Western Forest Products shows pick up in Demand and Earnings per Share

     On August 6 Western Forest Products (WEF) released it's second quarter results and it was somewhat encouraging to it's shareholders.But WEF management certainly had to sharpen their pencils.Lumber prices had been as high as $450 U.S./1000 board feet in March and fell to $250U.S./1000 board feet in April.But like stock markets in general and the TSX in particular lumber prices moved back up.The present price is $360 U.S./1000 board feet.And some forecasts are for $450 again by yearend.Although WEF reports that there were challenging markets in China and Japan the North American market has recovered gradually.                   

     Second Quarter Highlights 

       The first quarter of 2020 was a difficult one,especially the last month March,the beginning of the pandemic.Lumber prices started to gradually decline so revenues were only $99 million.This is in comparison to $310 million in Q2 of 2019.Consequently adjusted EBITDA was only $3.5 million for Q1.Partly this was because of the drop in the adjusted EBITDA margin rate in Q1 of 2020.However adjusted EBITDA for the second quarter came in at $29.5 million but adjusted EBITDA for the first half was only $33 million.

    Revenues for H2 were reported at $256 million which is on par with revenues in 2017,2018 and 2019.Much of the gains in revenue for Q2 came in June,the last month of the quarter.EBITDA for Q2 was at $29.5 million just slightly below the trend seen in the last 2 or 3 years.

     $2.00 Again?

     Lumber is a cyclical product and there can be a large price differential between the bottom and the top of the cycle.Today the price is $365/1000 board feet.Some forecasts are for a price of $450/1000 board feet by yearend.This will have a very beneficial effect on WEF's bottom line.And in 2019 costs have been modernized and pared down.Consequently this blog calls for a continuation of the trend seen in Q2.Adjusted EBITDA on an annual basis should be in a range of $85 - $100 million for 2020.WEF earned $.02 per share in Q2 and can make $.06-$.08 per share in the second half if lumber prices continue as forecast. 

   If the trend of lumber prices continues WEF may earn $.08 -$.10 for 2020.The industry average price/earnings ratio is about 12-13 timesThis could send Western Forest Products towards $1.50 per share.And a small investment in an American wholesale supply operation.would help with cross border trade.                                   https://www.pifinancialcorp.com/