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Strategies & Market Trends : Value Investing
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To: bruwin who wrote (66489)2/9/2021 7:52:25 PM
From: FIFO_kid21 Recommendation

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E_K_S

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Bruwin-

Resolute Forest products is the new restructured name from the Abitibi Bowater bankruptcy assets years ago. I think there still remains a perception the book value of the company was always overstated after its bankruptcy restructuring coupled with its melting ice cube newsprint assets and consistent operating failures from past managements. They finally have one that is working hard to transform its business away from those niches at risk of obsolescence.

Ironically, RFP sold some paper assets for a hefty gain (not at a loss)in 2018 paid a one time $1.50 special dividend so maybe the large discount to book value is not accurate but I would agree the business transformation from a competent management is a larger catalyst here.

Subsequently, the firm purchased more lumber assets with the proceeds after the last lumber price spike at a stink price (10% of its replacement value) doubling its capacity so now its total sales eventually will be approximately 60-65% attributable to lumber. So now it is a different company more predisposed to the lumber cycle as opposed to the melting ice cube paper business. A portion of its new purchase lumber assets remains idled and should be put into production in 2021.

The free cash flow the company generated last quarter was substantial. So don't look at the loss as a reason to sell as they did after the Q4 report. The firm performed a buyback of 8% of the shares during 2020 and recently restructured its LTD from 375 to 300 million at an interest rate 1% lower with an extension of 3 years and received a rating upgrade with the credit agencies.

Besides the strength in lumber prices which I think is more related to the restriction of total supply. Pulp prices has risen about 40% during the current quarter from Q4 2020 numbers .

The company still has its underfunded risks with its defined benefit pension plan. I also don't think they have enough scale in its tissue business but it is working on it with acquisitions.

This is speculation but maybe the future of the lumber business will have supply quotas and will also start to receive carbon credit revenue so the future lumber business may transform into a consistently high margin one.

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