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

[triedtestedand]

Looks like Viscose prices may have bounced off a bottom ...

 

CCFGroup daily/weekly reports (via an eval subscription)  show VSF regular and premium grades strengthening (with further increase monday), and operating rates increasing.  DP staple grades at $1000/ton.

 

Viscose_feedstock_market_weekly_Jul_16-20_2012-1.pdf

Viscose_fiber_market_weekly_Jul_16-20_2012.pdf

[Liberty]

Thanks Sculpin. Good to see another source confirm that the contracts are holding up.

[keerthiprasad]

Thanks Sculpin. Good to see another source confirm that the contracts are holding up.

 

Agreed.  Its nice to hear.  Although if I recall, these were the same guys recommending SinoForest as "strong buy" or something like that lol (I know fraud is a different animal).

[Liberty]

Thanks Sculpin. Good to see another source confirm that the contracts are holding up.

 

Agreed.  Its nice to hear.  Although if I recall, these were the same guys recommending SinoForest as "strong buy" or something like that lol (I know fraud is a different animal).

 

Heh, yeah, and the SEC oversaw Enron and Worldcom, so I guess all companies overseen by the SEC are potentially guilty by association  ;)

 

I think SinoForest was covered by analysts from all the big banks and big analyst firms in Canada, as well as many big international/U.S. banks. Another reason not to trust analysts to do your DD for you... But if you've done your DD, it doesn't hurt to see if their facts match with yours (and if not, figure out why).

 

http://www.sinoforest.com/analystcoverage.asp  (wouldn't be surprised if that list was even longer before the Muddy Waters report)

[motownsf]

Update from Dundee Securities today:

 

 

Maintaining A BUY But Lowering Our Target to $35

 

We are lowering our target on Fortress Paper (FTP-T) to C$35.00/share from C$42.00/share, after decreasing our dissolving pulp (DP) price assumptions. We continue to rate FTP a BUY.  Our target price is based on a target forward EV/EBITDA multiple of 4.7x (unchanged) applied to our normalized EBITDA forecast of C$145 million (was C$155 million), and have accounted for the recently issued convertible debentures as equity.

 

Cotton Markets Remain Weak But Close To Bottoming & DP Contracts at Thurso Holding

 

Cotton markets remain weak… Cotton and DP are highly correlated (~89% correlation coef.) as rayon (the end product of dissolving pulp) and cotton are substitutes in textile production (Exhibits 1-2). With the recent free fall in cotton prices, we were not surprised to see DP prices (and rayon prices) following. Prices of cotton are currently at US$0.72/pound, down 13% MoM, 23% YTD and more than 30% YoY (Exhibits 3-4) on the back of expectation for a slowdown in demand as slower economic growth concerns reemerged, and significant buildup in global cotton inventories (world stock to use of 66% vs. 50Y average of 46% - Exhibits 5-6).

 

…but we can see the bottom…While cotton demand/supply fundamentals seem pretty bleak at the moment, we believe that most if not all bad news is already priced in. Here, we would like to highlight the considerable divergence of cotton prices from the three major food crops (corn, soybean, and wheat - Exhibit 8). Prices of these commodities have skyrocketed in the past several months (up between 25% and 50% MoM - Exhibit 7) as the massive drought in the US has been killing the crops and yields have been expected to come down, and this is on top of already low stock-to-use ratios. While the recent drought conditions have impacted yield expectations for cotton as well, we highlight that cotton is a fairly drought-resistant crop, so the damage has not been as bad so far. Having said that, if weather conditions worsen, and Texas and the rest of the Southwestern US (where the majority of cotton is planted) continues to get no rain in the upcoming weeks, we might see more deterioration in yields (see Exhibit 9).

 

…as farmers switch acreage to other profitable crops & traders start short covering. As a result of the spike in corn and soybeans (both at all time highs), we expect that during the next planting season, farmers will switch some of the acreage currently devoted to cotton to other crops to profit from the higher margins (Exhibit 10). This should put a limit to further declines in cotton prices as supply diminishes. Finally, considering the amount of speculative shorts on cotton (see Exhibits 11-12) we would expect a surge in short covering interest should we see a sustained upturn in prices.

 

DP prices to follow cotton price trends… Prices have fallen to US$950/tonne and given our outlook on cotton, DP prices should have bottomed at this time. Looking at past correlation data, DP prices should be slightly higher (~US$100/tonne more) given where cotton trades today. We have lowered our long term DP price forecast by US$50/tonne (to US$1,150) to reflect continued weakness in the cotton market, and given the fairly high supply additions in the DP market (Exhibit 13).

The good news… contracts at Thurso are holding…Thurso is price protected to a large degree with three separate contracts covering almost 80% of the mills' future DP production (5-10 years @ an average  min price at US$1,150/tonne depending on the contract - see Exhibit 14 for full disclosure).

 

Sculpin,

 

Would you be able to attach the report w/exhibits? Thanks very much.

[sculpin]

Kalertas, who followed FTP & Sino Forest, at Dundee has moved on to an IR/corp development job in industry (I think some fertilizer company). have tried to attach the full pdf.

FTP072412.ashx.pdf

[OptsyEagle]

Update from Dundee Securities today:

 

 

Maintaining A BUY But Lowering Our Target to $35

 

We are lowering our target on Fortress Paper (FTP-T) to C$35.00/share from C$42.00/share, after decreasing our dissolving pulp (DP) price assumptions. We continue to rate FTP a BUY.  Our target price is based on a target forward EV/EBITDA multiple of 4.7x (unchanged) applied to our normalized EBITDA forecast of C$145 million (was C$155 million), and have accounted for the recently issued convertible debentures as equity.

 

So if $35.00 per share relates to a 4.7x  EV/EBITDA, then today's price of $14.33 per share means this company is currently trading at only 1.9 x  EV/EBITDA.

 

Is that math correct or did I forget to carry a 1 or something?

[triedtestedand]

Q2 results moved up to August 7th

 

http://finance.yahoo.com/news/fortress-paper-release-second-quarter-234400364.html

 

 

[Liberty]

Q2 results moved up to August 7th

 

http://finance.yahoo.com/news/fortress-paper-release-second-quarter-234400364.html

 

Almost same day as last year (August 8, 2011). Conf call is pretty early, though. In Vancouver it'll be 5 AM.

[triedtestedand]

Apparently mgmt is in Thurso on 8th for a board meeting, that's why conference call is set for 8EDT.

[Liberty]

Apparently mgmt is in Thurso on 8th for a board meeting, that's why conference call is set for 8EDT.

 

That makes sense.

 

Thurso isn't that far from where I am. Maybe I should drop by and say "hello"  ;) 8) :P

 

That reminds me. At some point I should contact IR and see if there's a way to get a tour of the plant. I doubt it (if only for insurance reasons), but you never know..

[jeffmori7]

We now have market cap under 200M...that is for me the value of either Thurso or Dresden alone, considering a valuation about 5 times EBIDTA.

 

Still no catalyst before next quatery results..and still..

we will probably have to wait one or two quarter more to see the real perfromance of Thurso and know what will happen with Landquart.

[Liberty]

We now have market cap under 200M...that is for me the value of either Thurso or Dresden alone, considering a valuation about 5 times EBIDTA.

 

Still no catalyst before next quatery results..and still..

we will probably have to wait one or two quarter more to see the real perfromance of Thurso and know what will happen with Landquart.

 

Indeed, and the recent debentures are soaking up demand that might otherwise have gone to the common. Could take a little bit of time for that effect to pass...

 

It sucks to have missed the bottom, but I know I'll never buy the bottoms and sells the tops. That's just not how it works. All I can do is buy things that I believe are worth more than I pay and that have a good runway in front of them, and then be patient.

 

I'm not in the "be patient" part of the deal.

[OptsyEagle]

Indeed, and the recent debentures are soaking up demand that might otherwise have gone to the common. Could take a little bit of time for that effect to pass...

 

 

The stock has lost 25% of it's value in July alone.  WOW.  Except for those debentures, I cannot think of anything that really changed, except that they now have all the money they need for their capital commitments, Thurso is on track, Landqart is improving, the co-gen should be done and producing in another quarter and Dresden is firing on all cylinders.

 

Can't wait until that debenture liquidity is soaked up.  This is rediculous.

[triedtestedand]

Via TMX.com ...

 

About 9M worth of the new debentures have changed hands since the deal closed, which is the value of the over-allotment.  They have hovered around 96-to-97, but in the last two days price has dipped under $96.00 (yesterday on high volume, today on low volume), which is the break-even for the underwriters.  It is telling that in the past couple of days the newer ones have traded lower than the older ones, even though the newer ones convert at a lower price, have longer duration, higher coupon, so not sure if that means the underwriters have started to clear their book or not ... might need a few more days to tell.

 

NEW DEBS

 

Date                 Open         High         Low         Close         Volume Chg         % Chg

07/25/2012 95.000 95.000 93.300 94.000 148,000 -1.100 -1.16%

07/24/2012 96.000 96.000 95.050 95.100 883,000 -1.180 -1.23%

07/23/2012 96.040 96.280 95.750 96.280 143,000 0.280 0.29%

07/20/2012 96.750 96.750 95.550 96.000 300,000 -0.350 -0.36%

07/19/2012 96.850 97.000 96.350 96.350 621,000 -0.150 -0.16%

07/18/2012 96.100 96.500 96.010 96.500 114,000 -0.500 -0.52%

07/17/2012 96.150 97.000 96.100 97.000 632,000 0.500 0.52%

07/16/2012 95.900 96.500 95.900 96.500 175,000 0.600 0.63%

07/13/2012 96.000 96.000 95.700 95.900 47,000 -0.420 -0.44%

07/12/2012 96.500 97.000 96.000 96.320 377,000 -0.180 -0.19%

07/11/2012 97.450 97.500 96.250 96.500 493,000 -0.920 -0.94%

07/10/2012 98.010 99.000 97.000 97.420 5,059,00  97.420 0.00%

 

OLD DEBS

 

Date                 Open         High         Low         Close         Volume Chg         % Chg

07/25/2012 95.500 97.500 95.000 95.500 271,000 0.060 0.06%

07/24/2012 96.000 96.000 95.440 95.440 272,000 -0.160 -0.17%

07/23/2012 96.000 96.000 95.600 95.600 59,000 -0.400 -0.42%

07/20/2012 96.000 96.000 95.680 96.000 167,000 0.000 0.00%

07/19/2012 96.150 96.150 95.900 96.000 74,000 0.100 0.10%

07/18/2012 96.000 96.000 95.500 95.900 198,000 -0.100 -0.10%

07/17/2012 96.000 96.000 95.750 96.000 228,000 0.000 0.00%

07/16/2012 96.000 96.000 95.900 96.000 169,000 0.250 0.26%

07/13/2012 95.500 96.000 95.500 95.750 140,000 0.000 0.00%

07/12/2012 96.000 96.000 95.750 95.750 232,000 -0.250 -0.26%

07/11/2012 97.000 97.000 95.010 96.000 250,000 -0.900 -0.93%

07/10/2012 97.550 97.550 96.900 96.900 262,000 -0.850 -0.87%

07/09/2012 98.000 98.000 97.500 97.750 283,000 -0.750 -0.76%

07/06/2012 98.900 98.900 98.500 98.500 68,000 -0.500 -0.51%

07/05/2012 98.250 99.000 98.250 99.000 141,000 0.250 0.25%

07/04/2012 98.750 98.750 98.750 98.750 18,000 -0.250 -0.25%

07/03/2012 98.350 99.000 98.350 99.000 167,000 1.500 1.54%

06/29/2012 97.490 97.500 97.490 97.500 184,000 0.010 0.01%

06/28/2012 97.490 97.500 97.490 97.490 147,000 -0.010 -0.01%

06/27/2012 98.000 98.000 97.490 97.500 113,000 -0.800 -0.81%

06/26/2012 98.270 98.300 98.000 98.300 130,000 -0.700 -0.71%

06/25/2012 98.990 99.000 98.990 99.000 34,000 0.010 0.01%

[OptsyEagle]

Is it just me or do the debenture trading numbers make very little sense.  The two debenture issues seem to be trading within $1 of each other (about 1% difference) but the newer debentures pay 7% and convert at $31.00, whereas the older debentures pay only 6.5% and convert at $37.50.  There are different maturity dates but I find it hard to see that making any significant difference, in this example.

 

For a buck, would you not prefer the newer debentures over the older issue and shouldn't that in itself make a larger price difference. For Fortress Paper, all this is irrelevant, but how others invest constantly perplexes me.  Don't get me wrong.  My method has not been all that lucrative lately, but I do find it hard to see how these other people's strategy are supposed to pay off.  Would love to find out.  I keep asking.

[keerthiprasad]

Is it just me or do the debenture trading numbers make very little sense.  The two debenture issues seem to be trading within $1 of each other (about 1% difference) but the newer debentures pay 7% and convert at $31.00, whereas the older debentures pay only 6.5% and convert at $37.50.  There are different maturity dates but I find it hard to see that making any significant difference, in this example.

 

For a buck, would you not prefer the newer debentures over the older issue and shouldn't that in itself make a larger price difference. For Fortress Paper, all this is irrelevant, but how others invest constantly perplexes me.  Don't get me wrong.  My method has not been all that lucrative lately, but I do find it hard to see how these other people's strategy are supposed to pay off.  Would love to find out.  I keep asking.

 

I was very confused by these numbers too.  I guess these are the same people who have made the stock so cheap too, so I guess I don't agree with them on a number of issues haha.

[BRK7]

Lenzing AG Intensifies Pulp Cooperation with Sappi

 

http://www.lenzing.com/fileadmin/template/pdf/konzern/presseinformationen/Presse_EN/PA_2012_07_23_EN_Sappi_Intensifies.pdf

 

[bathtime]

July 13th Comark analyst report attached (this might have been shared already).

comarkftp.pdf

[tombgrt]

July 13th Comark analyst report attached (this might have been shared already).

 

FTP was their "top pick" at $50+ last year... The first of February it was their top pick with a $58 price target. Dresden and Landqart were worse than they are now, only DP pricing was slightly better and Thurso seemed to be ramping up faster. What where their thoughts on DP prices 16-18 months ago? Wouldn't give much weight to it. But it's great to read more bearish thoughts nonetheless.

 

 

I'd say Grantham's latest letter is far more interesting and relevant for my (our?) long term thesis:

http://www.gmo.com/websitecontent/GMOQ2Letter.pdf

 

We are after all looking at this as a 5-10 year investment. Well, I am.

 

The following comments on this topic are mine personally and reflect my Foundation’s portfolio (and a total

lack of career risk!).  These comments are based on a time horizon of 10 years and beyond.  The portfolio

investment implications are that investors should expect resource stocks – those with resources in the ground

– to outperform over the next several decades as real prices of the resources rise.  Farming and forestry,

though, are at the top of the list.  Serious long-term investors should have a very substantial overweighting in

a resource package.  I suggest for long-term investors a resource position of at least 30%.  Another relative

beneficiary of resource pressure is the quality group of equities.  Resources are a smaller fraction of final sales

than average and higher profit margins make them more resilient to margin pressures. 

 

A lot of stuff that was discussed in the Lenzing paper (http://www.lenzing.com/fileadmin/template/pdf/konzern/lenzinger_berichte/ausgabe_89_2011/LB_2011_2_Haemmerle.pdf) in terms of sustainability is brought up as well.

[Liberty]

July 13th Comark analyst report attached (this might have been shared already).

 

FTP was their "top pick" at $50+ last year... The first of February it was their top pick with a $58 price target. Dresden and Landqart were worse than they are now, only DP pricing was slightly better and Thurso seemed to be ramping up faster. What where their thoughts on DP prices 16-18 months ago? Wouldn't give much weight to it. But it's great to read more bearish thoughts nonetheless.

 

Those were pretty much my thoughts. It's good to read the doom & gloom and test your thesis against it, but I don't give these analysts any predictive power. A year ago they were predicting something totally different, and chances are that in a year things will again be totally different. They are only good at telling you were you were in the recent past.

 

If they really had any predictive talent they wouldn't be analysts, they'd be hedge fund managers (and we know that even hedge fund managers, on average, aren't that good when it comes to predicting the future)  :P

 

What I'll be curious to learn about in the next few quarters is how much Thurso is getting for its non-pre-sold DP.

 

These analysts always talk about the spot price, but my understanding is that these spot prices are sometimes arrived at in trades of small quantity during low volume periods, and at different grades from what Thurso will produce. So they might not always tell the whole story (though I also don't expect a huge premium).

[triedtestedand]

Maybe I'm just looking for "Have we seen a bottom in DP pricing?" events, but have seen various snippets the following the past week or so from the ccfgroup.com website that have been encouraging.  I scraped a couple of charts and attach, including:

 

a) VSF pricing chart from last week

    - bouncing back from lows of ~14500/ton in mid-June ... up to ~15100/ton as of last week

    - NB: Pricing has gone subsequently higher (towards ~15500/ton this week) if you track the snippets of the daily reports that they make public without a subscription.

 

b) VSF export chart

    - exports ballooned in June ... not sure if it's good or not (i.e. if product of faltering domestic consumption)

 

[BRK7]

recent article on conversion of mills, including some comments from peter vinall:

 

http://www.workingforest.com/new-pulp-mills-old/

 

[Liberty]

http://www.bloomberg.com/news/2012-08-07/cotton-harvest-in-india-set-to-tumble-as-dry-weather-hurts-crops.html

[tombgrt]

Explains the jump in price over the last 3 days.

 

http://www.globalpost.com/dispatch/news/science/120804/james-hansen-climate-change-heat-drought-us-europe-nasa

 

Droughts are happening 10 times more than in the 1950s-1970s and it's getting worse. Can't see how this will get 'fixing' other than through extreme economic and social conditions that force major economies to act. Like Grantham said, we are politically flawed for these kind of things.