Canfor (Photo credit: Wikipedia)
TSX : $10.36
Licence to print paper.
Along with the recent re-instatement of the company’s dividend, Canfor Pulp appears poised for a rebound in 2013. Recently, the company finished a $250-million capex program aimed at upgrading the company’s mills, with the company now poised reap the benefits.
While pulp trends are still soft, CFX’s capex spend and exposure to a weakening Canadian dollar should support the shares. January 2013 pulp stats revealed an NBSK operating rate of 85% (down from 88% last month) and inventories of 31 days (seasonally adjusted) up from 29 days in December-2012.
A Bay Street analyst commented that weak buying from China and a pushback from a recent price increase as the reasons for the weaker stats.
Despite that it is expected that depleted on-ground inventories in China should force them to re-enter the market as buyers. The analyst also noted that aside from leverage to higher commodity pricing it should be noted CFX’s high sensitivity to the bilateral FX rate (with each US$0.01 fall in the Canadian dollar as increasing EPS by US$0.08).
Given current energy and metal commodity price trends the analyst sees potential for a “one way” currency trade with any further Canadian dollar depreciation accretive to CFX’s earnings. There also appears to be room to increase the company’s dividend from the current $0.05 per
quarter (~18% payout ratio) as the full benefit of the recent ~$250 million in capital upgrades is reflected in conversion costs as mills run at full capacity.
Related articles
- Canfor Announces Capital Investments in Mackenzie Sawmill (sys-con.com)
- Canadian lumber producers boosted by U.S. housing upswing (theglobeandmail.com)
