SFK pulp

[SharperDingaan]

- What if I sell some of my rights, and subscribe in full to the rest?  Am I still eligible?  (I think the answer is NO?).  You will receive 1 right for every share you beneficially owned on record day; sell your shares before record day & you get no rights. If you want additional rights via the oversubscription, you cannot sell any of your rights. If you want additional rights via market purchases, you can buy however many you want.    

- What if I buy some rights from others?  Am I eligible to buy into the extra?  (I think the answer is NO?)

Rights bought in the market, do not come with oversubscription priviledges; you did own the underlying shares that generated those rights over the record date.

- What constitutes beneficial ownership?  If you subscribe in full to some in a registered account, but not to others that are in a cash account, and/or there are others that are in a spouse's account ... or are shares in different accounts treated wholly independently?  (I think each will be treated separately?)

If your shares are lodged with a broker, they are registered in your brokers name, but you have beneficial ownership as you own the economic rights attached to the shares. Your spouse becomes the beneficial owner if you transfer shares to your spousal account. 

- Then, if you do want to buy more ... how many more can you buy?  (I think it's the lesser of as many as you ask for, or your pro-rata amount of those available, based on your pro-rata subscription to the basic shares that were subscribed.)

 

SD

 

 

[doc75]

Looks like another pulp price this week. 

 

Some of you may also find the prices and pulp/paper market commentary at  http://www.foex.fi/  of interest.  It's from the European standpoint, but gives a brief summary of what's going on.

 

 

[Uccmal]

This situation is ticking me off.  The deal is in place and the stock is frozen at 1.21-1.22.  Talk about the law of unintended consequences in action.  So prepare for the rights once they are issued to trade at exactly $0.00.    

 

With all of these pulp price increases I am left wondering if things wouldn't have been better off by not having the equity issue at all.  Management is not looking super bright on this one.  All these guys do is buy feedstock and sell pulp.  You would think they could apply some brain power to raising money.  

[doc75]

This situation is ticking me off.  The deal is in place and the stock is frozen at 1.21-1.22.  Talk about the law of unintended consequences in action.  So prepare for the rights once they are issued to trade at exactly $0.00.    

 

With all of these pulp price increases I am left wondering if things wouldn't have been better off by not having the equity issue at all.  Management is not looking super bright on this one.  All these guys do is buy feedstock and sell pulp.  You would think they could apply some brain power to raising money.  

 

The general feeling seems to be that pulp prices have now peaked.  See, for example:

 

http://www.paperage.com/2010news/06_15_2010market_pulp_db.html

 

Aside from the rights issue and general market wonkiness, I assume most are simply concerned (based on previous quarters' precedent) that Q2 numbers will be an unspectacular improvement from Q1, and the prevailing thought on pulp prices and the $ implies results will trend downward from there.  The fact is that SFK couldn't make money with pulp in the $850-$900 range and the dollar just under par. So I can see why the market wouldn't be wildly optimistic about the value of their business going forward.  I imagine the share price would be soft even without the rights offering - it just provided another reason to sell.

 

 

 

 

 

 

[Myth465]

This situation is ticking me off.  The deal is in place and the stock is frozen at 1.21-1.22.  Talk about the law of unintended consequences in action.  So prepare for the rights once they are issued to trade at exactly $0.00.    

 

With all of these pulp price increases I am left wondering if things wouldn't have been better off by not having the equity issue at all.  Management is not looking super bright on this one.  All these guys do is buy feedstock and sell pulp.  You would think they could apply some brain power to raising money.  

 

This is what happened to FUR, they announced a rights offering which dragged on the price. The stock traded down to where the rights offering was and FUR was trapped in that price range. All other REITs rallied 20%. Its why I think we may see $1.09 share price.

 

I think the market thinks if Management is selling shares at $1.09 why should we pay more. I think SFK will be repriced when the new balance sheet comes out and they show Profits and CF. I think we will get great CF, but dont know about profits (not sure how they will revalue the assets).

 

I think we are stuck but with Pulp prices above $900 we will eventually get that revaluation. I plan on buying / holding. Either via rights or right at $1.09 if we get that low. In 1.5 months, I think this will turn out to be very profitable.

 

Low Debt, Low Interest Payments, Great Cash Flow, and maybe even profits.

 

----

 

I have been investing for 3 years and I know rights offerings basically kill any short term price increases in your stock. FFH has probably 100 - 150 years of experience so they have to know that, as well. They also know you dont chop off a commodity company when its commodity is experiencing a bull market run. I have to think Management has some sort of plan. They have FFH backing them. FFH wants more shares, but there has to be another reason.

 

I dont think they have much plans for CF so they could have just paid down the debt overtime. Now they will pay down the debt, and then will start to build cash which makes no sense. A rights offering creates issues with how to allocate the new found cash flow. That tells me they want to buy something now or have some sort of use for the cash but need it upfront. Even if they pay down the debt, which wouldnt be the best reason to raise funds, I think we will still get the revaluations because SFK Pulp will look pretty good based on CF.

[Cardboard]

"...I assume most are simply concerned (based on previous quarters' precedent) that Q2 numbers will be an unspectacular improvement from Q1..."

 

Then the responsibility as a manager is to offer investors some guidance. Give them data so they can value the company better. If this does not work and the share price keeps going down leading to a bad rights offering price, as we have seen, then at least you have tried.

 

Also, what is the operating plan by Fibrek management to improve the business going forward other than just hoping for pulp prices to be sky high? Anyone?

 

I have a feeling that we lost here. I remember too well the Fedex warning in June 2008. Guess what, same thing today. We should have sold when everything looked rosy for pulp even if SFK was not selling at a fair price. Just like oil stocks back then. Then denial kicked in et voila, we are now holding on to this thing that keeps declining daily. Hard to deal with cyclicals, very hard.

 

Cardboard

[Uccmal]

Good points both ways.  Myth, the rights price is 1.01 which is why we are trading at that price plus 20%. 

 

I honestly dont trust that FFH has any plan or even gives a damn about fbk.  This is chump change for them and has probably landed on some analysts desk as a learning experience.  They are just applying the 2/3 rule. 

 

Which brings me to whether I want to waste my money subscribing to this or not.  I need to sit down and work out if I have made all my initial investment back or am at least close to it. 

[Myth465]

I honestly dont trust that FFH has any plan or even gives a damn about fbk.  This is chump change for them and has probably landed on some analysts desk as a learning experience.  

 

LOL. Thats hilarious. Good point, I have peanuts so everything is material, but ya Prem probably hasnt lost too much sleep over this one.

[doc75]

Then the responsibility as a manager is to offer investors some guidance. Give them data so they can value the company better. If this does not work and the share price keeps going down leading to a bad rights offering price, as we have seen, then at least you have tried.

 

Also, what is the operating plan by Fibrek management to improve the business going forward other than just hoping for pulp prices to be sky high? Anyone?

 

Precisely - I intended to raise that issue in my original post.  There was nothing in the Q1 report that rationalized the mediocre results versus the quickly improving operating conditions; in particular, no discussion regarding the nature and longevity of the substantial pricing discounts they seemed to have in place; and no interim guidance since, even around the rights offering.

 

I got greedy on this one and let that outweigh my more rational instinct to sell at a couple points post Q1 results.  No question the assets are heavily undervalued, but management should be doing far more to address their high cost structure and indicate their plan (if any) to change it. I hope their plan isn't simply to keep people employed while they wait for the dollar to sink to 0.85.

 

Unfortunately it's now a difficult decision whether to increase my stake via the rights offering.  If pulp prices begin to turn quickly, then even stellar Q2 numbers will have little effect on valuation.  The nightmare of 2008/2009 is too recent in mind.

 

 

 

[UhuruPeak]

Which brings me to whether I want to waste my money subscribing to this or not.  I need to sit down and work out if I have made all my initial investment back or am at least close to it. 

 

Come on Al, you know better than that - the market doesn't care what you cost is.  I know I'm not teaching this old trick to ye old monkey! ;)

[alertmeipp]

Last few days suck. CFX up 7% while FBK down 6%...and CFX had higher valuation to start with. So I don't think the selling is related to the pulp market itself.

 

Continue to believe we have a winner here tho. Value investing isn't easily. :)

 

This soon will pass.

 

 

[SharperDingaan]

 

Couple of points:

Why do you think you have to maintain your position? you do not.

Why do you think you have to stay in common? the rights are a 3 week option on the common.

Why do you think FBK has to stay as they are? you don't make enough, your assets get sold.

Why are you convinced that Q2 will be worse than Q1? because thats what Mr Market is saying.

 

Yes the price is not 1.85, & it's highly unlikely it'll go over 2.00 on the Q2 release. There are 30%+ more shares out there; get over it!

 

Yes you have to make a hold/sell decision on the rights within 3 weeks; get over it!

 

SD

 

[Uccmal]

Then the responsibility as a manager is to offer investors some guidance. Give them data so they can value the company better. If this does not work and the share price keeps going down leading to a bad rights offering price, as we have seen, then at least you have tried.

 

Also, what is the operating plan by Fibrek management to improve the business going forward other than just hoping for pulp prices to be sky high? Anyone?

 

Precisely - I intended to raise that issue in my original post.  There was nothing in the Q1 report that rationalized the mediocre results versus the quickly improving operating conditions; in particular, no discussion regarding the nature and longevity of the substantial pricing discounts they seemed to have in place; and no interim guidance since, even around the rights offering.

 

I got greedy on this one and let that outweigh my more rational instinct to sell at a couple points post Q1 results.  No question the assets are heavily undervalued, but management should be doing far more to address their high cost structure and indicate their plan (if any) to change it. I hope their plan isn't simply to keep people employed while they wait for the dollar to sink to 0.85.

 

Unfortunately it's now a difficult decision whether to increase my stake via the rights offering.  If pulp prices begin to turn quickly, then even stellar Q2 numbers will have little effect on valuation.  The nightmare of 2008/2009 is too recent in mind.

 

 

 

 

I think that shareholders would benefit greatly from some type of management communication.  The way its sits right now it looks bad.  As pointed out above, the nightmare of last year is fresh.  They have had a complete management change in the interim and are raising money.  We are no where near any kind of blackout period. 

 

The rights issue price is settled, so now is the time for management to talk a bit about their plans and this quarters results, and the pricing they are obtaining, going forward.   

[Myth465]

You guys have known Management a bit more then me, but I am willing to give them so rope. They seemed to have gotten through a very difficult time without selling the company for peanuts, going bankrupt, or raising capital.

 

I would prefer great Management, but having seen average / bad. I will settle for this (looks like good, non communicative Management) and see what pops off after the Q2 release. Great communication though would do wonders for the share price, but the same could be said about ATSG.

[alertmeipp]

The rights have shown up on my IB account already.

 

I think you guys need to understand they have worked on this deal with their lenders since the last crisis. They need to lower their leverage. They can either do a secondary or right offering. Right offering is picked because it won't dilute the existing shareholders.

 

It may seems unnecessary to get the 40millions now because the co. is capable of generating 10-20 millions cash per quarter.

 

But no new can guarantee where the pulp price will head. It's a conservative move. USD down a bit. Good time to convert the USD debt to CDN.

 

 

2Q won't show the full benefit of this deal. The rest of year will be really interesting.

 

Mr. Market is our friend.

 

[doc75]

The rights have shown up on my IB account already.

 

I think you guys need to understand they have worked on this deal with their lenders since the last crisis. They need to lower their leverage. They can either do a secondary or right offering. Right offering is picked because it won't dilute the existing shareholders.

 

It may seems unnecessary to get the 40millions now because the co. is capable of generating 10-20 millions cash per quarter.

 

But no new can guarantee where the pulp price will head. It's a conservative move. USD down a bit. Good time to convert the USD debt to CDN.

 

 

2Q won't show the full benefit of this deal. The rest of year will be really interesting.

 

Mr. Market is our friend.

 

 

It's for these reasons that I continue to hold.  I'm not a hardcore pessimist on the company. 

 

SD:  I don't believe Q2 numbers will be worse than Q1.  I truly believe and hope that the discounts have lessened and they haven't had too much downtime.  That alone should make Q2 numbers solid.  But Mr Market isn't pricing the company based on Q2 alone --- it's worrying about what comes after that, when pulp prices inevitably turn.  I think there's good reason to wonder about management plans for a high cost operator that has been quiet on their performance/outlook. 

 

Most of us are probably in this thing because the business is so incredibly undervalued that we'll do alright if they can make *any* money at it.

 

Cheers!

[alertmeipp]

Cost is coming down:

-Interests on the new facilities should be quite a bit lower.

-Cost-cutting problem is going on.

-Quebec's woodchip price is also coming down so they should get better pricing next year.

-Discount will also come down as the market getting tighter. The current discount was like 15%, reducing 5% of it translate to 7M.

 

They don't need need 1000 pulp price to be very profitable.

 

 

[Guest Dazel]

 

 

I think management has a little time here. I have been critical of management's that do not care about their stock price. That is simply bad business...because the market is a financing option. The management does not hold enough shares to make a sale worth their while and that is our problem with this situation. I would like to see this company SOLD if they do not produce a share price equivalent or close to sale price. I would hope that Fairfax in this situation is pushing for this as well. Every other pulp compnay has risen more and held at a higher price. The market is telling us that this managemnet is not looking at a sale and that is disturbing in this pulp market. Unfortunately, we do not have an activist involved here to puch management...Fairfax does not have that reputation but their investment here looks bad on them...it may be time for them to step up.

 

Dazel.

[Myth465]

We are 1 or 2 more bad days away. This is why I didn't really understand the discount. The market sees it as you value your company at XX, so that's what we will pay. They should have done the rights offering at par and shortened the window.

 

I think we may see 1.01.

[Vanshon]

Just a real simple question - did Fibrek begin trading ex-rights yesterday?

 

Thanks

[alertmeipp]

nope.

The record date is tmw.

[nodnub]

nope.

The record date is tmw.

 

We have to account for T+3 settlement... the same as ex- dates for dividends.  You are not a holder of record until T+3. The record date from the prospectus is June 18th... so Fibrek is ex-rights as of yesterday. (i.e. Anyone buying shares yesterday will NOT receive rights in the offering)

 

 

[finetrader]

Tuesday was the latest date to buy or hold share of FBK to get the rights.(3 days settlement)

 

And that is also why I think the share price is around 1.18$. Suppose someone buy tuesday 3h59pm at 1.25$, then for this price you effectively get 1 share + 1 right of FBK. You need 2.28 rights to get one share at 1.01$.

 

So the no arbitrage price for FBK on wednesday 9h30am should have been around 1.18$ so that  a drop one share of FBK from 1.25 to 1.18 is compensated for the gain of 1/2.28 rights at strike price of 1.01.      So  1.18-1.25= -0.07$ and (1.18-1.01)/2.28=0.07$ approximately.

 

 

[alertmeipp]

Yes, my mistake. I feel better now actually

[Cardboard]

Here is the impact of being straightforward with investors:

 

http://www.stockwatch.com/newsit/newsit_newsit.aspx?bid=Z-C%3aTMB-1733392&symbol=TMB&region=C

 

The share price is up 20% today following this disclosure. Tembec is a producer of market pulp, lumber and papers. They are highly levered to the price of pulp and a high cost producer. Their share price was down a lot in recent weeks similar to FBK likely due to concerns about the economy.

 

Why is it that Fibrek managers did not provide information on Q2 results along with the rights offering? Provide a decent guidance range along with assumptions used and you eliminate any chance of litigation if you miss. IMO, it would have helped garner some interest and prevent the share price to plummet. Q2 should be quite a bit better, so why not spreading the good news? There is a difference between issuing now 39.6 million shares and say 35 million for the exact same amount of proceeds.

 

Cardboard