FGE.to - Fortress Paper (formerly FTP.to)

[triedtestedand]

Note the following documents posted on the WTO site:

 

https://docs.wto.org/dol2fe/Pages/FE_Search/FE_S_S006.aspx?Query=(@Symbol=%20wt/ds483/*)&Language=ENGLISH&Context=FomerScriptedSearch&languageUIChanged=true#

 

This infers that China will not appeal the ruling, and that they've given themselves until Apr22/18 to end the dumping duties, but that until then FTP and other Canadian producers are still subject to them.  So ~10 months until the impact of the duties gets lifted.

 

Note that the ruling only applies to Canadian DWP producers.  No relief from duties for US or Brazilian producers.

[triedtestedand]

Things that make you go hmmm ...

 

http://www.northislandgazette.com/news/neucel-plans-to-pay-reduced-taxes/

[reader]

Fortress Paper Executive Chairman and Founder, Chad Wasilenkoff, Featured in OTCQX Video Series:

 

 

[Cardboard]

This thread and opportunity in FTP and even into FTP.DB.A needs to be revived in my opinion.

 

The stock has been hammered to levels where one would wonder if any improvement has been made to this company in recent years?

 

The balance sheet is undoubtedly stronger and I see no liquidity issue whatsoever while it was not the case previously.

 

They are expanding production and cutting costs/ton at both facilities with Landqart having started up its 2nd finishing line (end of Q3 or Sept 30) and the 5th digester at Thurso is due for end of Q1 2018 boosting capacity by 5% in 2018 (conservative?) and 11% in 2019. If the latter truly brings them to a cost per ton of $850, we are talking about a very large boost in profitability.

 

Then you have WTO having ruled favourably for Canadian producers and the effect should be seen in 2018 with removal of anti-dumping duties for imports in China.

 

The only negatives appear to be a stronger CDN$, DP pricing not moving up much and the latest 2 hiccups at Thurso which should all be fixed with the 5th digester and other improvements.

 

So I see significant potential for EBITDA improvement which should result in large stock price appreciation going into 2018 and beyond. Multiple bagger type.

 

Thoughts?

 

Cardboard 

[doc75]

Cardboard:  I'm on the same page, though I'm trying to be conservative with my position sizing since I've had a terrible track record in commodity investments.

 

I must say I am concerned that Chad is back as CEO. It probably doesn't make much of a difference, but I associate him with years of promotional leadership -- over-promise, under-deliver.

 

I think there will continue to be some good entry points for a while yet.  Q3 results aren't going to catalyze a rally.

[sculpin]

Here are some notes from management meeting in the Spring when Fortress met some institutional investors in Toronto/Montreal....

 

Share price has weakened over the last year as the Company has taken longer to realize production efficiencies in both Canada & Europe and the dissolving pulp price has been relatively static. Back in 2010, Fortress shares peaked at over $63 when dissolving pulp was >$2,000mt.

 

Fortress Thurso is a deep cyclical emerging from a period of oversupply with tremendous leverage to improved pricing (for example current Fortress market cap is $74mm while Thurso alone could do up to $124mm EBITDA at a dissolving pulp price of $1,200 US).  The bank note business has high return on incremental invested capital for the 90% of Durasafe plant capacity should it be filled up. Here are notes from management meeting in Spring.

There is plenty of leverage both operationally with dissolving pulp pricing and financially as they are approximately 3x D/estimated 2017 EBITDA ($45MM)…  net debt currently $155MM

 

Fortress has 2 operating segments:  a) dissolving pulp  b) security paper

 

Dissolving pulp:  It is the raw material used for numerous products but sell to Viscose Staple Fibre and rayon filament markets

• Thurso Quebec: current capacity is 165,000 Air Dried Metric Tonne (ADMT)

• They serve Viscose Staple Fibre and rayon filament markets

• Increase pricing has significant impact to EBITDA:  currently $948 

 

• Adding a 5th digester will increase capacity by 17,000 ADMT – cost is approximately ~ $23.4MM but it qualifies for numerous grants so capital from FTP will be ~ $3MM

• Run rate EBITDA is $4MM/month  have to take into consideration shut down which has about $5MM EBITDA impact

• 24 Megawatt cogeneration power facility: they buy industrial power and sell back to the grid for 3x the price.

 

Security Paper: The banknote industry has been slow to change, typically changed design of a denomination once every 20 years the rate of change has sped up given sophistication from counterfeiters

 

• Landqart Mill, Switzerland:  current capacity ~ 10,500 tonne capacity

• There are only a handful of producers of security paper worldwide it is highly concentrated and disciplined industry

• Global market ~ 170,000 tonnes, approximately 80,000 tonnes is commercially produced the remaining is produced by individual countries

• They have invested ~ 100MM since 2007 increasing capacity, improving efficiency and reduce operating costs

• New product innovation of Durasafe – three layer construction with a polymer middle zone to increase security:             

o Adoption would improve margins and increase revenue as this is a premium priced product as much as 8x more than normal security paper

o They signed a new customer for 2 denominations last week and expect at least one more by year end

o They have ~ 2000 tonne production capacity

• They are adding a new finishing line to eliminate the main bottleneck which should increase capacity up to 15% by Q32017  (cost ~ CHF 4MM)

 

How does the future look:  There are a couple of catalyst in the near term… dissolving pulp price has been weak for a number of years but looks to be turning around.  There is significant leverage to increased pricing and with the 5th digester expected to be operational in 2018 and fully running in 2019 increasing capacity.  As for the security paper operations debottlenecking with a new finishing line should increase capacity.  In addition the new Durasafe product has started to show signs of adoption with a new customer announced in March and potential for more customers. 

 

[sculpin]

Newest Presentation...

 

http://fortresspaper.com/wp-content/uploads/2017/08/fpresent2017.pdf

 

 

[colinwalt]

Thanks!

[alertmeipp]

Been out of this nam for awhile.

 

How could the cancellation impact the valuation?

 

 

[finetrader]

Cancelation order represent 30% of order book at Landqart Mill for 2018.

 

Knowing all the operational  leverage implied into those type of mills, it is not hard to see that the mill will not be very efficient in 2018.

 

EBITDA will be significantly lower than anticipated. So is valuation.

[alertmeipp]

I am ok with Landquart being a drag..

my main concern is loonies... most of its cost benefits seems to come down to loonie depreciated a lot in last couple years coz of low oil and gas price.

[alertmeipp]

Any thoughts on this quarter?

Expected to be weak ?

 

Seems 2018 will be the turn around year?

[KJP]

Landqart has been sold for CAD 28 million.

[Cigarbutt]

Interesting.

I had held FTP years ago when the main businesses were wall paper manufacturing and money printing (security papers products).

Missed the roller coaster ride and the dissolving paper adventure after.

Ironic that they made more money (higher proceeds) when they entered into a leaseback transaction in April 2016 for the Landqart mill (+/- 59 million CDN).

[sculpin]

Landqart has been sold for CAD 28 million.

 

Very disappointing value for this asset. At least they will now have enough cash in the parent company to fully repay the 2019 debentures. And now that it is a single asset Company, would be much easier to sell this to an industry or strategic buyer.

[sculpin]

 

Sale of Security Paper Segment results in Dissolving Pulp pure play

 

FTP-TSX

Daryl Swetlishoff CFA | 604.659.8246 | daryl.swetlishoff@raymondjames.ca Bryan Fast CFA (Associate) | 604.659.8262 | bryan.fast@raymondjames.ca Forest Products | Pulp & Paper

 

Outperform 2

C$6.00 target price ↑

 

Cashing in on Security Paper Segment

 

Recommendation

 

Following the announced sale of the Security Paper segment, Fortress Paper is now a pure play dissolving pulp (DP) producer, with capital to deploy on strategic acquisitions or initiatives. We would expect news over the coming quarters regarding deployment of this capital which could be a potential catalyst for the stock. In addition we look for operational consistency at the company’s FSC mill in Quebec as driving share price performance. With DP pricing an area of strength lately, we note that Fortress remains highly levered to changes in the commodity with a US$25/mt move in the price resulting in a $1.00/sh impact to our theoretical target price.

 

Analysis

 

 Sale of Security Paper Segment results in Dissolving Pulp pure play –

 

Fortress Paper

announced the sale of their security paper segment division to the Swiss National Bank and Orell Fussli Holding (the purchasers). The purchase price paid was CHF21.5 mln (~C$28 mln), and effectively exits Fortress completely from the security paper segment. We highlight that the company had previously entered into a sale leaseback for the land and buildings of the security paper business in Jun-16 for C$59 mln. The transaction results in a multiple of 3.7x LTM EBITDA, and 5-6x 2018 EBITDA (following the cancellation of 30% of the order book for 2018 highlighted below).

 

 Cancelling of contracts at Landqart – As the company highlighted on Nov-17, Fortress received notice from a large customer of the security paper segment, that they would be cancelling their orders for 4Q17 and 2018. These orders accounted for ~16% and 30% of the order book for Landqart for 2017 and 2018 respectively. We expect this resulted in talks with the Swiss National Bank to sell the security paper segment, as to not interrupt the normal course of business for the country’s currency distribution.

 

 Increasing Dissolving Pulp forecast – Dissolving Pulp (DP) prices have remained relatively stable over the last few months averaging ~$915/mt in 4Q17 to date, with the most recent quote in the US$930/mt range. Recent industry commentary has suggested that ~500k mt of dissolving pulp supply switched to paper pulp following the recent rally in pulp prices. We expect this to a supportive development for DP pricing, as such we are increasing our 2018 forecast by US$25 to US$950/mt. Coupled with the sale of the security paper segment, we are increasing our target by $1.50/sh to $6.00/sh.

 

Valuation

 

Our $6.00/sh target is based on an unchanged 6.25x 2018 EV/EBITDA, which is the midpoint of the 5-year trading range of 5.25-7.25x.

 

[KJP]

Do they actually have excess capital?  As of Q3, they had $34 million in cash.  The Landqart sale should free up about $5 million in restricted cash.  So, assuming no taxes on the Landqart sale, they now have about $67 million (34+28+5) in cash.

 

They've got $13-14 million in annual term debt amortization, plus $62 million of convertible debentures due in  December 2019.  So, that's about $90 million in debt coming due in the next 24 months.

 

Needless to say, the Thurso can have production issues at any time, so should be run with adequate liquidity.  Given all that, do they really have excess capital?

 

I know they should be rolling in money if DP prices and USD/CAD stay where they are and they actually get their costs down to CAD$850/ton, but I'd like to see that actually happen first.

[sculpin]

Do they actually have excess capital?  As of Q3, they had $34 million in cash.  The Landqart sale should free up about $5 million in restricted cash.  So, assuming no taxes on the Landqart sale, they now have about $67 million (34+28+5) in cash.

 

They've got $13-14 million in annual term debt amortization, plus $62 million of convertible debentures due in  December 2019.  So, that's about $90 million in debt coming due in the next 24 months.

 

Needless to say, the Thurso can have production issues at any time, so should be run with adequate liquidity.  Given all that, do they really have excess capital?

 

I know they should be rolling in money if DP prices and USD/CAD stay where they are and they actually get their costs down to CAD$850/ton, but I'd like to see that actually happen first.

 

Yeah I was surprised at RJ's comment on that. I personally don't think they have excess capital as the cash is there to offset the debenture maturity of $62 million in 2019. The other loans are at the subsidiary level (Thurso) and I would expect cash flow there to pay any interest & principal payments.

 

 

[roundball100]

Any ideas why they would enter a $5 million credit agreement at LIBOR plus 5.75 %?

 

https://finance.yahoo.com/news/fortress-paper-announces-us-5-231800079.html

 

-Roundball

[Cardboard]

On the rate, I don't think that they have much flexibility. They have leverage, no profitability and already assets tied to other loans.

 

The amount is really low, relatively speaking, but it is in USD and a revolver. So this looks like a line of credit in USD to facilitate purchase of supplies or equipment for the plant.

 

Cardboard

[OptsyEagle]

Anyone have any idea when we can expect the Chinese (MOFCOM) to review the current anti-dumping ruling for FTPs dissolving pulp?

[triedtestedand]

OptsyEagle:

 

  Check out documents in the following:

 

  https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds483_e.htm

 

  The latest document from June 7, 2017 notes very succinctly:

 

"We wish to inform you that, pursuant to Article 21.3(b) of the Understanding on Rules and Procedures Governing the Settlement of Disputes, Canada and the People's Republic of China (China) have agreed that the reasonable period of time for China to implement the recommendations and rulings of the Dispute Settlement Body (DSB) in the China – Anti-Dumping Measures on Imports of Cellulose Pulp from Canada (DS483) dispute will be 11 months from 22 May 2017, i.e. the date of adoption of the DSB's recommendations and rulings. Accordingly, the reasonable period of time will expire on 22 April 2018."

 

 

DP prices have remained firm now for several months at ~$920USD ... helped in no small part by the strength of BEK & NBSK markets (with swing mills switching to such vs DP to max profitability)

 

If FTP's MOFCOM burden essentially comes off in ~3mo from now, it'll remove one more weight from their shoulders.

 

 

Cardboard & roundball100:

 

- LIBOR & 5.75% brings them to about 7.5% at current rates ... so not much different than their other long term debt ... and with it as a revolver vs a loan, then they only pay for it as they need to

- the amount isn't big, but does allow them to leverage an unencumbered asset to add to their cash pool

 

I think they want to get ahead of things as much as possible with the $62M of 2019 debs ... the more they can get those paid down/paid off ... the more proactive they can be elsewhere ...  their other lenders all seem fairly friendly

 

 

[roundball100]

TriedTested - thanks.  It's been a long wait.  -Roundball

[Cardboard]

https://www.stockwatch.com/News/Item.aspx?bid=Z-C%3aFTP-2562986&symbol=FTP&region=C

 

This guy is delusional.

 

The sale of the security paper business was a disaster: lost one client and had to fire sale the whole thing.

 

Thurso should emerge from its operational hiccups and hopefully that we get better DP pricing along with a benefit from the end of the Chinese duties. However, it has not created any value yet.

 

Now, there is a tiny bit of cash on the balance sheet or still not enough to honour coming maturies in full and the guy is talking like we are some sort of financial global behemoth hunting the world for opportunities or a beast to reckon with???

 

Cardboard

[sculpin]

https://ca.reuters.com/article/topNews/idCAKBN1FR2PM-OCATP

 

As cryptominers eye Quebec, forest companies see opportunity

MONTREAL (Reuters) - At least two Canadian forestry companies are reviewing offers by cryptocurrency miners who want to lease excess mill space in Quebec, a province where electricity prices are among the lowest in North America.

 

Resolute Forest Products (RFP.N) and Fortress Global Enterprises (FGE.TO) said they have received interest from Canadian and foreign cryptominers, although both cautioned their talks are preliminary.

“They want space and cheap power,” Chad Wasilenkoff, chief executive of British Columbia-based Fortress Global, said. U.S. miners are interested in space at the company’s Quebec dissolving pulp mill, he added.