SFK pulp

[lessthaniv]

The comparison of yoy sales to yoy cost of sales makes me smile! It almost all made it to the bottom line.

[tyska]

Does anyone think that SFK will reinstate a dist of some sort, or will it only worry about conversion for now,

 

Dan

[Guest Dazel]

 

The line that stuck out was 22,000 tons or $11m of ebitda missed because of unscheduled shut down.

SD....I thought you were a little crazy at the $4 or $5 range but you are looking smarter by the day! It looks like a perfect

storm for SFK...they deserve it after the last couple of years!

 

Dazel.

[Uccmal]

Does anyone think that SFK will reinstate a dist of some sort, or will it only worry about conversion for now,

 

Dan

 

They have said they wouldn't.  They have alot of debt to pay down.  It may be part of the reason they are rushing conversion: to avoid payouts - only speculation on my part - I dont know enough about flow through trusts to be confident.

[SharperDingaan]

 

Q1-2010 Canfor Results:

http://www.canforpulp.com/_resources/news/2010/N100426_Q1_Results.pdf

 

Absolutely stunning.

- Higher prices, lower COS, higher shipments, FX offsets; same as expected for SFK

- Record production quarter for some mills (tonnes + price); we know St Felicien was going flat-out

- Ave price was $880 USD (CAD 916) ton; same as expected for SFK.

- $1000 USD ton successfully implemented & they think it'll go higher.

- EBITDA up 60% from Q4-2009.

- Monthly distribution increased 66%. Similar type increase in distributable cash.

 

SFK's Q1-2010 results are going to be very interesting indeed!

 

May we all do exceedingly well ;D

 

SD

[SharperDingaan]

 

Re disclosure

We've just found this on the stockhouse board: Posted 04/26 @ 10:12 PM

Given that management is currently in Q1 lock-up, we're not going to comment.

 

SD

 

 

 

Hi everybody,

 

I have been told that at St-Félicien mill, there is a rumors again that SFK will be buy by Domtar after it become Fibrek INC. Lots of major CIE like Domtar, Bowater were interested in the past to buy SFK, but this was not possible because SFK is a fund. Now with the new Fibrek INC structure, it's gonna be possible.

 

When SFK was created, they bought the St-Félicien mill for 700 000 000 $ but the book value was 400 000 000. So now, 8 years laters, I think the mill itself can worth more than 1 billion $$ + the 2 USA mills (however, value of those 2 mills are way less). So it's a lot of $$$$$$$$$. Only 90 000 000 shares !!!!

 

Do the maths folks.

 

 

 

[lessthaniv]

Here is an interesting article about pulp prices from the Montreal Gazette. Most notably is the following comment from Paul Quinn - the analyst covering the stock for RBC.

 

"Paul Quinn, an analyst with RBC Capital Markets, said pulp should remain strong through summer. His average 2010 price forecast is $950 U.S. a tonne while for 2011 it is $900 U.S."

 

He is calling for high prices for some time.

 

Read More:  http://www.montrealgazette.com/business/Softwood+pulp+prices+peaking/2945468/story.html

 

<IV

 

[Cardboard]

"I have been told that at St-Félicien mill, there is a rumors again that SFK will be buy by Domtar after it become Fibrek INC. Lots of major CIE like Domtar, Bowater were interested in the past to buy SFK, but this was not possible because SFK is a fund."

 

I read that this morning and I don't buy into it.

 

First of all, Domtar has been very focused over the last few years getting into uncoated free sheet or your typical 8 1/2 by 11 white sheets of paper and selling their saw mills and other paper businesses. Buying into pulp mills would go against this strategy unless there is some supply advantage to produce UFS with the pulp supplied by SFK: lower cost, hedging or protecting supply. Does anyone know if Domtar is even a current customer of SFK? We all know that SFK is a high cost producer unlike CFX so it does not seem to make sense. I could be wrong, but that is how I see it.

 

Second, I still have not seen anyone providing me with data on why other companies could not buy SFK currently as a trust? I have seen many income trusts already being bought out by other companies. So this argument seems pointless to me.

 

Regardless, I am quite optimistic about SFK results in the first and subsequent quarters. I must say however that my decision to exit CFX.UN in December/January to go with SFK.UN has not been that rewarding so far. I took on more risk and the returns so far are similar. I hope that the release of first quarter results by SFK on May 4 will go a long way to repair the damage that they have created with a very disappointing Q4.

 

Cardboard

[nodnub]

"I have been told that at St-Félicien mill, there is a rumors again that SFK will be buy by Domtar after it become Fibrek INC. Lots of major CIE like Domtar, Bowater were interested in the past to buy SFK, but this was not possible because SFK is a fund."

 

Second, I still have not seen anyone providing me with data on why other companies could not buy SFK currently as a trust? I have seen many income trusts already being bought out by other companies. So this argument seems pointless to me.

 

Cardboard

 

yeah, that rumour from stockhouse sounds like a typical pump and dump that appears on their message boards from time to time.

[SharperDingaan]

 

The net thrust of the various rumours is essentially this:

 

(1) The St Felicien plant is sold to Company A (Domtar?) for something (presumably cash?) (2) Majority ownership in the remaining 'shell' is sold to Company B (Boston interest?) for cash (presumably via an augmented treasury offering). (3) The Debs are called in to remove their blocking interest (implied, not stated). All that we actually know, per managements statements, is that SFK has been receiving various expressions of interest.

 

What if it were true?

- The shell would have 2 US plants, significant excess cash on hand, & would be entirely equity financed (St Felicien proceeds pay off the existing debt + leave some change; treasury issue further boosts equity)

- Given the players, & the legalities, the buyer would have to make a proportional offer to all the existing shareholders; with any share shortfall coming from a treasury issue.

- The shell would go shopping for a debt financed acquisition.

   

The outcome is still a re-engineering; & a re-engineering is exactly what everyone is expecting. It just looks different from the expectation.

 

More importantly - there have now been 3 ‘seeds’ in the last 2 weeks; & whatever the plan, it’s starting to leak.

 

No further comment.

 

SD

 

 

[Cardboard]

SD,

 

First of all, thanks for your analysis on SFK. I truly hope that you will make a killing on this one as you likely helped many board members making a lot on this idea.

 

Regarding:

 

"All that we actually know, per managements statements, is that SFK has been receiving various expressions of interest."

 

Is this based on discussions that you had with them?

 

Second,

 

"More importantly - there have now been 3 ‘seeds’ in the last 2 weeks; & whatever the plan, it’s starting to leak."

 

There is the one this morning about Domtar on Stockhouse, the one last week about a "Boston" investor on the Yahoo board, what is the 3rd one?

 

Cardboard

[SharperDingaan]

 

First of all, thanks for your analysis on SFK. I truly hope that you will make a killing on this one as you likely helped many board members making a lot on this idea. We've allready done very, very well thanks; if the PIIGS cooperate the 'retirement cottage' could well up being a modest 'villa' on the southern european coast.Whatever additional we earn from new issues/takeouts, etc. will essentially be insurance./i]

 

All that we actually know, per managements statements, is that SFK has been receiving various expressions of interest.Mar-25 Press Release: it is anticipated that the reorganized structure of the Fund as a corporation will attract new investors, including non-resident investors, and provide, in the aggregate, a more active, attractive and liquid market for the common shares of the new corporation (the "Common Shares") than currently exists for the units of the Fund (the "Units"). There was also a reference as to who that might be on one of the other SFK strings (since deleted). Suffice to say this statement could not be made unless there was something to back it.

 

3 ‘seeds’ in the last 2 weeks

Stockhouse Board: 04/07, 10:27, huge profit coming

Yahoo Boad: 04/23, 1:31, Buyout rumour mill

Stockhouse Board: 04/26, 10:121, SFK Buying Rumours

 

SD

 

 

[Myth465]

Is anyone still buying at close t o $2.

[gordoffh]

Yes  I have added around 25 % to previous postion in the 1.90 range. I have bought stock from the high 2's down to .23 cents and now back up. I sincerely hope that we do not get a repeat of the last quarter announcement. A CFX type quarter would be appreciated. The BNN report and reccommendation convinced me that there was a lot more upside to this play so I added although I am seriously overweight. Major concern was an overall market crash and yesterday was a little disturbing.

[gordoffh]

More news from our friend from stockhouse -

 

SFK hold well today when the market were horribel, maybe that's the reason. Watch the stock next week after the result, it should be great too.

 

By the way, the shutdown at St-félicien mill is doing great, just a bit delay, production should restart Thursday (somewhere during the day). It's gonna be a very fast start because they didn't empty the tanks at the bleaching section, everything is still full of pulp, ready for the pulp machine.

 

Last chance to accumulate before the next run.

 

[SharperDingaan]

 

Keep in mind that the cost base, the quality of the security, the amount of run-up, & the degree of overweighting should be the key variables. ie: a 70% weighting to FFH is very different to a 70% weighting in SFK.

 

We hold a very high weighting only because we hold both common & debs, we bought them at close to their lows, & the run-up has made it extreme. We also have a long time horizon & a higher risk tolerance. The only reason we haven't rebalanced yet is because we'll see another 100-200%+ appreciation on our cost base, if the quarter is a good one.

 

SD

 

[cwericb]

Couple of points.

 

1) From SFK's press release: "It is anticipated that the reorganized structure of the Fund as a corporation will attract new investors, including non-resident investors, and provide, in the aggregate, a more active, attractive and liquid market for the common shares of the new corporation .."

 

Are some reading this as a hint that there is a take over in the winds? I read this as simply stating what it says. Converting to a corporation will make their shares more attractive on the open market and bring in new shareholders such as funds and non-resident investors who were previously not interested in units of an income trust. This in turn should increase demand and liquidity and have a positive effect on share prices.

 

2) Regarding the postings from the "Frenchguy" on Stockhouse. Let's not forget that he has stated that he is a student who's father works in the St Felicien plant. While rumours are sometimes true, they are often just speculation. Some of his posts are indeed helpful like the news about the recent short shutdown - they really do seem very enthusiastic and reminiscent of some "pump & dump" efforts I have seen in the past.

 

3) I am a little surprised that CFX's 1st Q results and the run up yesterday seemed to have no impact on SFK. Anybody have any explanation for this? There seemed to be a lot of sellers whenever the price got much above $1.90.

 

4) I would also like to express my thanks and respect to SD for his ever insightful, informative and interesting comments and analysis.

[lessthaniv]

3) I am a little surprised that CFX's 1st Q results and the run up yesterday seemed to have no impact on SFK. Anybody have any explanation for this? There seemed to be a lot of sellers whenever the price got much above $1.90.

 

yesterday a large block of shares was entered through BMO at $1.92. that block is back again today at $1.90. looks like two accounts for approximately 325,000 shares. perhaps someone who purchased on the lows and was looking to sell into the CFX news? i would guess this is a retail trade only because it was entered as an entire block and its approximately 100% of the average trading volume over the last few weeks. i would guess that most institutions on the sell, given the good news at CFX, would likely enter their trades in chunks of 5000 or so.

 

anyways, the market will have to push through those shares first to move higher.

 

 

[cwericb]

Thanks IV, that's what I thought was probably going on. Guess if I had a few hundred thousand shares that I had picked if for 20-30 cents, I might want to take the 'bird in the hand' too. Been a lot of shares change hands in the last week.

[Cardboard]

Tembec also reported today.

 

http://www.tembec.com/public/Salle-de-presse/2010-04-28.html?isRecent=true&search=all

 

Pulp is quite important to them since it currently represents 65% of total sales. It is also a high cost producer such as SFK.

 

Their pulp business did quite well (although low production rates), but not enough to show earnings overall due to their lumber, newsprint production, depreciation and interest charges. The way I see it, is that SFK is somewhere between CFX and TMB. It does not suffer from lumber and paper production, but it is not a pure NBSK pulp play due to RBK and also not a low cost producer such as CFX. It has no dividend. So it deserves a lower multiple than CFX, but higher than TMB.

 

Annualizing Q1 numbers we have roughly today:

 

TMB: 2 times EBITDA, 5.2 times EV/EBITDA

SFK: 2.3 times EBITDA, 4.8 times EV/EBITDA (my estimates)

CFX: 6.1 times EBITDA, 6.7 times EV/EBITDA

 

So I think that SFK should trade around $2.60 based on competition. It could be more if we see debt repayment moving rapidly and if the RBK mills finally deliver some value.

 

I suspect that EBITDA will be very attractive next week, but that headline earnings could be kind of weak. RBK is also a big unknown and the Street is likely taking a wait and see approach. A stock price above $3 may take longer to occur than we currently expect or until earnings become truly apparent and that a good chunk of their debt has been repaid. A take-over offer is nice, but you can't count on that as an investor.

 

Cardboard

[alertmeipp]

one other negative is loonie has been strong through out the quarter - that will hurt the bottom line quite a bit.

RBK will be a drag for sure.

 

Positives:

- They are cutting costs

- N pulp price up to 1000 bucks - higher than even when the share price was 4 bucks.

 

I think they need to bite the bullet and convert some

 

[oldye]

http://www.risiinfo.com/pulp-paper/news/Northern-Pulp-SFK-Pulp-to-hike-NBSK-in-North-America-Europe-30-40tonne.html

 

April 27, 2010 (RISI) - SFK Pulp  told North American and European customers that they will increase northern bleached softwood kraft (NBSK) pulp prices, effective May 1

[lessthaniv]

http://www.risiinfo.com/pulp-paper/news/Northern-Pulp-SFK-Pulp-to-hike-NBSK-in-North-America-Europe-30-40tonne.html

 

April 27, 2010 (RISI) - SFK Pulp  told North American and European customers that they will increase northern bleached softwood kraft (NBSK) pulp prices, effective May 1

 

Oldye,

 

The balance of the article says that North American prices are going to $1000/tonne to bring them in line with Canfor, Mercer, Abitibi, Domtar, Tembec. European pulp prices go up $30/tonne to bring the cost to $970/tonne. In Europe, Canfor's at $960 and Domtar is at $970.

[Guest Dazel]

 

 

Normal to see profit taking...the percentage move up has been dramatic...Those that saw the drop from $5.70 to .21 realize how quickly things move. This time it will be in the other direction. There is a lot of fear of disappointing 1st quarter results...this is normal after the last release. I do not expect blow out numbers. However, our thoughts have changed with regards to how long the pricing power of pulp has. We were worried about the $700 range...that is no longer in the cards and you can look out for extended quarters of cashflow. Once this sentiment is taken among invetsors we will have a "return to the mean" or back to book value.

 

Dazel

[alertmeipp]

non-stop dumping.

someone want out before 1Q.