Friday, March 29, 2024

Post-COVID Interest Rates Spark The Lumber Gold Rush. Conifex, A Sustainable Canadian Lumber Company, Still Trading At Record Lows.

Lumber, an industry known for its persistence and resiliency, is proving to be a strong portfolio contender as the flare up of uncertain times begins to settle, revealing the beginning of new consumer trends. With the false forecast that lumber demand would subside amongst the pandemic, the lumber industry is significantly undersupplied, yet unforeseen side-effects of the pandemic have made lumber one of North America’s hottest commodities. Conifex Timber Inc., a Canadian lumber company focused on sustainable production, is offering investors who are late to the lumber game an opportunity to get in on the action.

 

Market Recap

The beginning of March 2020 brought with it a vast amount of fear and uncertainty, leading industries across the board to go into survival mode. Business owners were forced to make cost-cutting decisions in blind preparation for the unforeseen battle ahead.

The lumber industry prepared itself for battle by suiting up for a forecasted reduced demand, drastically curtailing production in April and May.

The soaring demand for lumber coupled with the two months of reduced production further depleted supply, resulting in mills selling out of lumber first thing in the morning, and orders being placed months in advance. As demand persists with no signs of slowing down in 2021, lumber proudly boasts a premium price tag that is not set to decrease anytime in the foreseeable future.

 

Conifex Timber Value 

Though lumber has always been a staple to the North American economy, the supply vs. demand paradigm it currently finds itself in is making it an incredibly attractive investment proposition to interested parties. And like many industries that garner investment excitement, lumbers stock value is rising quickly across the board.

Conifex Timber is offering investors one of the last opportunities to take advantage of the lumber boom, currently trading at a significant discount. The Canadian sawmill operates out of Mackenzie, British Columbia, where it produces over 240 million board feet of annual lumber capacity on a two-shift basis. They have a large available log supply with 782,500 cubic metres of high-quality harvestable AAC through Timberland Operations under the Mackenzie Forest Licences from Crown-Owned Land.

Established in 2008, Conifex is recognized today as a world leader at the forefront of sustainable production, implementing next-generation forestry technologies and techniques responsible for maximizing fiber value. Conifex has a bio-energy power plant, with a guarantee from the BC Government for a fixed 20 year BC Hydro contract, generating additional guaranteed income stream in addition to the company’s profitable lumber operation.

With the cost of production for one thousand board feet of lumber averaging out at $450-500 USD, Conifex profits roughly $500 USD when selling at $1000 USD, earning more than its entire market cap. Lumber futures are forecasting $1450 for May which is an astronomical never before seen price which will keep this company flush with cash.

The company knows they are undervalued and have been aggressively buying back shares, having bought over 1 million shares since the buyback started

A conservation valuation of the lumber segment at 5x forward EBITDA of even $700 lumber would give a price of $6.66/share. Today’s lumber prices at $1000 and above would value the lumber segment at over $16 per share. The company’s power plant, as a green energy infrastructure asset generates $14 million EBITDA per year, operating in a segment with low debt and high cash output. A conservation value net of debt for the power plant at 10x ebitda gives an additional 2.25 cents per share of value. The conservative valuation, before any additional share buyback, puts the company at 8.91- 18.25 per share.

Conifex is still trading at less than book value compared to its peers. Currently it is trading at 2.50. As the cheapest lumber and green infrastructure company in the world, they are likely a takeover target and opportunity for savvy investors.

 

Why is lumber so hot at the moment?

Lumber lucrativity is a product of many factors, the main one being a surge in new home builds across North America that absolutely crushed expectations. Canada alone experienced record breaking housing starts and home prices for the month of March, and the U.S. experienced a surge in new home building. The pandemic is not slowing down new development production, but is instead promoting it as a result of central banks pledging to maintain low interest rates, leading to record low mortgage rates, encouraging a rise in first time homeowners. This influx in homeowners is being met with increased development, requiring mass amounts of lumber to fulfill production.

First time buyers aren’t the only ones pursuing new digs. Many city dwellers are taking advantage of working remotely by relocating to rural suburbs capable of enhancing their living environment without requiring an exorbitant commute. Some are even trading in the city life for small town living, an option not previously available when needing to commute into work. These quality-of-life pursuits are resulting in greater rural development, which again, is lumber intensive.

Lumber, an industry known for its persistence and resiliency, is proving to be a strong portfolio contender as the flare up of uncertain times begins to settle, revealing the beginning of new consumer trends. With the false forecast that lumber demand would subside amongst the pandemic, the lumber industry is significantly undersupplied, yet unforeseen side-effects of the pandemic have made lumber one of North America’s hottest commodities. Conifex Timber Inc., a Canadian lumber company focused on sustainable production, is offering investors who are late to the lumber game an opportunity to get in on the action.

 

Market Recap

The beginning of March 2020 brought with it a vast amount of fear and uncertainty, leading industries across the board to go into survival mode. Business owners were forced to make cost-cutting decisions in blind preparation for the unforeseen battle ahead.

The lumber industry prepared itself for battle by suiting up for a forecasted reduced demand, drastically curtailing production in April and May.

The soaring demand for lumber coupled with the two months of reduced production further depleted supply, resulting in mills selling out of lumber first thing in the morning, and orders being placed months in advance. As demand persists with no signs of slowing down in 2021, lumber proudly boasts a premium price tag that is not set to decrease anytime in the foreseeable future.

 

Conifex Timber Value 

Though lumber has always been a staple to the North American economy, the supply vs. demand paradigm it currently finds itself in is making it an incredibly attractive investment proposition to interested parties. And like many industries that garner investment excitement, lumbers stock value is rising quickly across the board.

Conifex Timber is offering investors one of the last opportunities to take advantage of the lumber boom, currently trading at a significant discount. The Canadian sawmill operates out of Mackenzie, British Columbia, where it produces over 240 million board feet of annual lumber capacity on a two-shift basis. They have a large available log supply with 782,500 cubic metres of high-quality harvestable AAC through Timberland Operations under the Mackenzie Forest Licences from Crown-Owned Land.

Established in 2008, Conifex is recognized today as a world leader at the forefront of sustainable production, implementing next-generation forestry technologies and techniques responsible for maximizing fiber value. Conifex has a bio-energy power plant, with a guarantee from the BC Government for a fixed 20 year BC Hydro contract, generating additional guaranteed income stream in addition to the company’s profitable lumber operation.

With the cost of production for one thousand board feet of lumber averaging out at $450-500 USD, Conifex profits roughly $500 USD when selling at $1000 USD, earning more than its entire market cap. Lumber futures are forecasting $1450 for May which is an astronomical never before seen price which will keep this company flush with cash.

The company knows they are undervalued and have been aggressively buying back shares, having bought over 1 million shares since the buyback started.

A conservation valuation of the lumber segment at 5x forward EBITDA of even $700 lumber would give a price of $6.66/share. Today’s lumber prices at $1000 and above would value the lumber segment at over $16 per share. The company’s power plant, as a green energy infrastructure asset generates $14 million EBITDA per year, operating in a segment with low debt and high cash output. A conservation value net of debt for the power plant at 10x ebitda gives an additional 2.25 cents per share of value. The conservative valuation, before any additional share buyback, puts the company at 8.91- 18.25 per share.

Conifex is still trading at less than book value compared to its peers. Currently it is trading at 2.50. As the cheapest lumber and green infrastructure company in the world, they are likely a takeover target and opportunity for savvy investors.

 

Why is lumber so hot at the moment?

Lumber lucrativity is a product of many factors, the main one being a surge in new home builds across North America that absolutely crushed expectations. Canada alone experienced record breaking housing starts and home prices for the month of March, and the U.S. experienced a surge in new home building. The pandemic is not slowing down new development production, but is instead promoting it as a result of central banks pledging to maintain low interest rates, leading to record low mortgage rates, encouraging a rise in first time homeowners. This influx in homeowners is being met with increased development, requiring mass amounts of lumber to fulfill production.

First time buyers aren’t the only ones pursuing new digs. Many city dwellers are taking advantage of working remotely by relocating to rural suburbs capable of enhancing their living environment without requiring an exorbitant commute. Some are even trading in the city life for small town living, an option not previously available when needing to commute into work. These quality-of-life pursuits are resulting in greater rural development, which again, is lumber intensive.

Lastly on the homefront, not all homeowners are sourcing greener grass elsewhere, but are instead making their own grass a little greener through home improvements. The onset of the pandemic saw 58% of the North American workforce adapt to working remotely, a statistic that is anticipated to persist with industry leaders such as Google and Uber extending their work-from-home policies until the summer of 2021. This resulted in an effort made by many to enhance their home office through renovations. Cancelled travel plans also encouraged home renovations as savings were suddenly freed up, free to be redirected to home improvement projects.

Though investors have become accustomed to a portfolio rollercoaster ride amongst the highs and lows of the stock market with an understanding that the ride will not be coming to an end anytime soon, the development of new global trends are creating greater confidence. As the lumber industry continues to establish itself as a 2020 powerhouse, opportunities to take advantage of this investment opportunity are quickly evaporating. Through their industry leadership and proven profit margins, Conifex provides a strong investment argument for those looking to benefit from the lumber surge.

Lastly on the homefront, not all homeowners are sourcing greener grass elsewhere, but are instead making their own grass a little greener through home improvements. The onset of the pandemic saw 58% of the North American workforce adapt to working remotely, a statistic that is anticipated to persist with industry leaders such as Google and Uber extending their work-from-home policies until the summer of 2021. This resulted in an effort made by many to enhance their home office through renovations. Cancelled travel plans also encouraged home renovations as savings were suddenly freed up, free to be redirected to home improvement projects.

 

Though investors have become accustomed to a portfolio rollercoaster ride amongst the highs and lows of the stock market with an understanding that the ride will not be coming to an end anytime soon, the development of new global trends are creating greater confidence. As the lumber industry continues to establish itself as a 2020 powerhouse, opportunities to take advantage of this investment opportunity are quickly evaporating. Through their industry leadership and proven profit margins, Conifex provides a strong investment argument for those looking to benefit from the lumber surge.

 

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