New FBK

[alertmeipp]

If they can somehow improve the RBK by doing M&A - I am all for it. They don't need to be debt free unless they go back to dividend mode.

[manualofideas]

I own FBK and have owned it since $0.20, but I now have to admit that I was LUCKY rather than smart on this one.  If pulp prices had not skyrocketed off the lows, this company would have been bankrupt.  The fact that they can't turn a GAAP profit in a quarter in which pulp prices averaged well over $900 is inexcusable.  They should have made at least $20 million in EBITDA in Q4.  Incredible how well MERC is doing while FBK continues to suck.  To add insult to injury, now the management team wants to blow more money so they can apply their "Operational Excellence."  Prem, cut these guys loose and put some adult supervision into this company!

[SharperDingaan]

 

The loss is because of the operating leverage - with so many days down, costs were spread over less production; it was a one-time thing, & its done. The disconnect is because mgmt is looking past it.

 

Their business model is to clearly grow the RBK business (presentation deck), & they need capital to do it. We expect St Feliceon, its future power generation, & the green grants to be sold in fairly short order - & probably to ABH. IFRS accounting (2011) may also give the BS an upward revaluation boost.

 

Look past the headline loss & the results are not bad. Whether they should be allowed to remain independent or not is another story.

 

SD

[SharperDingaan]

 

Look at the press release;

Q4-2010: Operating Loss - Net Loss does NOT equal what it shown. Difference of 10.

Financials do not show earnings after OCI - see Q3-2010 press release.

 

So they could not report Q4-2010 numbers accurately ? & they forgot to mention OCI - which is probably a gain ?

... & 2 investment houses release fresh & adverse reports just before the earnngs release ?

 

SD

 

[Rabbitisrich]

 

Look at the press release;

Q4-2010: Operating Loss - Net Loss does NOT equal what it shown. Difference of 10.

Financials do not show earnings after OCI - see Q3-2010 press release.

 

So they could not report Q4-2010 numbers accurately ? & they forgot to mention OCI - which is probably a gain ?

... & 2 investment houses release fresh & adverse reports just before the earnngs release ?

 

SD

 

 

FBK showed ($3,267) OCI as of 9/30/10 and ($8,133) for FY 2010... maybe the manager's discussion will explain the difference.

[alertmeipp]

Anyone listened to the call?

Q1 cost will actually be back down to Q3.... why ppl are selling is beyond me.

[Alekbaylee]

Not unusual volume, though.

Probably just some speculators trimming their positions.

[lessthaniv]

Anyone listened to the call?

Q1 cost will actually be back down to Q3.... why ppl are selling is beyond me.

 

Actually, Patsie suggested the cost per tonne will be less in Q1 than in Q3:10 because the reduction in wood chip costs didn't kick in until Q4:10.

 

I have to work through the numbers today but upon first glance it appears that the higher costs/tonne are attributed to a loss of production during the stoppage as well as higher than expected expenses. But, moving forward there downtime should be less.

 

 

[Myth465]

Anyone listened to the call?

Q1 cost will actually be back down to Q3.... why ppl are selling is beyond me.

 

I can understand the selling. FBK has a history of disappointing. Its like owning an oil company at $100 oil and they keep finding ways to lose money, let you down, or under deliver. It gets old and commodity cycles turn, everyone else seems to be making money while dealing with the facts of their business (shutdowns, labor issues, and what not). Some people bought on a turn, and some people are booking their 40% - 300% profit and moving on to greener pasters, especially in a situation where having some cash on hand is nice. I know I have thought about it. Would bump me up to 10% cash.

 

What are the odds that Q1 doesnt have some obscure blink which causes a disappointment, but is strictly a one time deal ....

[triedtestedand]

IV/Sharper:

 

Can you guys explain the IFRS changes discussed on page 30 of the MDA ... looking at a very large impairment of assets.

 

 

Impairment of Assets

IFRS requires a write down of assets if the recoverable amount (defined as the higher of the fair value less

costs to sell and the value in use of a group of assets) is less than its carrying value. Value in use is

determined using discounted estimated future cash flows. Current Canadian GAAP requires a write down to

estimated fair value only if the undiscounted estimated future cash flows of a group of assets are less than its

carrying value. Depending on the circumstances, this may lead to the recognition of impairment losses under

IFRS that would not otherwise have been recognized under current Canadian GAAP.

In addition, certain requirements within IAS 36 related to the factors used when estimating future cash flows

for impairment testing may require changes to Fibrek’s accounting policies.

While no impairment of assets existed at December 31, 2009 under current Canadian GAAP, Fibrek expects

that retrospective application of changes in its accounting policy on adoption of IFRS will result in the

recognition of an impairment of approximately $140.5 million at January 1, 2010. Recognition of the

impairment is expected to result in a corresponding decrease in the carrying value of Fibrek’s capital assets

as well as in equity.

[Guest Dazel]

I own FBK and have owned it since $0.20, but I now have to admit that I was LUCKY rather than smart on this one.  If pulp prices had not skyrocketed off the lows, this company would have been bankrupt.  The fact that they can't turn a GAAP profit in a quarter in which pulp prices averaged well over $900 is inexcusable.  They should have made at least $20 million in EBITDA in Q4.  Incredible how well MERC is doing while FBK continues to suck.  To add insult to injury, now the management team wants to blow more money so they can apply their "Operational Excellence."  Prem, cut these guys loose and put some adult supervision into this company!

 

Manual,

 

I feel your pain as you can tell with my management bashing...However, do not sell your self short on luck. In a liquidation which may happen...this is worth $3.50 to $5...that is my frustration...and Ben Graham's dilema...why let management waste our money when our assets are worth 3 to 4 times in a liquidation. It just would not happen in the private market. SD is right.. managment has had there chance.. time to pony up. Split the company up...Candaian ops, U.S ops, energy flow through and sell them off or build them independantly. It is up to shareholders and especially Fairfax to get the ball rolling...enough is enough.

 

Dazel

[alertmeipp]

Myth - I think one needs to look into what they have done even with all those "one time" thingsssss and what the company is selling for vs. what it is capable of produce.

I can see this company improving going forward.

 

 

[Myth465]

Myth - I think one needs to look into what they have done even with all those "one time" thingsssss and what the company is selling for vs. what it is capable of produce.

I can see this company improving going forward.

 

I feel you. I just dont think those selling are idiots or over reacting. I think they have there reasons and I can understand them.

[SharperDingaan]

 

We'll speak to the IFRS impact tommorrow once we've had a chance to review the MD&A

 

Going forward they should do quite well but there will be a lot of price volatility - which is no big deal if you just buy & hold. There is some merit to taking the unrealized gain to date off the table, but not untill prices stabilize. We also think that they will no longer be a Cdn coy by year-end.

 

SD

 

 

[alertmeipp]

I think they are over-reacting.

Can't blame them though. The management would have put a one line explanation on the cost jump and remain ppl about the coming cost saving.

 

I can see them doing ~80million EBITA this year and be close to debt free by year end if they choose to. That's huge. 10m in interest saving compared to 2010.

 

I understand the cycle will end, but this one may still have a while to go. Plus, it's cheap, it's not like it's pricing for 10x ebita.

[Uccmal]

I was just reading about a new pulp mill to be built in Tasmania by Gunns Ltd.  The cost estimate is 2 Billion for a capacity of 750000 tonnes per year.  FBK produces nearly that amount of pulp.  Say its plants have a residual value of 1 B/130 m shares = 7.70/share replacement value.  Probably not unreasonable.  

 

Even looking at the D&A shows that this company has assets of 440/130 = 3.40/share. which I feel is very undervalued.  Their mills all have easy access to markets and transport.  

 

Cash flow numbers for 2010 were 47 Million after a very weak start in 2010.  Cash flow this year could be north of 80 million which will eliminate all debt.  

 

I am certainly not keen on the CEO trying to vertically integrate this co.  I would like to see the debt eliminated and any projects financed out of cash flow.  

[cwericb]

You know, given the two downgrades and the fact that the numbers don't look all that good on the surface, I can't say that I'm terribly disappointed that the stock right now is only down a dime. Yes it certainly would have been nice to see a big jump but $1.45 would have looked pretty good a couple of months ago. I think we just have to be patient. I don't know if any of you guys have a combination of FBK, FFH, and HF but it certainly is a test of my patience. I am looking longer term but there are days....

 

Has anyone figured out why anyone would release a downgrade just hours before the results? I assume it would be illegal for them to have access to the results prior to release so why would they choose that timing that would raise the question in some people's mind? I just can't get my mind around that.

[alertmeipp]

i agree patience is needed and being tested. :'(

[SharperDingaan]

 

Re IFRS, P29 of the Q4-2010 MD&A:

Assets will be written down on Jan 01/2011 by 139.7M because IFRS requires that you present value the assets future expected cash-flow to get to its recoverable value, today, & write-down to the lower of this amount, or book. It is essentially market value.

 

The right hand column of the page shows the Jan 01/2011 Balance Sheet under IFRS. Notable is that the equity is only 283.6M, or a BV of  $2.18/share. At $1.45/share FBK is trading at 66% of BV.

 

The Debt/Equity Ratio is typically calculated as [(LTD - cash & equivalents)/Equity] x 100. On January 01, 2011 this will be 35.16%  [(118.8-19.1)/283.6]x100 which is the same as Tembec (P32 of the Investor Presentation).

 

End of day, the Balance Sheet is conservatively valued, & any offer for plant at replacement value will generate a material gain.

 

SD

 

 

[alertmeipp]

forget about the replacement value... no one cares about it. It generated merely 12m Ebita last year.

[Uccmal]

forget about the replacement value... no one cares about it. It generated merely 12m Ebita last year.

 

Under present circumstances it generated 47 m in cash flow last year.  As I mentioned above, the replacement value is much, much higher.  They are spending up to 2 Billion on a similar operation in Tasmania.  FBK has other non owned infrastructure already in place such as roads, shipping capability, customers, etc. 

[Uccmal]

If they were operating like Canfor Pulp, without debt, and associated servicing costs the cash flows would be much higher.  There is alot of value in this operation that is being overlooked at the moment partly because of debt load, low cash flows, better off competition, etc, etc, etc.  There is also the specter of a declining pulp price that is overhanging everything.  And I suspect that people are worried about this CEOs comments now.  I was not one of those selling yet. 

[lessthaniv]

 

Re IFRS, P29 of the Q4-2010 MD&A:

Assets will be written down on Jan 01/2011 by 139.7M because IFRS requires that you present value the assets future expected cash-flow to get to its recoverable value, today, & write-down to the lower of this amount, or book. It is essentially market value.

 

The right hand column of the page shows the Jan 01/2011 Balance Sheet under IFRS. Notable is that the equity is only 283.6M, or a BV of  $2.18/share. At $1.45/share FBK is trading at 66% of BV.

 

The Debt/Equity Ratio is typically calculated as [(LTD - cash & equivalents)/Equity] x 100. On January 01, 2011 this will be 35.16%  [(118.8-19.1)/283.6]x100 which is the same as Tembec (P32 of the Investor Presentation).

 

End of day, the Balance Sheet is conservatively valued, & any offer for plant at replacement value will generate a material gain.

 

SD

 

It's also my understanding that under IFAS Methods you can revalue the assets at a later date and increase/decrease carrying value based on the revaluation, unlike Canadian GAAP.

 

 

[alertmeipp]

forget about the replacement value... no one cares about it. It generated merely 12m Ebita last year.

 

Under present circumstances it generated 47 m in cash flow last year.  As I mentioned above, the replacement value is much, much higher.  They are spending up to 2 Billion on a similar operation in Tasmania.  FBK has other non owned infrastructure already in place such as roads, shipping capability, customers, etc. 

 

Yes, you got the point; cash flow is the key. I am sure ppl won't invest 2 billions to get 60million ebita. Replacement value doesn't really matter if the assets don't generate attractive returns; if it does, all those IPPs are great buy now.

 

I am not saying FBK is not cheap, it is. I am just saying we should focus on how much cash FBK can generate. This will be an interesting year.

 

 

[alertmeipp]

If they were operating like Canfor Pulp, without debt, and associated servicing costs the cash flows would be much higher.  There is alot of value in this operation that is being overlooked at the moment partly because of debt load, low cash flows, better off competition, etc, etc, etc.  There is also the specter of a declining pulp price that is overhanging everything.  And I suspect that people are worried about this CEOs comments now.  I was not one of those selling yet. 

 

Assuming other things being constant, a debt free FBK + lower wood chips + power generation should yield ~25-30m more Ebita.