New FBK

[alertmeipp]

nice insider activities.

Very tempted to add more.

Their Q1 should be pretty solid.

 

[gordoffh]

i had a substantial position prior to the insider buying and have added each time one of these people have purchased. high prices paper,rayon,toilet paper for the third world and buying from a tight fisted lot with acquistions elsewhere. looks pretty good here

[Guest Dazel]

 

BMO- $1.90 target on FBK......re Japan...from bnn.

 

Dazel.

[FFHWatcher]

I am just finishing up a write up to post on the board of why I like Mercer more than Fibrek.  Fibrek has been my largest position for about a year now and I am transitioning to Mercer based on my research.  Fibrek is still cheap but I feel that Mercer is 'out executing' Fibrek on many fronts. Obviously debt is the biggest negative at Mercer but I feel that Mercer's surplus energy revenue in 2011 and into the future will almost entirely (90%?+) pay all the interest on Mercer's debt using secure long term contracts with local governments.  Fibrek is still almost 2 years away from surplus energy revenue and Mercer is benefiting now.  Based on my initial estimates/guestimates, Mercer will still have about 10x's the revenue from electricity sales when Fibrek's energy sales eventually come online.  Fibrek is using NBSK profit to pay their interest and to pay off their converts now, while all of Mercers NBSK profits are kept to shareholders benefit.  Albeit, Fibrek has a lot less debt (one tenth or so).  Either way, both seem cheap if NBSK stays over $900/tonne.

 

Anyways, I will post more info. a little later, hopefully today.  Any questions or Mercer concerns, please ask away and I will try to answer or include in my Mercer write up.  I am not Sanj, Harry L., or SD but I will do my best with the write up.

[Myth465]

I am just finishing up a write up to post on the board of why I like Mercer more than Fibrek.  Fibrek has been my largest position for about a year now and I am transitioning to Mercer based on my research.  Fibrek is still cheap but I feel that Mercer is 'out executing' Fibrek on many fronts. Obviously debt is the biggest negative at Mercer but I feel that Mercer's surplus energy revenue in 2011 and into the future will almost entirely (90%?+) pay all the interest on Mercer's debt using secure long term contracts with local governments.  Fibrek is still almost 2 years away from surplus energy revenue and Mercer is benefiting now.  Based on my initial estimates/guestimates, Mercer will still have about 10x's the revenue from electricity sales when Fibrek's energy sales eventually come online.  Fibrek is using NBSK profit to pay their interest and to pay off their converts now, while all of Mercers NBSK profits are kept to shareholders benefit.  Albeit, Fibrek has a lot less debt (one tenth or so).  Either way, both seem cheap if NBSK stays over $900/tonne.

 

Anyways, I will post more info. a little later, hopefully today.  Any questions or Mercer concerns, please ask away and I will try to answer or include in my Mercer write up.  I am not Sanj, Harry L., or SD but I will do my best with the write up.

 

Thanks FFH, I am looking at a decent time to buy a small position back and look forward to the report. The metrics look great for the industry but I think Fibrek will continue to disappoint. The returns will accrue but havent reflected the bull market in pulp.

[ericd1]

Bring it on FFH - I made the switch a month ago!

[Uccmal]

Whoa Fellows!

 

Now dont go selling all your fbk before you have realized some real gains here.  i.e. I still hold CFX (about 25% fbk size) and am not selling any more right now.  They paid their regular payout and a special dividend at Christmas and this pulp market will keep the cash flowing in the door, and right out the door into shareholders pockets.

 

FBK at the end of Q1/2011:

- we know some managers have been buying stock.

- they are getting analyst attention - and upgrades even.

- they have generated a minimum of another 10 M of cash this Q - possibly more since they are reducing carrying costs as they go.

- very possible that they may be running close to debt and debenture free by year end.

- pulp prices are stable to rising?

- management may be making strides in profitizing the US mills. 

- the energy program is not finished.

- the tendency was for people to buy today with the upgrade - I sold 2000 shares at 1.65 grudgingly ~ 2.5% total

 

Now you all know I have been very critical of this company but I am JUST STARTING to see the light here.  There is no reason as things get steadily repaired that this stock wont be worth above $6.00 one day in the not too distant future. 

 

All things said I will look into Merc in more detail as an additional holding not as a replacement.

 

[Uccmal]

I am sure most of you have read Dreman's "contrarian investment strategies".  The part that always hits home with me is where stocks keep on outperforming for 5 years after they have started to rebound from a low PE/low P/B/low P/cf.  Something to do with surviving through a crisis and paring down expenses, and recapping.

[Alekbaylee]

Well said, Al. I'm not a selling a single share.

This one should finally start to reward our patience.

 

US NBSKP – Shipments on pulp to the North American market were fairly weak in February, reflecting the declines seen in paper shipments. The PPPC data showed shipments of paper grades market pulp down by as much as 9.6% against February 2010. Supported by good demand elsewhere – and by the approaching high season for paper and maintenance downtime period for pulp – the US BSKP market has remained tight. Price increases have been announced separately by several major producers, typically by 30 USD/ton from April 1. If fully successful, the attempted hike would bring the gross contract price up to 1020 USD/ton. The data reported was again in a range between 960 and 990 USD, with 990 USD clearly the most common individual quote. Our PIX NBSKP US index moved up by 83 cents, or by 0.1%, and closed at 985.19 USD/ton.

 

http://www.paperage.com/foex/pulp.html

[lessthaniv]

another insider purchase to add to the chain.

 

http://www.canadianinsider.com/coReport/allTransactions.php?ticker=fbk

 

 

[lessthaniv]

Getting $6.1M:

 

http://foresttalk.com/index.php/2011/03/25/fibrek-mill-in-saint-felicien-quebec-receives-6-1-million/

 

BMO raised their rating to outpreform with a new target of $1.90/share for FBK.

I can't get the full article but the following link will show the details. If anyone has access to the full article I would love to read it.

 

http://www.pulpandpaper.net/news2/newssearchppn.asp?VRes=No&VDetail=Yes&Today=&VForm=&CID=&Features=&Subject=[1]&SForm=&NPrv=&itemgroup=&StartDate=&EndDate=&Region=&SearchWords=&AID=64405&page=1&pagecnt=12

 

Sorry, it won't take the full link for some reason so just cut and paste the whole link into your browser.

 

 

 

[ericd1]

After taking a closer look at FBK and MERC, I moved my position to MERC.

 

The reason I switched was because I felt MERC was better positioned to take advantage of this cycle of rising pulp prices. It still appears undervalued to me trading at a P/E of 4.0 to 5.0 times next 12 months earnings.

 

It appears FBK has many multiples more of long-term upside, but it could take several years to realize its potential. Until the major revamping occurs I don't see a catalyst to substantially improve their operations. In other words, I expect the market to reward Merc more in the near-term than FBK. Longer-term FBK has more upside, but because of my concerns that management may not implement many of the ideas discussed, I went with Merc to capitalize on the rising prices.

 

I ran a spreadsheet comparison (a little more than a back of the napkin) based on sales increases (prices) and it shows Merc's superior operating leverage. (attached)

 

Perhaps I should add back FBK and hold both, but I'm not convinced. Am I missing the forest for the trees? (sorry about that one)...

[Uccmal]

Perhaps I should add back FBK and hold both, but I'm not convinced. Am I missing the forest for the trees? (sorry about that one

 

Probably not.  I haven't looked at Merc enough so far.  But you know a bird in hand is worth two in the bush.... ok..

 

My thinking was as above that the value of FBK may just be starting to get realized.  Too often I have exited stocks too early.  As per John Neff I have no problem leaving something for the next person but I also want to realize the full potential of my work efforts. 

 

I have been observing via my holdings and past holdings that those that turn keep on getting better as the years roll on, whereas those that dont just languish forever holding promise but never delivering.  Dreman covers this in his book - better researcher than investor. 

 

Examples in the first group: Sino Forest, Russell Metals, Fairfax, Seaspan

From the Second Group:  Jean Coutu, Kingsway Financial,

 

Probably both MERC and FBK fall into the first group provided the price of pulp doesn't have adeep plunge.

 

 

[SharperDingaan]

 

It does not hurt to stay until you at least see the Q1 results.

 

SD

[cwericb]

Canaccord has apparently rated FBK a buy with a target of $2.30.

 

[lessthaniv]

Canaccord has apparently rated FBK a buy with a target of $2.30.

 

Indeed they have. I'm just thumbing through a copy this morning. It appears the valuation is based on 4.9X 2011E Ebitda and supported by a DCF valuation.

 

I'll post up any interesting insights.

 

Sometimes I think these analysts read this board and base their valuation work on the conversations within.

[Alekbaylee]

Not directly related to FBK, but still interesting...

 

 

http://ca.finance.yahoo.com/news/Dealmaking-forestry-sector-capress-764972211.html;_ylt=AkUlTfWsyMay_O6zQ3oUMYJyzJpG;_ylu=X3oDMTE4Ym9qbmx0BHBvcwMyBHNlYwN5ZmlUb3BTdG9yaWVzBHNsawNkZWFsbWFraW5naW4-?x=0

[Alekbaylee]

Just came back from Costco. They now sell bags for compost bins (small kitchen containers and big green boxes). Looks like it's made from recycled paper (RBK?). Anyway, compost is now mandatory in most Canadian cities. So I guess the demand will not falter as people have been complaining about how those containers smell in summer (hot weather). And it's not cheap too : roughly $12 for a few of these bags.

 

Long FBK...

[Alekbaylee]

Pulp prices approaching $1000/ton.

All Cos up, with the usual one lagging behind... ::)

[cwericb]

Pulp prices are now $992.79 U$ for NBSK.

 

I believe that RBK follows the price of NSKB so on the subject of RBK I thought the following was interesting. I don't know how accurate or up to date these figures are but it gives some idea of the value of recycling paper. While FBK's U.S. plants may not yet be profitable today there is no question that there will be increasing pressure put on the public, government and business to recycle paper. To my mind, that is a given. And as more waste paper comes in to the system, the cheaper it should become. As that occurs, those RBK plants are going to look more valuable as time goes on. And I believe they account for 48% of the U.S. RBK capacity.

 

To produce each week's Sunday newspapers, 500,000 trees must be cut down.

 

Recycling a single run of the Sunday New York Times would save 75,000 trees.

 

If all our newspaper was recycled, we could save about 250,000,000 trees each year!

 

If every American recycled just one-tenth of their newspapers, we would save about 25,000,000 trees a year.

 

If you had a 15-year-old tree and made it into paper grocery bags, you'd get about 700 of them. A busy supermarket could use all of them in under an hour! This means in one year, one supermarket can go through over 6 million paper bags! Imagine how many supermarkets there are just in the United States!!!

 

The average American uses seven trees a year in paper, wood, and other products made from trees. This amounts to about 2,000,000,000 trees per year!

 

The amount of wood and paper we throw away each year is enough to heat 50,000,000 homes for 20 years.

 

Approximately 1 billion trees worth of paper are thrown away every year in the U.S.

 

Americans use 85,000,000 tons of paper a year; about 680 pounds per person.

 

The average household throws away 13,000 separate pieces of paper each year. Most is packaging and junk mail.

 

In 1993, U.S. paper recovery saved more than 90,000,000 cubic yards of landfill space.

 

Each ton (2000 pounds) of recycled paper can save 17 trees, 380 gallons of oil, three cubic yards of landfill space, 4000 kilowatts of energy, and 7000 gallons of water.

This represents a 64% energy savings, a 58% water savings, and 60 pounds less of air pollution!

 

The 17 trees saved (above) can absorb a total of 250 pounds of carbon dioxide from the air each year. Burning that same ton of paper would create 1500 pounds of carbon dioxide.

 

 

 

 

[lessthaniv]

http://www.vancouversun.com/business/Rising+prices+boon+workers+bought+mill/4559411/story.html

 

Rising prices a boon for workers who bought mill

 

Remarkable chain of events has led to increased demand

 

By Gordon Hamilton, Vancouver Sun April 5, 2011

   

 

 

It's a good time to own a pulp mill. Analysts say that pulp prices, which are near record levels, will remain that way until mid-2013.

 

It's a good time to own a pulp mill. Analysts say that pulp prices, which are near record levels, will remain that way until mid-2013.

Photograph by: Darren Stone, Postmedia Files, Vancouver Sun

 

Canada's pulp sector is in the middle of an unprecedented bull market that some analysts say could stretch into 2013.

 

"It's a great time to own a pulp mill," said David Elstone, analyst at Equity Research Associates. "Kraft pulp is on a bit of a tear right now."

 

Nowhere is pulp's remarkable rise more evident than at Nanaimo's Harmac-Pacific mill, where in 2008, 220 laidoff workers invested $25,000 each to become partners in buying the shuttered mill out of receivership. At the time it was viewed as an ill-advised attempt to save their jobs.

 

The mill is now running at capacity, employing 300 people, has a war-chest for when prices eventually fall, and the original worker-investors have seen their shares more than double in price, company president Levi Sampson said in an interview Monday.

 

Further, the company is considering paying a dividend to shareholders for the first time, he said.

 

The rally that saved mills such as Harmac-Pacific from being dismantled is unprecedented, said Elstone.

 

Pulp prices are expected to crash through the $1,000 US-atonne barrier this month, with the benchmark price for the product made at most Canadian mills, Northern Bleached Softwood Kraft (NBSK), hitting $1,010 US a tonne.

 

When the Nanaimo mill was resurrected in 2008, the benchmark price was $580 US a tonne.

 

Except for a brief pause in 2010, prices have continued up since coming off the bottom in 2009, said Elstone.

 

"We were looking at the prospects of a decline," he said of the 2010 dip. But pricing broke the historical norm by recovering quickly.

 

"Usually, when pulp prices crack, they go. They fall. But this time around, it's breaking the historical pattern and prices are heading back up."

 

A remarkable chain of events that in part, began in cotton fields of Pakistan and Australia, lies behind pulp's record run.

 

When freak storms in 2010 wiped out cotton crops in Pakistan and Australia, cotton prices took off. That pushed up demand for rayon, a cottonsubstitute that's manufactured from a specialty pulp product called dissolving sulphite pulp, which sells for twice the price of NBSK.

 

Most NBSK is used in manufacturing paper and tissue products. Rising demand for those products in Asia is supporting high pulp prices.

 

But demand for the Canadian commodity product received an additional boost when the Chinese began re-processing NBSK into dissolving sulphite pulp, Elstone said.

 

Chinese innovation is one of the factors behind current pulp prices, he said.

 

"It's actually very expensive to convert it to a dissolving pulp substitute, but because dissolving sulphite prices are so high, it makes economic sense to do it. This is helping to support NBSK markets."

 

Vancouver-based Mercer International, with NBSK mills at Castlegar in B.C. and in Germany, is considering converting one of its mills to dissolving sulphite pulp to cash in on the demand for the higher-priced product.

 

Port Alice's Nucel pulp mill, also bought out of bankruptcy, is the only mill in B.C. exclusively producing dissolving sulphite pulp.

 

Mill conversions will reduce the global supply of NBSK and RBC Capital Markets analyst Paul Quinn said in two research reports issued Monday that no major new supplies of NBSK are expected until the third quarter of 2012.

 

"We expect softwood pulp prices to remain near record levels until mid-2013," he said in reports on Mercer International and Canfor Pulp.

 

Quinn has raised his target prices for both companies, pegging Mercer at $17 a share, up from $15, and Canfor to $15, up from his previous target of $14. Mercer is trading on the Toronto exchange at $13.62, below Quinn's target, while Canfor Pulp is trading at $18.50 a share on the Toronto exchange, above Quinn's target price.

 

Quinn also said he expects Canfor Pulp, in which parent Canfor Corp. has a 50.2 per cent stake, to raise its dividend from $1.40 a share to $1.80.

 

Although he is bullish on pulp, he said he expects "a fair degree of pricing volatility," which should be factored into investment decisions.

 

"As a result we believe that investors require a yield north of 10 per cent."

 

ghamilton@vancouversun.com

© Copyright © The Vancouver Sun

 

Read more: http://www.vancouversun.com/business/Rising+prices+boon+workers+bought+mill/4559411/story.html#ixzz1If9PJt8V

 

[Alekbaylee]

"We expect softwood pulp prices to remain near record levels until mid-2013," he said in reports on Mercer International and Canfor Pulp.

 

That would be great!

 

Wonder how long before a Chinese Co starts shopping mills and/or pulp Cos in NA though?

[FFHWatcher]

After taking a closer look at FBK and MERC, I moved my position to MERC.

 

The reason I switched was because I felt MERC was better positioned to take advantage of this cycle of rising pulp prices. It still appears undervalued to me trading at a P/E of 4.0 to 5.0 times next 12 months earnings.

 

It appears FBK has many multiples more of long-term upside, but it could take several years to realize its potential. Until the major revamping occurs I don't see a catalyst to substantially improve their operations. In other words, I expect the market to reward Merc more in the near-term than FBK. Longer-term FBK has more upside, but because of my concerns that management may not implement many of the ideas discussed, I went with Merc to capitalize on the rising prices.

 

I ran a spreadsheet comparison (a little more than a back of the napkin) based on sales increases (prices) and it shows Merc's superior operating leverage. (attached)

 

Perhaps I should add back FBK and hold both, but I'm not convinced. Am I missing the forest for the trees? (sorry about that one)...

 

Ericd1: I just took a brief look at your Merc vs FBk spreadsheet. How did you deal with EUR reporting of MERC?

[tyska]

"We expect softwood pulp prices to remain near record levels until mid-2013," he said in reports on Mercer International and Canfor Pulp.

 

That would be great!

 

Wonder how long before a Chinese Co starts shopping mills and/or pulp Cos in NA though?

 

It certainly makes a person keep going back and testing ones decision and trying to see what they missed. When you are in a sector that is booming and all around there are articles on companies and investors reaping the benefits but you sit with the wallflower.

[ericd1]

FFH - It's not indicated on the sheet, but MERC's results are in Euros, straight out of their year end 10k.  

 

When I realized that the only reason FBK made any money last year was because of their settlement (5.5M), I wanted to look at a comparison of operating ratios, so currency denomination didn't matter. IMO FBK has some serious operational issues. Their gross margin (without benefit of energy production) is about 4-5% lower than MERC and their operating profit is ~14% lower. Unless I'm missing something (which often happens) it is going to take FBK some time to improve their operational efficiency. FBK has a 7.5% expense related to delivery that MERC doesn't so, perhaps that's part of the problem. Maybe there's something in their contracts, or the costs to deliver the product to port, or elsewhere; but it really hurts their profitability.

 

As I mentioned it appears MERC's bottom line will immediately benefit from higher pulp prices, while FBK won't (a 10% price increase barely makes up for the 5.5M settlement) let alone the other operational issues.

 

If FBK can fix these issues their profits will increase nicely, but I expect their results this year will be flat with last year. MERC looks like they'll earn ~3.00 euros/shr, up 50% from last year's 2.00 on a 15% increase in prices.

 

I just noticed my P/B and P/E ratios in the sheet for MERC are understated because I didn't convert the earnings in Euros to US$...