New FBK

[triedtestedand]

alertmeipp:

 

The shares were from the rights offering ... so if you're a long-term shareholder and see yourself as an owner, you'd think of it as a cash call that shouldn't affect your % position as long as you participate. Furthermore, EVERY existing shareholder got a free pass to participate (and average down PLUS increase their % ownership as applicable) before FFH did.

 

As to whether they needed to do it ... you've got an argument there ... but it was part of the package deal to get the new credit line and loan in place ... and I'd say it was prudent (and structured to favor the existing long-term shareholers), especially given a) the "forecast" for NBSK pricing was for it to go down after the increases thru Q3/10, and b) their near-death experience from Q4/08 onwards.    You get the cash when you can ... ;-)

 

In 30 days there's no more debenture overhang, and if FBK starts buying back shares, then shareholders who participated in the rights offering could find an added buyer in FBK to pull some money out, while reducing the share count at the same time.  Given the stock options that management now holds, I'd think motivations would align towards this.  In any event a share buyback announcement would not involve a huge # of shares, as the average daily trading volume is on the order of 100K or so, so the $15M in EBITA they keep making per quarter could probably be split between share buybacks, loan/line-of-credit repayment, and even a nominal dividend.

[prunes]

I realize how late to the party I am on this but I had a few questions I was hoping someone could help me with.

 

I've read Kuppy's post on the fundamentals of pulp and he is very convincing. However, a business like this reminds me of Buffett's experiences with Berkshire and also his comments about investing in the airlines business. Ultimately are dealing with a commodity business. Further, the competition is cutthroat enough that it doesn't make sense to upgrade your mills because all your competitors are able to do so also (unless you hold a patent or something), eliminating any benefit you might get from capital spending.

 

Now, granted there is something to be said for being the low cost provider, and emerging from BK helps with this. I remember being intrigued by Abitibi as well. But I think this only goes so far. Is this just an asset play on FFH's part, hoping that by buying assets at 40 cents on the dollar that everything should work out OK?

[alertmeipp]

alertmeipp:

 

The shares were from the rights offering ... so if you're a long-term shareholder and see yourself as an owner, you'd think of it as a cash call that shouldn't affect your % position as long as you participate. Furthermore, EVERY existing shareholder got a free pass to participate (and average down PLUS increase their % ownership as applicable) before FFH did.

 

As to whether they needed to do it ... you've got an argument there ... but it was part of the package deal to get the new credit line and loan in place ... and I'd say it was prudent (and structured to favor the existing long-term shareholers), especially given a) the "forecast" for NBSK pricing was for it to go down after the increases thru Q3/10, and b) their near-death experience from Q4/08 onwards.    You get the cash when you can ... ;-)

 

In 30 days there's no more debenture overhang, and if FBK starts buying back shares, then shareholders who participated in the rights offering could find an added buyer in FBK to pull some money out, while reducing the share count at the same time.   Given the stock options that management now holds, I'd think motivations would align towards this.  In any event a share buyback announcement would not involve a huge # of shares, as the average daily trading volume is on the order of 100K or so, so the $15M in EBITA they keep making per quarter could probably be split between share buybacks, loan/line-of-credit repayment, and even a nominal dividend.

 

Trust me, I understand the right offering concept and get that it's not dilut"ive" in theory. But it still feel stupid to sell shares to owners at 1 and buying back a few months later with owner's cash at $1.5. If we bot back the full offering amount, we are 20millions short. :'(

[triedtestedand]

alertmeipp:

 

I hear you ... I had bought some more last year at about ~$1.50 or so, just 2 days before the rights announcement, so felt like a schmuck on that ... could have been smarter there and dumped it to play the in-retrospect-predictable arbitrage that brought share price down to the $1.01 level.    Ahh well ... patience, persistence, and perspective ... got to have a bit of each with these value plays, and avoid the traps along the way.  ;-)

[alertmeipp]

Agree - we can at least be patient on this one as it's generating good cash.

I think the next thing they can work on is to re-do the term loan in a more favorable term. They are paying 8.25% now. That's like junk rate. With their leverage now, there ought to be some room for improvement.

[SharperDingaan]

 

It is highly unlikely that there will any buybacks &/or divs.

 

They have used their cashflow to take out the remaining debs, & remove the dilution & price cap that the conversion was imposing. Get over $5/share & the pool of buyers dramatically expands. More demand over a consolidated supply can only drive up the price, but if you want the shares - you now have to buy them out of the market. A desirable thing.

 

If they get FDA approval & the fast-food contracts, the US plants will effectively be utilities with maybe 2/3 of their production earning a fixed spread. And if you are a fixed income fund investing in utilities, you will pretty much have to own FBK (US) because of the asset class diversification it offers. Building practical pressure to split the company.

 

They would seem to be doing the right thing - let them get on with it !

 

SD

[lessthaniv]

alertmeipp:

 

The shares were from the rights offering ... so if you're a long-term shareholder and see yourself as an owner, you'd think of it as a cash call that shouldn't affect your % position as long as you participate. Furthermore, EVERY existing shareholder got a free pass to participate (and average down PLUS increase their % ownership as applicable) before FFH did.

 

As to whether they needed to do it ... you've got an argument there ... but it was part of the package deal to get the new credit line and loan in place ... and I'd say it was prudent (and structured to favor the existing long-term shareholers), especially given a) the "forecast" for NBSK pricing was for it to go down after the increases thru Q3/10, and b) their near-death experience from Q4/08 onwards.    You get the cash when you can ... ;-)

 

In 30 days there's no more debenture overhang, and if FBK starts buying back shares, then shareholders who participated in the rights offering could find an added buyer in FBK to pull some money out, while reducing the share count at the same time.   Given the stock options that management now holds, I'd think motivations would align towards this.  In any event a share buyback announcement would not involve a huge # of shares, as the average daily trading volume is on the order of 100K or so, so the $15M in EBITA they keep making per quarter could probably be split between share buybacks, loan/line-of-credit repayment, and even a nominal dividend.

 

Trust me, I understand the right offering concept and get that it's not dilut"ive" in theory. But it still feel stupid to sell shares to owners at 1 and buying back a few months later with owner's cash at $1.5. If we bot back the full offering amount, we are 20millions short. :'(

 

Not if it's worth $2.50 - $3. ;D

 

[alertmeipp]

My math still applies. ;D

[cwericb]

From the May 19 CP story:

 

"Chief executive Pierre Gabriel Cote said his company is also interested in making tissue paper but wouldn't say if Fibrek is interested in buying five plants that Cascades (TSX:CAS) has just put up for sale."

 

If he was not giving some thought to this wouldn't he have just said "no"?

[gordoffh]

anyone notice price action just now. hit 1.25 then jumped to 1.44  now 1.31    what gives?  pulp price still holding

 

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

[triedtestedand]

Illiquidity is my read ... volume has been low most of past 6 weeks ... so will get lots of apparent swings

[Uccmal]

I have bought back a portion of the stock I sold earlier at the new low price, and with the news of the debentures being paid off.  Even though they will initially need to use their credit lines to pay this tranche off the high P&P price will recompense them with cash flow.  The overall savings from these varied small actions should create a bit of a positive cascade.  I was responsible for about 8% of today's trade, so far. 

[Alekbaylee]

Management seems to be active, giving presentations Canada and US-wide :

 

http://www.renmarkfinancial.com/en/Clients/Fibrek-Inc

 

So far, this hasn't paid off, but will eventually, I'm sure.

[alertmeipp]

management last bot in around 1.5, buying at 1.25 seems good deal.

[cwericb]

"Management seems to be active, giving presentations Canada and US-wide :"

 

Much more impressed with managements efforts to promote the company now than a year ago. At one time it looked like you could make a quick buck here (and I guess some of us did), but now this has developed into more of a good longer term investment. I don't know if anyone has noticed but NBSK was up another $10 this week and as the dollar has slipped a few cents from it's high this should all help.

 

'management last bot in around 1.5, buying at 1.25 seems good deal."

 

I am thinking that I may pick up some more if the price slips back any further.

[ubuy2wron]

There has been some pretty glowing commentary here regarding Fortress Paper, has ayone any comments on the CEO's recent compensation?

[Guest Dazel]

 

Hopefully talking to potential buyers...

 

Dazel

[FFHWatcher]

There has been some pretty glowing commentary here regarding Fortress Paper, has ayone any comments on the CEO's recent compensation?

 

I am a new fortress shareholder but i have followed the history. On the surface it seems excessive but perhaps it isn't?  If the $13.5m was all cash, i would say it was excessive, for sure.  But it isn't.  Most is stock. Most is very long term.  He adds a tremendous amount of value to ftp.  He is also down about $25M since comp was made public.  A part of me also feels chad makes his return based on his existing ftp shares but should also earn a good salary.  He is paid for his regular day to day efforts already and his exceptional work/value added shows up in share price appreciation/depreciation.  The market has voted on his $13.5m, and it said "you can have the 13.5m, but it will cost you $25m.". Lots of other factors also going on but i also feel shareholders aren't that pleased.  It would have been different if timing was different but ftp is now down by 50% or so...which is why i am starting to buy.

[finetrader]

I have lowered my FCF estimates for FBK to about 30-35M$/year in this environment. I though they could easily do 10M$FCF/quarter but i underestimated the impact of a mill shutdown.

They shutdown the St-Felicien mill about twice a year and it seems to cost them a bundle every time they do it.

[Alekbaylee]

If they could only take half of the FCF to institute a small dividend, it would help attract serious investors and put a floor on the s/p.

[SharperDingaan]

 

Assume that with no changes, they expect 38M in EBITA with an multiple of 4.5 (38x4.5/130=1.52/share). They've said that a significant portion of their RBK mill production will be sold on a cost+ basis starting (roughly) 12-18 months out - materially reducing EBITA volatility. They've also said they expect an extra 6M in EBITA from power sales commencing Jan-2012.

 

Most people would pay an extra 10% for less EBITA volatility (ie A multiple of 5.0x vs 4.5x). 12 months forward EBITA is maybe 44M? (38+6). A patient person might thefore expect at least 1.70 (28% above current price); 12 months out - & under very conservative assumptions.

 

... and all of this assumes no asset sales, overly conservative pulp revenues (volume+price), & no benefit for the 3.5M of interest expense they've just eliminated with the Deb retirement.

 

Patience.

 

SD

[tyska]

 

 

 

... and all of this assumes no asset sales, overly conservative pulp revenues (volume+price), & no benefit for the 3.5M of interest expense they've just eliminated with the Deb retirement.

 

Patience.

 

SD

The CDN dollar sliding back won't hurt them either.

[Cardboard]

"The CDN dollar sliding back won't hurt them either."

 

Unless of course this is accompanied by a decline in commodity prices. Pretty strong correlation there.

 

It appears that people have lowered their expectations to more realistic price targets (where are the $5 a share predictions?) and with it becomes obvious that Fibrek is not that attractive at these levels despite the recent drop. The risk vs reward ratio is simply too high. A potential 28% gain considering the current selling price of pulp which will undoubtedly bring capacity increase is not worth it vs what is available out there in the marketplace.

 

You have to bet on some sort of take-over and based on their economics it seems unlikely. It seems more fun to play black jack or roulette than waiting all day in front of your computer for the event.

 

Cardboard 

[tyska]

"A potential 28% gain considering the current selling price of pulp which will undoubtedly bring capacity increase is not worth it vs what is available out there in the marketplace. "

 

Maybe we just get conditioned waiting for insurance to harden so FFH can show it's true value. :D

[triedtestedand]

As expected ... the remaining FBK debentures were redeemed today:

 

http://www.newswire.ca/en/releases/archive/June2011/28/c8932.html

 

With the debenture overhang now past ... we shall (sooner? later?) see what becomes the next priority for use of FBK's FCF.  It's never as fast as you'd like, but directionally it remains ... so far, so good.  Further, NBSK pulp price this week remains firm (info via www.foex.fi) ... as $1035USD pricing has been pushed thru to customers.