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FBK Earnings


Stone19
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I like this line:

 

Concluded an agreement with a large U.S.-based customer to supply a significant volume of RBK pulp, under a cost-plus arrangement, increasing cost-plus contracts from approximately 30% to above 50% of its sales starting in 2013

 

 

The report itself is so-so. I expected more cash.

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Where do you expect the earnings to come from?  The business margins are very low for record high prices. What's broken?  Inefficient operations? Sales mix? Something needs to be changed or we'll continue to get the same results.

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RBK screws up again.

Need to read the 10Q to tell the full story.

 

The question then is why can't they just shutter these bloody plants till 2013 when they supposedly have a decent contract for them. There is no synergy to the rest of their operations by keeping them going, so it's a hugely idiotic management decision to keep them running and dragging down the rest.

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While I agree that summary results look so-so, my own #1 investment criteria for FBK is free-cash-flow, and they continue to generate ~$15M/qtr, or ~$60M/yr ... which gives them continued ability to expedite paying off the debentures and simplifying the capital structure.  I also see that amortization remains high (~$10M/qtr) even with new accounting, so it's effect on overall profitability masks the continued strengthening of the underlying balance sheet. 

 

Until some of these items are cleansed from their system, and/or they start to put that FCF to use for more than debt reduction (e.g. initiate dividend, share buyback, etc.), then it won't be a totally clean story.  The good thing is that mgmt is now better incentivized via share options, so will hopefully align accordingly.

 

RBK does continue to drag overall performance, with no quick answers/fixes ... but then again it's not really losing them any money either.

 

One other thing worth noting from the MD&A  ... "The Saint-Félicien Mill’s collective agreement with production and maintenance employees expired on April 30, 2009. Negotiations on local issues started on July 22, 2010 with a management review of the economic and market conditions of our industry. On April 29, 2011, the negotiation team reached a tentative agreement. Union members will vote for ratification of this agreement on May 23, 2011."

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"FBK is free-cash-flow, and they continue to generate ~$15M/qtr, or ~$60M/yr "

 

So that is about 6 years to repay debt and current market capitalization. Of course, it will get shorter as debt is repaid reducing interest payments and as the energy contracts come in place. However, is that so great for a company that is highly cyclical and likely to lose money if the economy tanks? The P/E is also not supportive at all of the share price. While it is true that depreciation is high will it always be so? IMO, at some point they will need to reinvest more.

 

I have reduced my position prior to the earnings release and now I am tempted to get out clean. The best they could do with the RBK issue is to come up with a new contract that will start in 2013!!! The only thing that annoys me is that they will likely get sold/do some asset sales the day after I sell. On the other hand, waiting for the take-over homerun is not a proper way to invest. The other thing that really annoys me is that we could have made a fortune investing in something like Tembec to benefit from the same pulp price increase.

 

Tough to stay invested in this thing when companies like Microsoft are selling around 9 times earnings, sitting on moutains of cash, paying a nice dividend and showing earnings growth even if analysts refuse to see it.

 

Cardboard

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Guest Dazel

 

 

As SD and I have said for it seems like forever....stakeholders will get tired of holding assets that are valued at half price and not getting a return on them. There has to be dicussion of what to do about it.

 

Dazel.

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“The only thing that annoys me is that they will likely get sold/do some asset sales the day after I sell.” - Cardboard

 

My sentiments exactly. This started out to be something that I had high expectations for in the short term. I still think that there is a good opportunity here, but instead of months it may be years before we see this company start to reach its potential. The painful part of this is the money that I have tied up in the meantime. But I hate to get out because there is always the possibility of something major happening right after I sell. But managements options and the fact that they also have shares in the company does align their interests with ours as shareholders and there is also the fact that Fairfax is still substantially involved. So, like Cardboard, I just really hate to get out at this point, now if perhaps if Cardboard could be convinced to sell ...

 

Down around 8-10%. Markets don’t seem to know what to do here as the price has really been bouncing around from $1.42 to $1.58

 

Same thing every time earnings are released. You can`t keep disappointing shareholders after every quarter, if you want to build your share price. If they ever could get contracts for RBK plants to operate fully on a cost plus basis and then sell them off, things would be very different. Perhaps that’s their long range plan?

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If you back out the assets tied up in the RBK mills which essentially earn nothing then the stock is trading at above its book value.  ~170 m SE/130 million shares = 1.30 per share adjusted book value.  Waiting 18 months for the RBK mills to realize value is a long ways off.  What it the pulp markets, adjust downward in the meantime.  Then the cash flow from St. Felicien gets compressed and the stock tanks.  If the value was really there then where are the take over proposals. 

 

Were putting alot of stock in the pulp price staying up. 

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They beat the street estimate of 2c/share, & EBITA is pretty stable at 15,799. 62M of EBITA/yr x 5/130M shares produces a share value of roughly 2.38. 47% above yesterdays 1.62 close, & 116% above the 1.10 year-end price - yet everyone is whining?

 

Cost-plus volume in the RBK line is significantly reducing the business risk & turning it into a utility making a positive spread – when they have 50% of the market, & their long-term volume that can only grow (there’s no less garbage!). We’d like to see it at 75%

 

It is becoming far easier to split the businesses.

 

SD

 

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They beat the street estimate of 2c/share, & EBITA is pretty stable at 15,799. 62M of EBITA/yr x 5/130M shares produces a share value of roughly 2.38. 47% above yesterdays 1.62 close, & 116% above the 1.10 year-end price - yet everyone is whining?

 

SD

 

 

Well, only if, if, the pulp prices dont tank.  If the pulp prices tank this is toast. 

 

I sold 1/3 of my position down today.  Didn't lose anything - lower gains than I would have had yesterday but c'est la vie. 

 

 

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Fibrek looking at entering the fast food packaging market

 

The Quebec company said Thursday that it has asked the U.S. Food and Drug Administration for authorization to sell its recycled fibres to fast food packaging makers.

 

Fibrek, which holds 48 per cent of production capacity of recycled bleached kraft pulp in the United States, would become the most important player in this market with FDA approval. At this time, only small producers of this kind of pulp have been granted FDA approval.

 

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.

 

http://ca.finance.yahoo.com/news/Pulp-producer-Fibrek-looking-capress-3924726351.html?x=0

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Looks like management is doing its best to turn around the weak link of the business, but it'll take some time and there's no guarantee they'll succeed.

 

Longueuil's Fibrek Inc. got a boost from rising virgin softwood pulp prices in the first quarter, but is shifting recycled pulp production at its two U.S. mills toward the domestic market to improve margins, CEO Pierre Gabriel

 

http://www.montrealgazette.com/story_print.html?id=4813615&sponsor=

 

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Yes, who would have thought you need FDA approval for fast food packaging. Wonder if it is just because it is recycled, or does it apply to virgin pulp also. How broad is the product mix that falls under this need for approval, are things like napkins included and which falls under more stringent regulations the packaging or the food.  ;)  Something interesting to ponder on for the morning.

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