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SFK pulp earning out


alertmeipp
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With a market cap of 22 million it can be argued that the worst case is already priced in the common.  European pulp futures indicate that we'll see prices continue to strengthen into next year.

They expect to have the Canadian subsidy in place sometime during Q3 which should give the patient a sizable dose of adrenalin.

 

It's always darkest before the dawn.

 

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  • 2 weeks later...

Here's an easier synopsis to look at:

 

http://www.canadianinsider.com/coReport/allTransactions.php?ticker=sfk.un

 

Buying started after the earnings report came out ...  I would second notion that it's not much in dollar value (~$9KCDN), but it is a marker ... let's see if anything else transpires ... I presume SEDI would note if insiders were also buying/selling the debt?

 

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Mercer Intl hikes September NBSK price worldwide

 

SAN FRANCISCO, Aug. 11, 2009 (RISI) - Mercer International today informed worldwide customers that it is raising market northern bleached softwood kraft (NBSK) pulp prices, effective September 1 until further notice, industry contacts told RISIinfo.com.

 

Mercer slated a $50/tonne price hike in North America, Europe, and Asia, market participants said. That would bring its list price to $780/tonne in North America. In Europe is plans a $740/tonne level. In China it plans $650/tonne.

 

Mercer, which has three market pulp mills in British Columbia and Germany with a combined 1.28 million tonnes/yr of NBSK capacity, becomes the first known producer to plan a pulp hike in any market for September business.

 

The firm's move comes during a time of low market pulp inventories worldwide, solid demand, and a weak US dollar.

 

 

FOEX pulp indices continue rising but P&B decline

 

BRUSSELS, Aug. 11, 2009 (RISI) - FOEX's northern bleached softwood kraft (NBSK) pulp index gained $7.20/tonne to reach $663.83/tonne this week. The dollar-based bleached hardwood kraft (BHK) pulp index climbed by $9.94/tonne to $539.25/tonne, and the euro-based BHK index increased by Euro 1.21/tonne to Euro 375.60/tonne, as the euro strengthened against the dollar.

 

The newsprint index inched down by Euro 0.11/tonne to Euro 518.61/tonne and the lightweight coated (LWC) paper index decreased by Euro 3.17/tonne to Euro 691.40/tonne, driven by the weakening of a basket of non-EMU currencies against the euro. The coated woodfree paper index dipped by Euro 1.36/tonne to Euro 688.80/tonne, and copy paper fell by Euro 5.87/tonne to Euro 801.28/tonne.

 

 

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  • 2 weeks later...

More insider buying at SFK:

http://www.canadianinsider.com/coReport/allTransactions.php?ticker=sfk.un

 

Given recent developments at Domtar (UFS) and Mercer International (MERC), it is difficult to see how SFK is not sitting on the cusp of a major positive fundamental inflection point.  A Google news search for pulp prices yields several stories on pulp producers implementing price increases around the world.

 

By the way, comparing the balance sheets of SFK and MERC is an interesting exercise.  Let's just say SFK is a fortress compared to MERC.

 

Disclosure: Long SFK, no positions in MERC and UFS.

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  • 4 weeks later...

It looks like the Canadian government may finally be moving ahead on a $1 billion "black liquor" subsidy to pulp companies in Canada.  See the following two news articles we dug up:

 

The first article is about the Celgar mill (not owned by SFK) in Castlegar, Western Canada.  Two quotes from the article: "Hitzroth said the mill is expecting a grant of roughly $60 million to be forthcoming from the federal government any day now."  Also: "If we're able to get the money, say, by mid-October..."

http://castlegarsource.com/node/3393

 

The second article is about two mills in Fredericton, New Brunswick.  Here is a quote: "The AV Nackawic and AV Cell dissolving pulp mills will invest in energy efficiency projects once they receive nearly $50 million from the federal government's green transformation program."  And this: "The turnaround in the economy - with pulp prices inching back up and demand increasing - is certainly a positive sign..."

http://nbbusinessjournal.canadaeast.com/journal/article/809666

 

Since the subsidy in question is a federal subsidy, with mills in both Western and Eastern Canada expecting tens of millions each from the federal government, there is no reason to believe SFK is in a different situation.  If SFK receives a similar subsidy in the coming weeks -- and it should, based on the Saint Felicien mill's production -- the huge leverage on the SFK equity stub could pay off pretty quickly.  Note that SFK is widely regarded as having one of the strongest balance sheets in the pulp industry, yet the shares still trade for less than 20% of tangible book value.  Given recent developments, 50% or more of tangible book would be absolutely appropriate, in our view.

 

Disclosure: Long SFK.

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  • 2 months later...

Our understanding is that the black liquor subsidy that badly hurt SFK's U.S. recycled pulp mills last year expired on December 31, 2009.  This seems like a major positive for the company, as the St Felicien mill should already be printing money at current pulp prices.  With the U.S. mills likely to recover this year as well, SFK could have a big year.  This seems hardly priced in at a price to tangible book ratio of less than 0.2x.  Perhaps we deserve 0.5x or better?  Cheers!

 

Disclosure: Long SFK.

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Q3/09 they had a total of $8,760 in FX losses. The back-of-the-envelope suggests they have < $1,750 in FX losses for Q4/09; an immediate $7,000 (approx 7c/share) boost to quarterly earnings - in ADDITION to the far higher margins that they had during the quarter.

 

Assuming that CFX also did well, this reporting season could well deliver what we've all been looking for.

 

SD

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Just for a refresher....Fairfax were converting bonds to equity at $5 per share. SFK has not issued any equity  and my hat goes off to the management for that (not a lot else!). They have toughed it out and thanks to their cash reserve that was there for emergencies they might just return to the semi good old days ...not the $11 they used to trade at but the $4 range would suffice for most. First time around I did not sell at $5.75 with a nice profit in hand. I would like that problem again!

I received 65 cents in distributions in 2007 I believe..

 

 

Dazel.

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  • 3 weeks later...

So I've been trying to figure out how much they'll make selling 10 MW in green energy starting in 2012 at first I was guessing somewhere around 1.5 million but thanks to Mercers newest 8k I know I was way off. 

 

Even though their project is much smaller, Sfk will be be generating an additional 6-7 Million Ebitda starting 2012!  Thank You Canada, this will help offset a healthy chunk of the losses from the Abitibi bankruptcy.  Now if we could just get Kraft to buy the company for 13x Ebitda....you get Kraft Pulp?

 

Cheers

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We would have guessed a boost in the mid single digit millions, so we were not too far off.

 

By the way, here is perhaps the clearest article yet stating that the black liquor subsidy expired on December 31, 2009:

http://memphis.bizjournals.com/memphis/stories/2010/01/25/story2.html?b=1264395600^2767641

 

It's incredible that this has not yet been picked up by investors and reflected in SFK's stock price.  Just another example of how inefficient markets can be sometimes.

 

Disclosure: Long SFK.

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