ADN.TO - Acadian Timber

[no_free_lunch]

I am looking hard at Acadian Timber right now.  Good write-up on VIC recently.  Essentially it is a forest company with land in New Brunswick and Maine.  Has 5.5% dividend yield, and slightly higher free cash flow.  45% owned by brookfield.  Managed by brookfield with reasonable comp structure.  Has produced 12% returns over past decade.  Debt is very conservative.    Seems like a safe, boring, but reasonable return investment. 

 

Biggest con I see are NAFTA negotiations and possible slow-down in Canadian housing.  However, even in 2009 EBITDA only dropped by 1/3.

 

Thoughts?

[mjohn707]

I bought a partial position recently just to keep an eye on it after the VIC write up. Doesn't seem super cheap, but I supposed that very little does right now.  Couple of weird things besides the potential tariff issue is what's going on with those deferred taxes and how much they're earning off of and paying for the crown land acreage.  I couldn't really understand either just based off of the annual report

[no_free_lunch]

Thanks for the feedback.  The financials are quite opaque.  The only thing I have is that EBITDA margin are much higher on the canadian side (where forestry management is occurring).  If you standardize EBITDA margins to 20% in Canada then that would imply about $8M of the ~$24M (pre corporate) EBITDA attributable to forestry management.  Just a wild theory though.  Too many unknowns to really know what it is contributing.

 

Agree it is not super cheap but then 5.5-6% dividend is not bad either.  Just a question of whether current dividend is sustainable.  If they can slowly grow it, even matching inflation then that is a decent return in this environment.  I am looking at it in comparison to a defensive index, so it seems if I could get a handful of this type of investment together I can outperform that type of ETF.

[mjohn707]

Hmm that's interesting, I didn't think of trying to calculate it that way.  If you look at the 52 week low maybe there's a chance we'll be able to get cheaper shares with a little patience

[no_free_lunch]

The one thing I came across is that timber prices have really spiked up recently.  So I guess this should cause caution with ADN.  However, when I actually look at their financial statements I am not seeing a spike in unit selling prices. 

 

From their latest 10q.

 

The  weighted  average  log  selling  price  remained  relatively  consistent  with  the  prior year period due to a favourable change in mix, offset by the impact of foreign exchange.

 

On current market prices:

 

Softwood lumber prices in the U.S. soared to near-record highs Wednesday, as Canadian producers passed on higher export duties charged by the U.S. government straight on to American consumers.

 

Prices for KD Western S-P-F, a common benchmark for softwood lumber exported into the U.S., was trading above US$494, near its all-time high, that appear to neutralize any potential impact of increased duties placed on Canadian exporters.

 

http://business.financialpost.com/commodities/u-s-softwood-lumber-prices-near-all-time-high-as-canadian-producers-pass-on-slapped-duties-to-u-s-consumers

 

Any ideas as to why there is this disconnect?  I haven't seen it mentioned but do they have contract pricing?