sculpin Posted April 17, 2017 Share Posted April 17, 2017 This is a very simplistic back of the envelope estimate of the upside potential of Fortress Paper due to its massive leverage to dissolving pulp prices, further cost reductions and the very small amount of equity outstanding. This guesswork relies on Company maintaining its production efficiencies & volumes in both businesses, increase of DP to $1,200 and increased sales of Durasafe at Landquart. Most likely the goal levels of EBITDA will not be reached until 2018 on an annual basis. Purpose of this exercise is not to say the shares will hit this price, but to demonstrate the potential upside if industry conditions continue to improve and management continues to execute on their business plan. Balance sheet cash position & debt levels are shown as Q416 on a standstill basis. Obviously continued cash generation will lead to either lower debt or higher cash position by 2018 less planned cap ex. Currently with the shares trading at about $8, the market does not factor in any of this potential upside. Fortress Paper SOTP "Rosy" Forecast Cash $37mm Thurso $120mm Ebitda at 5 multiple $600mm Landquart $20mm Ebitda at 8 multiple $160mm Total Estimated Asset Valuation $797mm Less: Convertibles $56mm Other debt including Thurso project debt $142mm Total Debt $198mm Net Equity Value $600mm Net Equity Value/Share $42.00 From above...**Fortress Paper Thurso EBITDA estimates reflecting the massive upside leverage of the plant. Based on 165,000 ADMT annual production. Dissolving pulp price of $1,200 seems reasonable based on indusry growth & VSF price performance over the last year. Valuation of Thurso alone at 5 multiple on Ebitda of $120mm would be $600mm versus current market cap of about $115mm and $270mm total corporate enterprise value. Page 18 latest FTP presentation... http://fortresspaper.com/wp-content/uploads/2017/02/feb_15_presentation.pdf $850 delivered cost $0.75 CAD$/USD$ Dissolving Pulp Price $850 $1,200 $1,600 EBITDA $36MM $124MM $212MM Above does not include capacity additions announced in November.... In November 2016, Fortress Paper announced a $23.4 million investment in a digester capacity increase and production of value added products 16 • The project includes the installation of a fifth digester which is expected to result in an incremental annual production capacity increase of 8,500 ADMT in 2018 and 17,000 ADMT in 2019 • Strategic project of utilizing birch to manufacture dissolving pulp and development in hemicellulose derivative products. Birch grows abundantly across Canada and is considered an underutilized species of tree • Funding for the project from non-repayable contributions by Federal and Provincial agencies should approximate $12.5 million with the balance from the Hydro Québec "Rate L" tariff, cash on hand and operating cash-flows Link to comment Share on other sites More sharing options...
sculpin Posted April 17, 2017 Share Posted April 17, 2017 In January 2011, Cormark initiated coverage of Fortress Paper with a target of $65. While almost everything did go wrong that could in the intervening years, their report did highlight the significant upside leverage of the Thurso mill in a higher dissolving pulp price. Now the balance sheet has been cleaned up with no major financial maturities until 2019 and the Company was able to navigate through the downturn with minimal equity dilution. One snippet from this full report highlights the potential upside.... In March 2010, Fortress purchased a shut-in Northern Bleached Hardwood Kraft (NBHK) mill in Thurso, Quebec for $1.2 MM with the intention to convert it into a lowcost dissolving pulp facility. Led by a world class team, the conversion process is, to date, both on time and budget and slated for Q3/11 start-up. Dissolving pulp is a chemically refined bleached pulp with very high cellulose content and is used as a feedstock in rayon production. Rayon is most commonly used in clothing manufacturing as a non-synthetic alternative to cotton. Driven by strong rayon demand, dissolving pulp prices have skyrocketed – appreciating from ~$1,000 a year ago to recent prices of $2,300/MT. With a scarcity of dissolving pulp globally, prices actually went no offer in late 2010. While we believe the current market dynamic is unsustainable, driven by our expectation for continuing rayon demand, continuing high cotton prices, and supply that cannot respond fast enough, we believe dissolving prices should remain above average, and are assuming US$1,300/MT going forward. At this dissolving pulp price we believe Thurso alone is worth $58 per share - every $100 dissolving pulp price increase is worth ~$10 per Fortress share based on our valuation methodology. Management is aggressively searching for another conversion candidate which could see this valuation potentially double, and given the track record, we ascribe a better than 50% likelihood of another deal in 2011. Ultimately, we see Fortress amassing sizeable dissolving pulp capacity and selling the entity to an Asian rayon producer looking for security of supply Link to comment Share on other sites More sharing options...
Liberty Posted April 21, 2017 Author Share Posted April 21, 2017 I just wanted to say congrats to those who bought this a couple years ago when it was around $2. Glad some people are finally getting multi-baggers out of this one! Link to comment Share on other sites More sharing options...
triedtestedand Posted April 25, 2017 Share Posted April 25, 2017 http://www.4-traders.com/FORTRESS-PAPER-LTD-1410067/news/Fortress-Paper-WTO-largely-upholds-Canadian-complaint-over-China-pulp-trade-24262481/ Link to comment Share on other sites More sharing options...
sculpin Posted April 25, 2017 Share Posted April 25, 2017 http://www.4-traders.com/FORTRESS-PAPER-LTD-1410067/news/Fortress-Paper-WTO-largely-upholds-Canadian-complaint-over-China-pulp-trade-24262481/ Thanks - surprising that there has not been a press release from the Company. Need to know if they can claim substantial monetary damages for past duties or if the duty now on our exports of pulp to China will now be duty free? Could be very material Fortress Paper says the duty has cost the company about $20 million annually in lost revenues. It said the duty has put thousands of jobs in the Canadian dissolving pulp industry at risk, including more than 300 at the Fortress Specialty Cellulose Mill in Thurso, Que. The higher duty on new mills has "effectively frozen expansion" such as the indefinite suspension of a conversion project at its cellulose mills in Lebel-sur-Quevillon, Que. Fortress said the Canadian pulp was not being dumped into China and the imposition of the duty has not had any positive impact on local prices. Tembec CEO James Lopez said the company hopes "a dialogue between Canada and China will soon resolve the conflict." http://www.ctvnews.ca/business/canada-files-wto-complaint-against-china-s-dumping-duties-on-pulp-1.2055557 Link to comment Share on other sites More sharing options...
sculpin Posted April 25, 2017 Share Posted April 25, 2017 Excellent... Fortress pleased with WTO ruling on anti-dumping duties Fortress Paper Ltd (C:FTP) Shares Issued 14,286,092 Last Close 4/25/2017 $7.85 Tuesday April 25 2017 - News Release Mr. Yvon Pelletier reports FORTRESS PAPER ANNOUNCES POSITIVE OUTCOME FROM WTO PANEL DECISION ON CHINESE ANTI-DUMPING MEASURES Fortress Paper Ltd. is pleased that the World Trade Organization (WTO) issued its panel report today finding in favour of Canada in the dispute relating to China's imposition of anti-dumping measures on Canada's dissolving pulp industry. The WTO panel concluded that China's Ministry of Commerce failed to conduct its injury investigation in accordance with its WTO obligations. The time frame provided to China to comply with today's decision will be negotiated by Canada and China or established by an independent arbitrator. At the end of this period, Canada could decide to initiate WTO compliance proceedings if it is of the view that China did not implement the panel's decision properly. Fortress Paper is of the view that a proper implementation of the panel decision should result in China removing anti-dumping duties on imports of Canadian dissolving pulp. Yvon Pelletier, chief executive officer of Fortress Paper, commented: "We are gratified by the WTO panel ruling, and congratulate the government of Canada, its legal team and dedicated government officials who provided unwavering support and commitment through more than two years of effort. Our relationships with viscose producers in China remain strong despite the challenges these duties presented to our business, and we are encouraged that, following implementation of this decision, our dissolving pulp sales channels will benefit through the expansion of business opportunities in China. In the meantime, we continue our efforts to optimize customer mix and geographical diversification." About Fortress Paper Ltd. Fortress Paper operates internationally in two distinct business segments: dissolving pulp and security paper products. The company operates its dissolving pulp business at the Fortress specialty cellulose mill located in Canada, which has expanded into the renewable energy generation sector with the construction of a cogeneration facility. The company operates its security paper products business at the Landqart mill located in Switzerland, where it produces banknote, passport, visa, and other brand protection and security papers. Link to comment Share on other sites More sharing options...
triedtestedand Posted April 25, 2017 Share Posted April 25, 2017 Sculpin: Yeah ... FTP has done excellent job of mitigating the impact of the duties through: a) diversification to non-Chinese customers b) production of premium DP that can be sold for more than market rates That said, the duties put FTP at disadvantage in any negotiation with non-Chinese customers, even with premium DP blends. Default has been a $25USD/ADMT ish discount to DP prices ... so if they could take that away, and add a bit of a premium back into things, that will increase their margins. Link to comment Share on other sites More sharing options...
sculpin Posted April 26, 2017 Share Posted April 26, 2017 Sculpin: Yeah ... FTP has done excellent job of mitigating the impact of the duties through: a) diversification to non-Chinese customers b) production of premium DP that can be sold for more than market rates That said, the duties put FTP at disadvantage in any negotiation with non-Chinese customers, even with premium DP blends. Default has been a $25USD/ADMT ish discount to DP prices ... so if they could take that away, and add a bit of a premium back into things, that will increase their margins. Could be very material. Hoping to hear back from the Company with more details on how they think this may impact them Link to comment Share on other sites More sharing options...
lessthaniv Posted April 26, 2017 Share Posted April 26, 2017 Great news. This never made any sense from the get go. Link to comment Share on other sites More sharing options...
triedtestedand Posted April 26, 2017 Share Posted April 26, 2017 low level details via: https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds483_e.htm Link to comment Share on other sites More sharing options...
lessthaniv Posted April 26, 2017 Share Posted April 26, 2017 Here is the decision documents: https://docs.wto.org/dol2fe/Pages/FE_Search/ExportFile.aspx?id=235928&filename=q/WT/DS/483R.pdf Addendum to report: https://docs.wto.org/dol2fe/Pages/FE_Search/ExportFile.aspx?id=235929&filename=q/WT/DS/483RA1.pdf Link to comment Share on other sites More sharing options...
Cardboard Posted April 26, 2017 Share Posted April 26, 2017 I am wondering if the weakness in the share price currently may have anything to do with the latest lumber duties. If Canadian lumber production is reduced, which looks like will be the case, what is the impact on pricing of chip supply? Cardboard Link to comment Share on other sites More sharing options...
sculpin Posted April 26, 2017 Share Posted April 26, 2017 I am wondering if the weakness in the share price currently may have anything to do with the latest lumber duties. If Canadian lumber production is reduced, which looks like will be the case, what is the impact on pricing of chip supply? Cardboard Don't think it will have any affect on them at all. Could actually lower the prices they have to pay for logs (surplus of Canadian wood not being taken for other uses) which they source from the timberlands around the Thurso Quebec area. Link to comment Share on other sites More sharing options...
lessthaniv Posted April 26, 2017 Share Posted April 26, 2017 Agreed. There is also a very tight float on the stock and the volume is extremely low these days. The recent decline from early April has occurred with barely any volume. On the order of 60k shares total since the April 3, 2017 close at $8.38. Link to comment Share on other sites More sharing options...
sculpin Posted April 26, 2017 Share Posted April 26, 2017 Agreed. There is also a very tight float on the stock and the volume is extremely low these days. The recent decline from early April has occurred with barely any volume. On the order of 60k shares total since the April 3, 2017 close at $8.38. Share price weakness could in part be related to the fallout from the debacles going on with HCG and EQB. Shareholders of either of these on margin may need to sell other small or mid cap positions they hold to bolster their portfolios. This is especially noticeable on a very illiquid stock such as FTP. Link to comment Share on other sites More sharing options...
triedtestedand Posted April 26, 2017 Share Posted April 26, 2017 softwood lumber duties vs Thurso does (mostly) hardwood based DP low volumes are the norm ... I'm just wondering why FTP isn't on a drip feed of repurchasing shares ... they have room under the current share NCIB (which expires in late August) to repurchase another 400K+ shares ... they repurchased 600K+ all in one fell swoop when then NCIB was announced, but nothing since. And mgmt (eg Yvon) purchased some just before end-of-quarter, so if he's able to do so, then NCIB should allow such. Link to comment Share on other sites More sharing options...
lessthaniv Posted April 27, 2017 Share Posted April 27, 2017 Raymond James has bumped up target to $9/share. https://www.themarketsdaily.com/2017/04/23/fortress-paper-ltd-ftp-price-target-raised-to-c9-00.html Link to comment Share on other sites More sharing options...
doc75 Posted May 10, 2017 Share Posted May 10, 2017 This has really been taking a drubbing lately. Any insights? I think Q1 numbers are released tomorrow. Link to comment Share on other sites More sharing options...
sculpin Posted May 10, 2017 Share Posted May 10, 2017 This has really been taking a drubbing lately. Any insights? I think Q1 numbers are released tomorrow. FTP has sold off on seasonal weakness in dissolving pulp prices - we are down to about $870 tonne from highs in the $950+ in late 2016 period. Last year DP was around $850 at this time. Link to comment Share on other sites More sharing options...
kab60 Posted May 10, 2017 Share Posted May 10, 2017 Just started to take a look, it looks interesting and with big upside potential (lots of leverage to commodity prices+financial leverage), but do any of you guys actually hold a significant position (in % terms), and how do you think about positioning/downside risk? That combination of leverage has taken out a couple of companies discussed on this board already (ZINC, RELY (not dead yet, but down a lot) plus perhaps Rentech (operating problems mixed with leverage is pretty bad). Link to comment Share on other sites More sharing options...
Cardboard Posted May 12, 2017 Share Posted May 12, 2017 Not bad... http://www.stockwatch.com/News/Item.aspx?bid=Z-C%3aFTP-2470637&symbol=FTP®ion=C Cardboard Link to comment Share on other sites More sharing options...
sculpin Posted May 12, 2017 Share Posted May 12, 2017 Not bad... http://www.stockwatch.com/News/Item.aspx?bid=Z-C%3aFTP-2470637&symbol=FTP®ion=C Cardboard https://seekingalpha.com/article/4072798-fortress-papers-ftplf-ceo-yvon-pelletier-q1-2017-results-earnings-call-transcript As an aside, we are very aware of the recent stock decline that we have been experiencing. We believe it is related to some recent declines in dissolving pulp prices that we expect to be short-term. However, the magnitude of the decline in the share price does not at all match our expectations, both for internal results as well as our positive outlook on supply, demand, and pricing in the dissolving pulp market. As recent as this morning, we’ve just found out that the mill in South America has taken on an unexpected one-month downtime, which could cause some further tightening of the dissolving pulp market short-term. At this point, we are not aware of any undisclosed material adverse information that warrants this recent share price decrease. Link to comment Share on other sites More sharing options...
sculpin Posted June 8, 2017 Share Posted June 8, 2017 Continuing to build up the much higher margin banknote paper business in Landquart... Fortress to provide Durasafe to Bahamas Central Bank Fortress Paper Ltd (C:FTP) Shares Issued 14,323,184 Last Close 6/8/2017 $6.69 Thursday June 8 2017 - News Release An anonymous director reports FORTRESS ANNOUNCES NEW DURASAFE BANKNOTE CUSTOMER The Central Bank of the Bahamas has chosen to use Durasafe, the proprietary banknote substrate of Fortress Paper Ltd.'s wholly owned subsidiary, Landqart AG, for the two highest-denomination banknotes of its Crisp Evolution series. The company expects that Landqart will commence shipments in 2018. Axel Wappler, chief executive officer of Landqart, commented: "The choice of Durasafe by the Central Bank of the Bahamas for its high-denomination banknotes reflects the desire of this Central Bank to be at the forefront of currency technology and design, and underscores the superior capabilities of the Durasafe substrate. We are delighted to have secured another customer for Durasafe as we continue to expand our market share. With the announcement in March of Durasafe shipments for a new customer in 2017, the Swiss 20 franc note entering circulation in May and the Swiss 50 franc note winning two prestigious, international awards, we are building good momentum for this product." Durasafe is an innovative composite paper-polymer-paper banknote substrate developed by Landqart in co-operation with the Swiss Federal Institute of Technology (ETH) Zurich. Durasafe is composed of two cotton paper outer layers with a fully transparent polymer core. The polymer core in Durasafe adds stability and higher mechanical strength properties to banknotes as well as high security features. The substrate's unique properties allow windows to be formed virtually anywhere on the banknote, and can contain a watermark and security fibres as well as traditional security features, including easy-to-recognize banknote paper tactility. Link to comment Share on other sites More sharing options...
triedtestedand Posted June 9, 2017 Share Posted June 9, 2017 regular daily max (although small) NCIB buying initiated, with several 20K+ blocks purchased via exemptions https://www.canadianinsider.com/company?menu_tickersearch=FTP%20%7C%20Fortress%20Paper Link to comment Share on other sites More sharing options...
lessthaniv Posted June 16, 2017 Share Posted June 16, 2017 From Sappi: Subsequent to the steady increase in the second quarter, DWP prices have moderated during April 2017. This follows a similar trend in viscose staple fibre, cotton and polyester pricing. Nonetheless, market dynamics appear favourable, with demand growth continuing to exceed our long-term forecast of 4% and only limited capacity addition is expected in the next two years. Link to comment Share on other sites More sharing options...
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