VRS - Verso Corporation

[Stuart D]

+'s

• Strong balance sheet
  
• P/FCF = 3.8 (based on current market cap and 2017 FCF)
  
• P/FCF = 2.1 (based on current market cap and 2018 FCF)
  
• CEO incentivised to sell the business at a premium price

 

-'s

• Dying industry (Verso Corp. produces graphic paper used in magazines, trade journals & catalogs)
  
• Increased competition from Europe and Asia
  
• Capital allocation (CEO and Board want to grow FCF and EBITDA instead of buybacks)

 

banjo1055's VIC write up from June 2019 when the market cap was $600m:

https://valueinvestorsclub.com/idea/VERSO_CORP/3038336222#description

 

Currently trading down at $433m due to poor 2019 q2 results and the CEO and Board not committing to buy back stock.

 

No doubt smarter minds than mine have checked out this industry before. I'd be interested to hear your thoughts on Verso's current valuation.

[Stuart D]

CEO Leslie Lederer, in his previous role as Chief Restructuring Officer at Catalyst Paper sold 2 x paper mills for a total of $175m. These mills had a combined annual capacity of 550,000 tonnes. A sale price of ~$300/(tonne of capacity).

http://www.paperage.com/2018news/05_25_2018catalyst_sells_mills_nine_dragons.html

 

 

VRS currently have 7 x mills. 1 x mill is being shut down (Luke, Maryland).

 

The 6 x remaining mills have a combined annual capacity of 2,630,000 tonnes. Selling at ~$300/tonne of capacity = $789m, compared to the current market cap of $433m. This is a crude valuation metric, yet still there probably isn't enough margin of safety for me at the current price.

[valuedontlie]

This is a $10 stock today for ~$360m market cap... no debt... tangible book value is ~$1bn

 

Recently sold 2 specialty mills for ~$400m w/ net cash proceeds of $336m... almost a negative EV here!

 

Authorized up to $250m in bubyacks but I'm guessing they'll hold off in current environment

 

An earlier presentation said remaining assets generate ~$225m in EBITDA but that's probably lower this year though likely still a profitable business given lower industry supply and low capex

[KJP]

I just took a quick look at the most recent 10-K.  It's worth keeping an eye on the pension plan here.  Cash flow impact of it is much worse than has been reflected on the income statement the last few years (small GAAP pension gain versus $40 million cash contribution in 2019, and $50 million expected contribution this year), and funded status is likely to decline further because of declining asset values and a likely increase in the benefit obligation due to a decline in the discount rate. 

 

I wouldn't be surprised if there is some type of federal regulatory or legislative relief that extends the time period over which funding deficits must be covered.

[valuedontlie]

all of that would be reflected in the CF statement...

 

this isn't a business you want to own LT but it is interesting with a "promised" return of at least $250m from a recent proxy battle... unclear on the how/when of that capital return...

 

after that you have a stub piece that is likely profitable / cash flow positive... who knows what that looks like a few years from now