SFK pulp

[Stove]

Uccmal - that was what I meant.

 

Re: RBK - that would not be an easy problem to solve unless all those subsidy stop.

 

During the CC, management mentioned that the two great negatives that greatly impact the profitablity of SFK are reversing:

 

1. US sibsidy (helps RBK)

2. High cost of Quebec wood chips. (helps NSBK)

 

 

Stove - are you sure the biomass is same as black liquor? The management didn't mention this one on their call.

 

2010 should be better than 2009 for sure. I am a buyer today *unfortunately, was a buyer yesterday as well*

 

 

Yes it is biomass.  Its a byproduct of the pulping process and can be used to power the pulp plant.  The best part about closing the loophole is that the government says it will generate $24 billion over the next 10 years.  Apparently not giving handouts is now known as 'generating revenue.'  I've been generating revenue all day.

[FFHWatcher]

Well you gotta hand it to Dundee, eh. That's quite a risky prediction saying that SFK might actually run all the way up to a buck. Oh yeah, the last trade was at $1.42 so it seems kind of a safe call. Of course since they had been predicting $0.50 - anything looks better.

 

I would suggest that there are a number of members of this board that could get an analysts job at Dundee.

 

I used to believe some of those guys until I learned the hard way how expensive that could be. Really, do they actually get paid for their opinions?

 

My rant of the day.

 

I totally agree with others that analysts do some questionable things that leave you scratching your head.  However, perhaps this Dundee analyst should be given more credit.  Within 24-48 hours of his call, he was more right than most of us discussing $2., $4.50 BV., worth over $5., comparing it to Canfor Pulp, etc.  If the then current price of $1.42 with a target price of $1.00 made him conservative looking like a goofball, what does the share price hitting his exact target on the following day mean?  Was he right?  Did he make an awesome call that could have saved many 40% in one day?  How easy do you think it was for him to make that call?  He knew he would be ridiculed for such a move.  Why do what he did?  Wouldn't the easy call be "We think SFK is currently fairly priced." 

At this point in the game which started the week or two before Q4 release of results for SFK, I would score this game; Dundee Analyst 1, Cornerofberkshireandfairfax.com Board 0 (excluding the posters such as SD who thoroughly discussed/analyzed SFK at under $0.40 

[oldye]

Interesting game FFHwatcher, 2 days and less than 1 million dollars worth of shares change hands and you're ready to say the analyst was right...

I was simply saying the guy/gal doesn't have a clue what the company is worth or how much money they're making.  He didn't increase their target from .50 cents a share to a dollar till the stock was trading at around 1.40. 

 

Don't let a Bipolar Mr. Market tell you what something is worth, its like the tail wagging the dog... do your own research. 

[Uccmal]

From a business standpoint, aside from the outage, it seems to me that RBK prices were the biggest headwind facing the company during Q4.  Does anyone have any market data on the trend for RBK prices?  Has anyone been able to point out any other major issues/headwinds from the Q4 release? 

 

Thanks Renkane for your inquiry.  I guess I was wrong about exchange rates. 

 

RBK prices - From what I gleaned from SFKs own report they produce nearly 50% of the total so there is not really a trend.  If seems to lag NBSK by a certain amount.  I have never seen it referenced anywhere else but for these mills.  The key to that puzzle seems to be the cost of the waste paper input.

 

Major issues - I have no idea how fast capacity can be added back to the world supply, or at what price it will be added back.  Once capacity returns then the prices may drop back off.  My major concern and the one that really keeps me from buying any more stock, at least at present prices, is that sfk will have barely got back to break even and things will drop off a cliff again with prices.  Fuel prices are not going to be a concern to the same extent going forward at least at the Canadian Mill. 

[Cardboard]

Dundee's analyst target price is like the one at BMO: useless. The target at BMO is $0.75.

 

So, $1 and $0.75, what is common between the two? Target prices close to the trading price with a negative bias. That is it. There is no fundamental justification of any kind to offer such target price since the company was not profitable. Their target price is not a reasonable multiple of book, it is not a reasonable multiple of earnings or cash flows. Why not $0.25?

 

So if an analyst is positive on the company, he or she post a target price 20-30% above the current stock price. If he or she is negative then the target is 20-30% lower. As the stock price move, they adjust. They will never come out and do like Sharper and say that this stock could double or go to $2 since earnings are about to explode. You have to stick your neck out with cyclicals, if not what is the purpose of making predictions?

 

The conference call was actually pretty upbeat. I have a feeling that cash flows are now much higher in q1 2010 and that with debt repayment underway that it will become very accretive to shareholders. I think that T-Bone1 "back of the envelope math" is right on the money. The question is how much time do we have with high pulp prices as mentioned by Uccmal to fix the company?

 

Cardboard

[Guest Dazel]

 

 

FFH Watcher....Dundee analyst 1 posters nothing....if investing was a couple of days you are right.

 

At Dundee at the height of the crisis one of their anaysts made a call on the Canadian banks sell them...that day they all tanked to their

low points of the 2008...and for the next couple of days....we made a fortune buying Bank of Nova Scotia at $25 on his call...he looked really good

for a couple of days...He made the front page of all the major news papers...but his ignorance and the markets stupidity made us a boat load of money.

 

We have also made about 4 times our money on the back of bad analyst price targets at SFK..We plan on making more...why?

analysts do not eat their own cooking. We do.

 

As for Canfor pulp...If they were able to pick up plants, distribution, tax credits and

self sufficient power generation, and use their low cost wood chips for 20 cents on the dollar in SFK acqusition....with shares not cash.

It would make business sense....not stock market sense.

 

You buy before the business cycle turns not after...Yes...we were too optimistic on the 4th quarter...but we shall see who is right in the end.

 

PS. no offense to Dundee because we bought their share at $5 bucks!

 

 

Dazel

 

 

[oldye]

http://canmetenergy-canmetenergie.nrcan-rncan.gc.ca/eng/industrial_processes/industrial_systems_optimization/news.html?2010-02-25-1

 

Looks like there will be more

cost cutting plans at the Canadian plant, this

 

 

http://investdb.theglobeandmail.com/invest/investSQL/gx.price_history?pi_symbol=SFK.DB-T&pi_old_symbol=SFK.DB-T

Can someone explain the volume on the debentures, on Jan 27 more than 1 million changed hands, not sure how that much volume is possible. 

[woodstove]

I believe that those debenture volume numbers are dollar value at par, ie approx 51,000,000 would be entire issue changing hands, so Jan 27th volume was only 2 pct traded.

[FFHWatcher]

Interesting game FFHwatcher, 2 days and less than 1 million dollars worth of shares change hands and you're ready to say the analyst was right...

I was simply saying the guy/gal doesn't have a clue what the company is worth or how much money they're making.  He didn't increase their target from .50 cents a share to a dollar till the stock was trading at around 1.40.  

 

Don't let a Bipolar Mr. Market tell you what something is worth, its like the tail wagging the dog... do your own research.  

 

I am just reminding posters of the previous discussion regarding the Dundee analyst and I am certainly not saying the game is over, as I am still long.   I am just stating what the current score of the game is and Dundee is winning.  I think the market currently agrees more with Dundee than with you and other posters as to what the company is currently worth.  Recall that there were only about 2M shares that moved the price from $1. to $1.40 in the weeks leading up to the earnings announcement, so why was Dundee so wrong with stating their target price at $1.?  Perhaps they were thinking along the same lines as the Bipolar Mr. Market?  Perhaps they were thinking that based on their analysis, SFK results were going to be on a completely different level than Canfor Pulp's and just because 2M shares pushed up the current price, that was no reason why he would increase his target price?    

 

I am having troubles reconciling your specific statement, "I was simply saying the guy/gal doesn't have a clue what the company is worth or how much money they're making."  What did you mean by how much money the company is currently making?  The company is pretty clear in their financial statements that they lost almost $80M ($100M in market cap) in 2009 including almost $16M in Q4.  At this point in time, it is hard to understand that SFK is worth $100M or more based on current earnings.  Net assets (likely) but on earnings?  What happens if NBSK goes back to $650 or even $700?  What is SFK worth at those prices?  At least one analyst believes that this (nbsk) price is unsustainable and that the companies that can't make money at these NBSK prices are in real trouble if it retreats at the same rate that it increased.

 

Go ahead and rip away...

[oldye]

Right now nbsk inventories are tight "market remains tight and spot volumes have virtually disappeared with weather and maintenance downtime eating into supply and with some of the largely integrated companies now trying to buy pulp"

Starting March. 1 suppliers are pushing the price up to 910$ per ton, eventually additional capacity will come online but its tough just look at the proposed gunns mill people are afraid that prices will come down before they can cover their cost of capital.

 

I'm not so sure costs haven't gone up so I'm not as optimistic as some but In the issue management states that current prices are at the same level they were Q3, 2008...costs are different but they generated 9.3 million that quarter.  

 

 

I think long term 2.5 billion people in India and China are going to increase their demand for paper by 10% a year or roughly India's current consumption of paper every single year.  In order to match that demand billions of dollars will need to be invested in pulp mills, now for that to happen prices need to remain high.  Its just as likely that prices go up to 1,000$ per ton as 800.  On the other hand, wood chips become more plentiful as demand for lumber goes up so costs can come down a bit.  I' guessing that a 5$ drop per ton increases net earnings by 3-4 million.

 

During Q4 their average sales price for nbsk was 721$ a ton, RBK was 625 that generated a 12 million dollar (pre-tax) loss ... they probably need something around 780, 685 to make money. 

[Rabbitisrich]

Right now nbsk inventories are tight "market remains tight and spot volumes have virtually disappeared with weather and maintenance downtime eating into supply and with some of the largely integrated companies now trying to buy pulp"

Starting March. 1 suppliers are pushing the price up to 910$ per ton, eventually additional capacity will come online but its tough just look at the proposed gunns mill people are afraid that prices will come down before they can cover their cost of capital.

 

I'm not so sure costs haven't gone up so I'm not as optimistic as some but In the issue management states that current prices are at the same level they were Q3, 2008...costs are different but they generated 9.3 million that quarter.  

 

 

I think long term 2.5 billion people in India and China are going to increase their demand for paper by 10% a year or roughly India's current consumption of paper every single year.  In order to match that demand billions of dollars will need to be invested in pulp mills, now for that to happen prices need to remain high.  Its just as likely that prices go up to 1,000$ per ton as 800.  On the other hand, wood chips become more plentiful as demand for lumber goes up so costs can come down a bit.  I' guessing that a 5$ drop per ton increases net earnings by 3-4 million.

 

During Q4 their average sales price for nbsk was 721$ a ton, RBK was 625 that generated a 12 million dollar (pre-tax) loss ... they probably need something around 780, 685 to make money. 

 

 

Oldye, I think we talked about this company before and I mentioned that I could never get comfortable with the capex requirements and working capital exposure. Do you have any insight into NBSK demand, specifically? It seems like a product that will likely decline in importance in mature markets, but perhaps the richer, emerging markets still have a long runway for glossy print.

[oldye]

China and India are importing more than 1 million tons of pulp each month, Chinese people love paper and in 2010 they will be making more of it, as their incomes go up they will use a lot more than they do today.  During the 20th century paper use in America went up 10 fold, I expect that they'll see decades of 10% growth that should more than offset the decline in mature markets.  Their RBK plants should benefit from access to lots of waste paper as all this stored paper is slowly digitized. 

 

Since 2005 growth from emerging markets has been enough to keep worldwide demand for hardwood and softwood basically flat but  demand for softwood has fallen from 29% to 25% of the total.  As North American demand continues to come back there will be a lot of pressure to get back to higher levels of production we saw in 2005. 

 

The Canadian mill is old so capex will be different from year to year; this year they expect to spend 13 million, last year they spent 3 which is probably the bare minimum.  If you notice last quarter they reduced working capital significantly; pulp fiber and waste paper are all below 1 month inventories. 

[alertmeipp]

Closed exactly 1 dollar today. I am now officially underwater. :(

[Stove]

8% of global pulp capacity could be affected by the earthquake in Chile.

 

http://blogs.wsj.com/marketbeat/2010/03/02/goldman-on-kleenex-maker-sell/   

[Uccmal]

Alertmeipp, I wouldn't get too uptight about it... I bought another 10000 shares at $1.02.  I am sort of assuming this thing will at least reach 80 or 90% of its book value eventually. 

[oldye]

http://www.glgroup.com/News/Chilean-earthquake-could-cause-pulp-supply-crisis-and-escalating-prices-46892.html

[Guest Dazel]

 

 

Thanks for the posts on the supply tightness for pulp. It will be interesting to see how it plays out.

 

For those watching Canfor pulp now has a market cap of more than 4 times SFK's...

 

Dazel.

[alertmeipp]

CFX up to 11 bucks on very strong volume plus paying dividend.

 

soon SFK will get its deserved attention. At the mean time, be patience.

[Guest Dazel]

 

this is the trend before chile...there is not a lot of commodities that have this kind of strength...the

question was whether it would continue.....Chile may have tipped the scale for a longer term look. There

is not capital to bring new supply on line.

 

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

 

Dazel.

[Uccmal]

I hold a few shares of cfx.un as well.  It is trading at a substantial premium to cfp, which owns 50%.  I am slowly building a position while in cfp it is below book.  At some point the lumber component will start to turn as well. 

[Myth465]

Thanks for all the data guys. I did my research over the weekend and bought a slug on Monday and Wednesday. Now up about 10%. I see $2 - $5 on this one. It seems like everything went wrong in 2009 and everything thus far has been going right this year. Once we get a positive EBITDA it should really jump up and a merger / sale is just icing on the cake. Seems like a very simply story just a commodity play after the commodity has rebound, but before the earnings have appeared for the company.

[oldye]

http://www.marketwire.com/press-release/Canfor-Pulp-Income-Fund-Announces-Maintenance-Outage-TSX-CFX.UN-1126202.htm

 

[UhuruPeak]

Thanks for all the data guys. I did my research over the weekend and bought a slug on Monday and Wednesday. Now up about 10%. I see $2 - $5 on this one. It seems like everything went wrong in 2009 and everything thus far has been going right this year. Once we get a positive EBITDA it should really jump up and a merger / sale is just icing on the cake. Seems like a very simply story just a commodity play after the commodity has rebound, but before the earnings have appeared for the company.

 

Yup - it reminds me of Quadra Mining (brought up on this board a few years ago) in many respects.  QUA's story was that earnings were hidden by an old hedging program but then the stock literally shot up, 3x in about 12-18 months if I recall.  Sino-Forest (also offered by one of our resident investing geniuses here) comes to mind as well...

[oldye]

http://www.paperage.com/2010news/03_04_2010finland_strike.html

 

[SharperDingaan]

 

Just back from vacation in the GCC.

Will post once we've had a chance to go through the numbers.

 

SD