New FBK

[SharperDingaan]

 

Most people would suggest that the Q2 market valuation going forward should not be any less than the Q1 market valuation was, just before the Q1 earnings release. About 1.50/share with todays larger share base.

 

Most people recognize that Q2 was probably an improvement, & that upcoming guidance should be pretty good (refinancing impact, etc.). Worth, maybe a 15% increase?, or 1.73/share. If nothing else happened & someone made an offer for the entire coy, there would be a buyout premium. Usually around 30%, or 2.24/share. Management is incentivised @ 3.50/share, or roughly 2.42 under todays larger share base.

 

So what if Q2 is good? If you could trade it for 1.70 & buy it at 1.00 you'd have a 70% gain, but to get it you'd have to act quickly & be sure you wouldn't be stuck with it later. If you continued holding for a takeout/restructuring @ 2.25 there's an additional 32% gain. Most traders would wait for a trigger (CFX earnings?) to confirm the thesis, & then act very rapidly. Most institutions would have gone the rights route @ 1.01.share.

 

Patience.

 

SD 

[Cardboard]

Just found that this morning:

 

"Canfor Pulp and West Fraser Timber announced a US$30/tonne price decrease for August from US$1,020/tonne to US$990/tonne. From the lunatic fringe, Ilim Pulp announced a US$150/tonne price decrease but it appears the rest of the

industry will not follow."

 

I would expect market valuations for pulp companies to remain depressed as analysts keep expecting the end of the cycle. Is it valid thinking? No one knows for sure, but you can rest assured that they won't pay until they feel more comfortable.

 

SD,

 

"Management is incentivised @ 3.50/share, or roughly 2.42 under todays larger share base."

 

These $3.50 and $5 options issued to management during the conversion are a joke. What is likely to happen is exactly what is happening with almost every corporation where the stock goes down a lot: they will issue themselves a ton of options at close to the bottom price. Expect to see options issued soon at $1 or less based on "management successful and extra effort to orchestrate the refinancing." Typically, the "incentives" are not really hard to achieve. I hope that I am wrong, but I have seen it too many times before.

 

Cardboard

[alertmeipp]

cfx.un ups 3% after result

[alertmeipp]

stock up 1% at the end.

 

 

http://www.opinion250.com/blog/view/17020/3/pulp+market+entering+uncharted+territory

 

 

Prince George, B.C. -  After boasting record sales in the quarter just ended, the President and CEO of Canfor Pulp Limited Partnership says there are mixed signals in the pulp market outlook for the rest of the year.

 

During a conference call this morning to discuss CPLP's glowing second quarter, President and CEO, Joe Nemeth, says the uncertainty is coming from China where there is a strong downward pressure on prices that doesn't seem to 'fit' with where the rest of the market sits.

 

"To be totally frank, We're scratching our heads, we really are," says Nemeth.

 

"If you look at the physical stock numbers and if you look at the strength in demand coming primarily from North America and Europe...you have an extremely tight, strong pulp market. On the other hand, you have some disruptions from China, in terms of consumption, that's putting real downward pressure on pricing, so the question we're asking is 'how long and how far can this current downward pressure continue?'."

 

The CPLP CEO says, historically, after the last two big peaks in pricing, the price for pulp came down quite quickly and quite far.  But, he says, in both those cases, inventories were rising and were quite high...whereas, in this case, they're not.  "It's all dangerous to ignore history, but we're in new territory in terms of inventory levels and that's what's perplexing."

 

Nemeth says CPLP has taken steps to remain competitive -- announced July list prices for NBSK pulp are unchanged for North America at US$1,020/tonne and US$980/tonne in Europe, but prices for China are down US$50 for this month and North American prices will fall by US$30 in August.

 

He adds CPLP's order books for the various markets it services are "fully sold".

[alertmeipp]

CFX.. margin improve to 26%... if FBK had their margin, it's EBITDA will be 36.4m.

but last 1Q was 11%(SFK) vs 18(CFX).

 

If u model CFX's margin improvement to FBK, u get about 16% margin, EBITDA will be ~22m vs ~15m last Q.

 

 

 

 

 

[oldye]

Good thing we don't really sell to china :)

 

[alertmeipp]

Up quite a bit today on lousy volume. The arb trades are probably done.

 

Yup. US is 50%, Canada 20%, Euro: 26%... rest is minimal.

 

Hopefully, the recent pull back will also caution producers from bring more capacity on time soon.

World consumption is up about 2-3%, put that on top of econ recovery, we should have high price to work our way toward debt-reduction.

 

 

[SharperDingaan]

 

Arbs are rolling out of CFX and into FBK.

 

More interesting is that to get about 100K shares they had to bid the price up by roughly 10% - & the small lots indicate that those shares came primarily from individuals. To make a 100K gain on a 50c spread they'd need 200K+ shares; & to pay approx 1.15-1.20/share (weakest hands have allready sold)

 

SD

 

 

 

[alertmeipp]

SharperDingaan,

 

You sounds like a yahoo pumper. Just jokes.

 

What's your cost basis? less than 30 cents?

 

Mine is around 1.2-1.3..  :'(

 

Hopefully, we all make money here.

[SharperDingaan]

 

Not pumping, just mathematics.

[(200,000 rqd - 95,000 bought)/(95,000 bought)] x 10% change per 100,000 bought (Fridays actual outcome) x Fridays close price. But because folks are now aware, to get the extra shares you'd have to increase your bid. Still profitable but this time around you'd have to work for it. We had suggested patience a day or so ago, & cited that something like this was a distinct possibility.

 

Since arbitraging, our common cost base is 1.01.

Same as everyone else.

 

SD

[triedtestedand]

SD:

 

If only the market is so linear ... ;-)

 

I believe there were a number of sell orders at $1.04 as of yesterday that would need to get chewed through first.

[Guest Dazel]

 

Jumping the gun? The analyst who said the sahwile back said thesky was falling may be premature! As the Canfor CEO stated the fundamentals do not suggest that pulp prices are headed down in any significant way. I suggest reading the below weekly report....one line again caught my eye "european port invetories were down 39% compared to last year!

 

http://www.foex.fi/

 

Dazel.

[alertmeipp]

Can't believe their website is still under construction. ???

[FFHWatcher]

Can't believe their website is still under construction. ???

Hard to believe...  Perhaps this is managements attempt to keep SG&A down?  Look for a gross margin that is 0.001% higher due to money saved on website.  Kidding aside, this should be an interesting week to see how they are progressing.  I will keep my expectations low for a few more quarters.

[alertmeipp]

2Q will be coming out any second now. Hope it's not a disaster.

[FFHWatcher]

2Q will be coming out any second now. Hope it's not a disaster.

 

After the market close today, Wednesday Aug. 4th, 2010.

http://www.newswire.ca/en/releases/archive/July2010/21/c5774.html

[Vanshon]

9.7 million profit - 8 cents a share

 

Only French releases so far

 

http://lapresseaffaires.cyberpresse.ca/economie/fabrication/201008/04/01-4303900-fibrek-renoue-avec-les-profits.php

 

 

[FFHWatcher]

Taking advantage of improved market conditions, the producer of pulp Fibrek (T. FBK) has returned to profit in the second quarter.

 

For the period ended June 30, the Quebec-based company recorded a net profit of $ 9.7 million (eight cents per share), while during the same quarter last year, she suffered a net loss of 33.9 million (37 cents per share).

 

Revenues have nearly doubled from 82.1 to 154,800,000.

 

These good results are mainly due to pulp prices on the market as well as sales volumes and production, all of which were larger than a year ago, said President and CEO of Fibrek, Pierre Gabriel Côté, in a statement released Wednesday after the close of financial markets. He said a program to reduce costs had also contributed to higher profits.

 

The total volume of sales increased to 193,040 tonnes in the second quarter. RBK pulp sales totaled 103,205 tonnes and NBSK, 89,835 tons. A year ago, the total sales volume reached 129,831 tons.

 

Fibrek stressed that market indicators began to show signs of downward pressure on pulp prices. A reduction in the price of 30 dollars per tonne on NBSK was announced by most producers, to come into force on 1 August. The Chilean pulp mills have restarted their production and some Canadian plants also provide a cover for their production.

 

The action of Fibrek closed at $ 1.06 Wednesday, down 0.9% at the Toronto Stock Exchange.

[Hoodlum]

 

http://www.xe.com/news/2010-08-04%2017:45:00.0/1316617.htm?c=1&t=

 

Moody's rates Fibrek's senior secured notes B1; upgrades corporate family rating to B2

 

[barminov]

http://www.newswire.ca/en/releases/archive/August2010/04/c8524.html

 

 

[Guest Dazel]

 

 

Excellent.

$42 million cash before refi.

$443 million shareholders equity...

This company is way undervalued and will get taken out if the share price does not reflect what they own...Fairfax will win once again.

 

Dazel.

[SharperDingaan]

 

Agreed. The 42.94M of cash is $.33/share; at $1.06 you're getting FBK for $0.73 net - or 21% of BV. More noticeable is the Q2 vs Q1 2010 incremental change. The incremental EBITA margin was 34% - 2.5x the average Q2 EBITA margin of 13.5%. Should have paid up for that extra 200,000 shares  ;D

 

A cheap bastard might try to buy at 1/3 of BV, or 1.45/share [.333 x $3.40 BV + $.33 cash/share]. Most though would recognize that they would bid up to at least 40%, or 1.69/share [.40 x $3.40 + $.33 cash/share].

 

We thought $1.50 + maybe 15% for Q2 earnings was a reasonable guess, or $1.73. That same number seems to be coming up an awfull lot  ;D

 

Should be an interesting few days

 

SD

[alertmeipp]

Just scanning through it. Nothing in Sedar yet!

 

Re: cash

Cash balance up to 42million - up 12millions from Q1.

Accounts Receivable from Q1: up ~9 millions

Accounts Payable  from Q1: down ~4 millions

Inventory from Q1: down ~8millions.

 

So, net about 5millions more cash there.

 

 

Margin is %13.5 vs ~11% in Q1.

1% translates to almost ~2mllions in additional Ebitda.

 

So far so good.

[barminov]

 

Agreed. The 42.94M of cash is $.33/share; at $1.06 you're getting FBK for $0.73 net - or 21% of BV. More noticeable is the Q2 vs Q1 2010 incremental change. The incremental EBITA margin was 34% - 2.5x the average Q2 EBITA margin of 13.5%. Should have paid up for that extra 200,000 shares  ;D

 

 

 

I don't follow this company closely, but it was my understanding that the $42.5m of cash is before the rights offering. The new loan and facility are for $153m which more than covers the old loan and facility (roughly $143.5m). So, wouldn't you add the $40m from the rights offering to the $42.5? That gets you to $82.5m of cash or $0.63 per share plus whatever they have earned since the end of Q2. 

[Uccmal]

 

Agreed. The 42.94M of cash is $.33/share; at $1.06 you're getting FBK for $0.73 net - or 21% of BV. More noticeable is the Q2 vs Q1 2010 incremental change. The incremental EBITA margin was 34% - 2.5x the average Q2 EBITA margin of 13.5%. Should have paid up for that extra 200,000 shares  ;D

 

 

 

I don't follow this company closely, but it was my understanding that the $42.5m of cash is before the rights offering. The new loan and facility are for $153m which more than covers the old loan and facility (roughly $143.5m). So, wouldn't you add the $40m from the rights offering to the $42.5? That gets you to $82.5m of cash or $0.63 per share plus whatever they have earned since the end of Q2. 

 

That seems reasonable.  Probably close to 90 m cash as of today.  I expect they are not using the revolving credit lines as much as expected which of course will add more to cash flow directly.  So as of yesterday you could have bought this company at 20%.

 

I am sure of one thing.  FFH's adjusted cost base is about 3.50 per share, so dont expect them to let this go below $6.00 to someone else.  My major concern is that FFH will try to take it out but they could have done it anytime in the past year for cheaper so they wont likely now.  So that leaves a dividend.  I would guess about 0.02/quarter to start.  These guys are playing it safe so it will be awhile.