A Pivotal Year for Western Forest
Western Forest just reported it's year-end and fourth quarter results.It has been a pivotal year.They started the year with Brookfield Special Situations owning 49%of their shares.They used their revolving term loan to borrow $100 million and bought back 76.9 million shares.At the end of this exercise Brookfield owned only 42% of Western shares.Western also had a strategic plan in place to spend $125 million on renovations;in 2013 they spent$56 million of this amount.Lastly they instituted and paid a $.02 dividend (paid quarterly).Revenues were only up 5% for the year but there were a number of factors affecting this including down time for installation of new equipment.
Financials
Western has a revolving loan that they used $100 million of to buy back shares.But they paid off $45 million from cash surplus.So in fact, finance costs were $1 million less than in 2012 because of lower debt costs.Also Western sold conditionally a pulp mill to earn $25 million.The big item to come out of the report is that adjusted annual EBITDA went from $77 million in 2012 to $128 million in 2013.The highest it has ever been.
Earnings per share were $.06 in 2012 although some brokers like Qtrade and TD reported it at $.04 per share.Earnings increased so that earnings per share for 2013 are now $.28(an increase of almost 5 times.The P/E ratio was about 42 times earnings and now it is about 9 times earnings.At $.28 per share earnings are greater than Ainsworth Lumber which trades at $4.05 a share.So Western is now trading at bargain prices.In addition, Western spent a lot of money on it's strategic plan in 2013 and will only spend $25 million in 2014.Earnings are likely to do better in 2014.
Conditional sale of the Woodfibre Pulp Mill
Western made a conditional sale of it's pulp mill for $25 million.It is required to make renovations so it can meet Environmental standards in 2015.It will only receive $18 million in cash.This may be the best place for them to invest in 2014.The sale includes a substantial amount of land also.Western would be well advised to not meet all of it's conditions and keep the mill.Pulp and wood chips only account for 5% of sales in 2013 but chip prices are rising in China and China is becoming a major customer at 33% of sales.Pulp and wood chips could be a bigger revenue maker in 2014 and 2015.
Fourth Quarter
Traditionally the fourth quarter is the weakest quarter for sales ,production and prices.However this year the spot price for lumber was up $25 per thousand board feet in the fourth quarter.Revenues were up 5% and log demand was higher.Traditionally the spring is a good quarter for prices and sales.The first quarter of 2014 will be better.But the fourth quarter EBITDA was 70 % higher than the same quarter in 2012.Earnings per share were $.13 instead of $.03 for the same quarter last year.If you annualize fourth quarter earnings you get $.52 per share instead of the actual $.28 per share shown in the report. This would bring the P/E ratio down to about 5 times and make Western the cheapest lumber stock on the T.S.X.
The price in 2014
Log prices are up and the spring season usually has good spot lumber prices so it is likely that the first quarter earnings will be better than the very good fourth quarter shown in the report.This blog sees Western Forest and Ainsworth Lumber running at the same price in the second quarter of 2014;that would be at around $4.50 per share. advice on lumber stocks at Blogdaleupsome
Financials
Western has a revolving loan that they used $100 million of to buy back shares.But they paid off $45 million from cash surplus.So in fact, finance costs were $1 million less than in 2012 because of lower debt costs.Also Western sold conditionally a pulp mill to earn $25 million.The big item to come out of the report is that adjusted annual EBITDA went from $77 million in 2012 to $128 million in 2013.The highest it has ever been.
Earnings per share were $.06 in 2012 although some brokers like Qtrade and TD reported it at $.04 per share.Earnings increased so that earnings per share for 2013 are now $.28(an increase of almost 5 times.The P/E ratio was about 42 times earnings and now it is about 9 times earnings.At $.28 per share earnings are greater than Ainsworth Lumber which trades at $4.05 a share.So Western is now trading at bargain prices.In addition, Western spent a lot of money on it's strategic plan in 2013 and will only spend $25 million in 2014.Earnings are likely to do better in 2014.
Conditional sale of the Woodfibre Pulp Mill
Western made a conditional sale of it's pulp mill for $25 million.It is required to make renovations so it can meet Environmental standards in 2015.It will only receive $18 million in cash.This may be the best place for them to invest in 2014.The sale includes a substantial amount of land also.Western would be well advised to not meet all of it's conditions and keep the mill.Pulp and wood chips only account for 5% of sales in 2013 but chip prices are rising in China and China is becoming a major customer at 33% of sales.Pulp and wood chips could be a bigger revenue maker in 2014 and 2015.
Fourth Quarter
Traditionally the fourth quarter is the weakest quarter for sales ,production and prices.However this year the spot price for lumber was up $25 per thousand board feet in the fourth quarter.Revenues were up 5% and log demand was higher.Traditionally the spring is a good quarter for prices and sales.The first quarter of 2014 will be better.But the fourth quarter EBITDA was 70 % higher than the same quarter in 2012.Earnings per share were $.13 instead of $.03 for the same quarter last year.If you annualize fourth quarter earnings you get $.52 per share instead of the actual $.28 per share shown in the report. This would bring the P/E ratio down to about 5 times and make Western the cheapest lumber stock on the T.S.X.
The price in 2014
Log prices are up and the spring season usually has good spot lumber prices so it is likely that the first quarter earnings will be better than the very good fourth quarter shown in the report.This blog sees Western Forest and Ainsworth Lumber running at the same price in the second quarter of 2014;that would be at around $4.50 per share. advice on lumber stocks at Blogdaleupsome
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