CANFOR CORPORATION University of Victoria Student Research CFA Institute Research Challenge 2012
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Transcript of CANFOR CORPORATION University of Victoria Student Research CFA Institute Research Challenge 2012
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CANFOR CORPORATIONUniversity of Victoria Student ResearchCFA Institute Research Challenge 2012
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Presentation Highlights
Overview
Financial Analysis
Valuation
Risks
Increasing Lumber Demand
Rising Lumber Prices
Competitive Advantages
$14.41
$11.70
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Company Overview
Headquartered in Vancouver, British Columbia
Lumber mill operations in British Columbia, Alberta, Quebec, Washington State, South Carolina, North Carolina
Largest Annual Production Capacity in North America (5.2 billion board feet)
50.2% ownership stake in Canfor Pulp & Paper
Overview
Financial Analysis
Valuation
Risks
Source: Canfor
North American Operations
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Overview
Financial Analysis
Valuation
Risks
Company Overview: Major Markets
Source: FAOSTAT
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Industry Overview:US Housing Starts and Lumber Prices
United States: Expected recovery in the housing market will drive up lumber prices
Source: Random Lengths, ForecastChart
US Housing Starts
Lumber Prices
Overview
Financial Analysis
Valuation
Risks High growth potential in US paired with Continued new growth in China
Potential for Supernormal Sales Growth in medium term
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Industry Overview: Harvesting Restrictions in China
Overview
Financial Analysis
Valuation
Risks
Restricted
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Industry Overview: Growing Supply Gap in China
Overview
Financial Analysis
Valuation
Risks
Sawnwood Lumber Exports to China (MM Board Feet)
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Overview
Financial Analysis
Valuation
Risks
Competitive Positioning: ChinaCompetitive Positioning: North America
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FINANCIAL ANALYSIS
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Financial Analysis: Return On Equity
Overview
Financial Analysis
Valuation
Risks
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Financial Analysis:Lumber Sales
US Housing Rebound
Increasing Chinese SupplyGap
Rising LumberPrice
Overview
Financial Analysis
Valuation
Risks
Canada
China
United States
Japan
Other
2010
2015E
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Financial Analysis:Pulp Sales
WeakeningDemand
ExcessSupply
DroppingNBSK price
Overview
Financial Analysis
Valuation
Risks
Canfor Pulp and Paper is not a sustainable contributor to Canfor’s Value
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Financial Analysis:Projected Ratios
2010 2011E 2012E 2013E 2014E 2015E0%
5%
10%
15%
20%EBITDA Margin
2010 2011E 2012E 2013E 2014E 2015E0%2%4%6%8%
10%12%
Debt to Capital Ratio
2010 2011E 2012E 2013E 2014E 2015E0%
10%
20%
30%
Solvency Ratio
2010 2011E 2012E 2013E 2014E 2015E -
1.00
2.00
3.00
4.00
Current Ratio
Overview
Financial Analysis
Valuation
Risks
Stability Level
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VALUATION
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Valuation
Discounted Cash Flow
Multiple Analysis
EBITDA Regression
Final Value, December 2012
Overview
Financial Analysis
Valuation
Risks
Corrects for potential inaccurate cyclical foresight of DCF
Captures the effect of short-term cash flows on Canfor’s value
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Discounted Cash Flow: Asset Proportions
Overview
Financial Analysis
Valuation
Risks
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Discounted Cash Flow: Post-Analytical FCFE Projection (2016 Onwards)
Overview
Financial Analysis
Valuation
Risks
FCFE Growth Cycle Illustration
5 Year Positive Growth Min: 0%, Max: 2.5%
3 Year Negative Growth Min: 0%, Max: 2.5%
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Discounted Cash Flow: Analytical Phase (2012-2015)
Change In Non-Cash Working Capital
Net Borrowing
Non-Cash Charges
Net Income
Capital Expenditures
FCFE, NET: $102.94 $104.03 $120.23 $108.402012 2013 2014 2015
Inflows
Outflows
Overview
Financial Analysis
Valuation
Risks
Continued deleveraging Notable fixed capital investments December 2012 DCF Value: $15.40
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Multiple Analysis: Similarity Assessment
Overview
Financial Analysis
Valuation
Risks
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Multiple Analysis: Weighted Average Multiple
Enterprise Value: $2,051,192,000
2012 EBITDA: $233.09M
Weighted Average EV/EBITDA: 8.80x
# Shares Outstanding:142,710,000
FY End 2012 Share Price:
$14.37
Overview
Financial Analysis
Valuation
Risks
West Fraser Timber and Weyerhaeuser are the most comparable to Canfor
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EBITDA Regression: Variables
Overview
Financial Analysis
Valuation
Risks
Method: Regress regional EBITDA over the following macroeconomic variables in each region.
EBITDA Mean: $171 Million
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Final Value
Statistical Approach•10% Weighting
Discounted Cash Flow•40% Weighting
Multiple Analysis•50% Weighting
Final Value, December 2012
$14.37
$15.40
$10.58
$14.41Overview
Financial Analysis
Valuation
Risks
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RISKS
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Investment Risks
Overview
Financial Analysis
Valuation
Risks
Investment Risks
Highest Impact Disappointing US housing start growth
Lower than expected Chinese lumber demand growth
Sustained lull in lumber prices
Exchange rate risk
Dangers to natural environment
Government regulation changes
Failure to successfully renegotiate labour union terms
Lowest Impact Termination of Softwood Lumber Agreement (SLA)
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BUYQUESTIONS?Rising Lumber Demand
Growing Lumber Prices
Strong Competitive Positioning
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Appendix A: Financials
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Appendix B: Financials
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Appendix C: Financials
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Appendix D: Financials
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Appendix E: FCFE Sensitivity Analysis
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Appendix F: DCF Inputs
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Appendix G: Comparables
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Appendix H: Company Similarity
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Appendix I: Comparable Fundamentals
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Appendix J: Applied Ratios
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Appendix K:Regression Variables
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Appendix L: Exchange Rates
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Appendix M: Management Change
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Appendix N: Mountain Pine Beetle
Entire ProvinceTimber Harvesting Land Base
Pine
Vol
ume
Kill
ed (m
illio
ns o
f cub
ic m
eter
s