unless everything starts to go down the toilet again.

 

But I think the guys on this board who are forcasting a buyout or some sort of consolidation put forth a pretty convincing arguement and at this point I think i am probably going to be holding until something develops on that front or it becomes clear that it isn't in the cards. Its tempting to go for more but I am a bit too chicken. I got into this at around $1.70 which seemed to be a big mistake. But if I hadn't I would have never taken the initiative to buy a bunch more at .53 and 1.01 so as someone else said on this board, I have been able to take one of my big losers and turn in into a big winner. Hopefully even bigger.

[lessthaniv]

The longer dated futures for NBSK have all taken a nice upward move over the last 6 months. For example, the Dec - 2011 contract was being priced around $750 in July,2010. It's now moved up to $843.

 

http://quotes.ino.com/chart/?s=CME_WP.Z11.E

 

The Dec, 2012 contracts are price at $835

 

http://quotes.ino.com/chart/?s=CME_WP.Z12.E

 

Sure looks like pricing has stabilized for the time being.

 

Chicago Mercantile Exchange (CME) › Food and Fiber › NORTHERN BLEACHED SOFTWOOD KRAFT PULP (WP)

Market Contract Open High Low Last Change Pct Time

WP.F11.E Jan 2011 (E) 905 905 905 940 0 0.00% set 14:07

WP.G11.E Feb 2011 (E) 892 892 892 934 0 0.00% set 14:07

WP.H11.E Mar 2011 (E) 878 878 878 930 0 0.00% set 14:07

WP.J11.E Apr 2011 (E) 868 868 868 900 +1 +0.11% set 14:07

WP.K11.E May 2011 (E) 861 861 861 882 0 0.00% set 14:07

WP.M11.E Jun 2011 (E) 856 856 856 871 0 0.00% set 14:07

WP.N11.E Jul 2011 (E) 850 850 850 863 0 0.00% set 14:07

WP.Q11.E Aug 2011 (E) 845 845 845 857 0 0.00% set 14:07

WP.U11.E Sep 2011 (E) 856 856 856 851 0 0.00% set 14:07

WP.V11.E Oct 2011 (E) 851 851 851 846 0 0.00% set 14:07

WP.X11.E Nov 2011 (E) 849 849 849 844 0 0.00% set 14:07

WP.Z11.E Dec 2011 (E) 847 847 847 843 0 0.00% set 14:07

WP.F12.E Jan 2012 (E) 848 848 848 842 0 0.00% set 14:07

WP.G12.E Feb 2012 (E) 847 847 847 841 0 0.00% set 14:07

WP.H12.E Mar 2012 (E) 846 846 846 840 0 0.00% set 14:07

WP.J12.E Apr 2012 (E) 845 845 845 839 0 0.00% set 14:07

WP.K12.E May 2012 (E) 844 844 844 838 0 0.00% set 14:07

WP.M12.E Jun 2012 (E) 843 843 843 837 0 0.00% set 14:07

WP.N12.E Jul 2012 (E) 843 843 843 836 0 0.00% set 14:07

WP.Q12.E Aug 2012 (E) 843 843 843 836 0 0.00% set 14:07

WP.U12.E Sep 2012 (E) 843 843 843 836 0 0.00% set 14:07

WP.V12.E Oct 2012 (E) 847 847 847 836 0 0.00% set 14:07

WP.X12.E Nov 2012 (E) 846 846 846 835 0 0.00% set 14:07

WP.Z12.E Dec 2012 (E) 845 845 845 834 0 0.00% set 14:07

[SharperDingaan]

 

Cwericb: Keep in mind that one needs to think in terms of P(x) x EV within 1 Yr - then discount the EMV back to present day at some appropriate rate. ie: [P(no change) 25%, P(higher margin net of FX & inflation) 45%, P(Asset Sale) 15%, P(Merger) 15% x best guess for various outcomes]/(1+discount rate)

 

Obviously as information becomes public knowledge the P(x), EV, time horizon, & discount rate will all change - which will alter your decisions. Multiply the range of posters ‘values’ by each posters P(x) of occurrence, & we’re all probably within 10% of one other.

 

SD

 

[FFHWatcher]

lessthaniv, good find.  

 

In my opinion, the best hour or so you can invest in pulp research is found here,

http://www.mercerint.com/s/Investors.asp

 

If anybody does the work or has already done the work, what do you think of Mercer.  As far as Mercer is concerned, they are even more leveraged than Fibrek to NBSK.  Pros and cons to either investment.   Mercer is approx. double the market cap as Fibrek but more than double FBK's production capacity and it is all NBSK.  Personally, I have taken a real liking to Mercer's financials (there is a lot more to their debt than what you see at first glance) which I stumbled upon in digging up NBSK stuff.  

 

My 2011 Goal - try to decipher >50% of SD's posts.  Apparently I should have payed more attention in school.

[Myth465]

My 2011 Goal - try to decipher >50% of SD's posts.  Apparently I should have payed more attention in school.

 

Lol

 

Also thanks for the link.

 

Mercer is looking very interesting. That debt balance shares the hell out of anyone upon first glance. But the presentation below helps clarify things. I plan to listen to the September presentation. I always thought the US mills were big drags, they may turn out to be worth something for FFH.

 

FFHWatcher do you have a position in Mercer? As Kuppy pointed out if pulp sucks win, at least FBK will survive. Mercer would have a bit more trouble.

 

http://www.mercerint.com/i/pdf/UnderstandingMercersCapitalStructure.pdf

 

[alertmeipp]

FBK looks to me to have safer and cheaper play - pps lagging greatly to its peers since the famous right offerings.

[cwericb]

Thank you for that SD. I got about 50% of that. As Watcher said, I wish I had paid more attention to that statistics course I took in university many years ago.

 

Bottom line here would seem that short of another big hiccup in the world economy, one has to be pretty optimistic on FBK. There seems to be no indications

of any serious erosion in the price of pulp and every opportunity for FBK to be quite profitable. Also you can't ignore the implications of the ABH/FFH factor.

 

Couple of questions though.

 

Obviously there must have been good reason for the RBK plants to be built and they are supposed to be 'state of the art' so why aren't they profitable? What are the chances that they will become profitable? If NBSK and paper in general becomes more expensive shouldn't RBK follow? I wonder if the green aspect of recycled paper has suffered because it is seen as a bit of a luxury when industry finds it necessary to cut costs but will become more acceptable as the economy improves?

 

Just 3-1/2 years ago FBK/SFK was in the $5 range and a few years before that it was $8-$10. Has anyone done a comparison of SFK/FBK's numbers back then to where they are now and numbers that might be projected for a year or so out? Pretty favorable, as a guess?

 

 

[SharperDingaan]

 

The basic premise is that where multiple outcomes are possible you draw out a probability tree of events over a given time horizon, determine the value of the stock under each outcome and assign a probability to each outcome. Multiply the value x the P(x) to arrive at the probability weighted Expected Value for that branch. Sum the Expected Values of each branch to get to the Expected Market Value (EMV) of the share overall. Bayes ? Theorem. WEBs bridge example.

 

Some of the values will be based on liquidation, others on P/E multiple, & still more on BV multiple. Multiple valuation approaches are part of the framework. Efficient Markets

 

To hold a security I expect to get paid, & the more risky it is the more I get paid. Therefore I need to PV the EMV back to today to determine what price ‘X’ I should be willing to pay to buy the stock – inclusive of all my expectations. For a 1 yr horizon, & 20% discount rate, multiply the EMV by 1/(1+.2)^1. Risk/Return theory.

 

If todays price P(0) is < X,  I should be a buyer as I can capture an arbitrage gain of  [X-P(0)] x # of shares. If P(O) > X, I should be a seller. If P(O) = X,  I should be neutral & therefore 50% hedged. Algorithmic formula.

 

If P(O) hits X & subsequently falls, you can repurchase the hedge at a permanent cash saving. If P(0) goes through X & keeps rising, you need to sell more. The decision becomes how much of the overall portfolio should be in this stock 

 

Move forward 1 quarter. Discount multiple is now 1/(1+.2)^.75, & EMV has changed as the P(x) of each branch has changed. The value of each outcome may have changed as well. There is a new X, & a new decision to be made.

 

We deliberately speak cryptically in order to make you develop your application skills, which maybe 1 in 4 will do. You can teach a monkey theory, but it becomes a gorilla when it learns how to apply.

 

Here endeth the lesson!

 

SD

 

[FFHWatcher]

 

The basic premise is that where multiple outcomes are possible you draw out a probability tree of events over a given time horizon, determine the value of the stock under each outcome and assign a probability to each outcome. Multiply the value x the P(x) to arrive at the probability weighted Expected Value for that branch. Sum the Expected Values of each branch to get to the Expected Market Value (EMV) of the share overall. Bayes ? Theorem. WEBs bridge example.

 

Some of the values will be based on liquidation, others on P/E multiple, & still more on BV multiple. Multiple valuation approaches are part of the framework. Efficient Markets

 

To hold a security I expect to get paid, & the more risky it is the more I get paid. Therefore I need to PV the EMV back to today to determine what price ‘X’ I should be willing to pay to buy the stock – inclusive of all my expectations. For a 1 yr horizon, & 20% discount rate, multiply the EMV by 1/(1+.2)^1. Risk/Return theory.

 

If todays price P(0) is < X,  I should be a buyer as I can capture an arbitrage gain of  [X-P(0)] x # of shares. If P(O) > X, I should be a seller. If P(O) = X,  I should be neutral & therefore 50% hedged. Algorithmic formula.

 

If P(O) hits X & subsequently falls, you can repurchase the hedge at a permanent cash saving. If P(0) goes through X & keeps rising, you need to sell more. The decision becomes how much of the overall portfolio should be in this stock 

 

Move forward 1 quarter. Discount multiple is now 1/(1+.2)^.75, & EMV has changed as the P(x) of each branch has changed. The value of each outcome may have changed as well. There is a new X, & a new decision to be made.

 

We deliberately speak cryptically in order to make you develop your application skills, which maybe 1 in 4 will do. You can teach a monkey theory, but it becomes a gorilla when it learns how to apply.

 

Here endeth the lesson!

 

SD

 

 

Ok, Now I think understanding up to 50% S.D.'s math was too optimistic.  <50% but greater than 25%.  Underpromise, overdeliver. 

 

Re: Mercer - I do own a position in Mercer and Fibrek.  1:3 ratio, respectively.

[cwericb]

Yup, just as I thought - those years in university many years ago simply taught me to realize how little I really know. SD, are you sure you didn't teach statistics at one time? I may get time to study today's lesson later but I think Watcher and I may have to stay after school.

 

If nothing else, the posts over the last day have given me a few good laughs.  See FBK is up to $1.36.

[Uccmal]

I'm afraid to say that I am stuck as a monkey, and not a very big one at that.

 

Doesn't mean I am not a damn good value investor though. 

 

cwericb, The profit margin of RBK is squeezed between input costs and output pricing.  There appears to be a perpetual dearth of recycle supply that they can use.  Who would have thought in our wasteful world that such would be the case?  I am sure the relationship is complex and intertwined with location, fuel prices, etc.  What seemed like a good idea at the time by prior management is now turning out to be causing one heck of a hangover and the party didn't last very long either.  Kind of like the brown acid....at Woodstock.

[indirect]

The bookies(underwriters)  in LV, Omaha or Connecticut use the same sort of probability tree for odds, sorry insurance. I am still a monkey, however, I stay within my circle of competence.