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

[tombgrt]

Sounds about right triedtestedand, thank you for your calculations. Should be an easy double from here with Dresden at par, break-even landqart and EBITDA of $40M from Thurso. I would be very suprised if we fell much further but would certainly welcome it (80% position and growing).

 

A lot of good news actually at the AGM from what I can tell:

- I was expecting $800/cash cost for Thurso after cogen, not $725.

- Dresden keeps growing. Really amazing if you think about where they started and for what price they bought the business. 3.5-4x EBITDA offers are of course foolish, worth at least current market cap. At 60k tonnes maybe $300M.

- I was expecting news on the delayed order in the third quarter at best, not now.

- Not doing any new acquisitions, focussing on what we have now and LSQ.

- DP holding up despite total killing in cotton price, contracts seem to work out. Future DP price is where a multibagger will ultimatily have to come from for FTP. I'm confident in the LT prospects.

 

[lessthaniv]

TTT,

Thanks for sharing your notes. Good stuff.

[BRK7]

BRK7 -  Can you point me to the source of your updated Invesco filing for May?  I saw one for April on SEDAR, dated May 8th.

 

 

Triedtested,

 

Thanks for sharing your AGM notes.

 

The May “Alternative Monthly Early Warning Report” is posted on SEDAR, with a filing date of Jun 7 2012.

 

-brk7

[bonechip1]

Thanks so much for these fantastic AGM notes triedtestedand.

 

Chip

[tombgrt]

My portfolio up 11% today. Also shows how much it suffered in the last couple of weeks ;D, although I have been buying plenty under $22.

[sculpin]

Canaccord

 

PAPER AND FOREST PRODUCTS

Fortress Paper Ltd. | Neal Gilmer, MBA, 1.416.869.7294

FTP : TSX : C$16.70 | C$253.0M | Buy , Target C$42.00

•        Landqart has significant banknote order reinstated; maintaining BUY rating and C$42.00 target

Investment recommendation

Fortress Paper announced after the market close yesterday that its banknote subsidiary Landqart, has had a material banknote order reinstated. The company had announced last fall that it had secured a significant order that would improve the utilization of the two paper machines at Landqart in 2012. That order was subsequently postponed, and weak results have continued in 2012. With the order now reinstated, Landqart's operating metrics and margins should improve materially in H2/12. We had previously assumed that Fortress would be successful in securing the contract beginning in Q3/12, therefore, the announcement does not affect our estimates. However, we view the announcement as positive in that it removes one of the issues that have plagued the stock recently.

Following weak Q1/12 results and the uncertain update on the timing of the banknote order, we believe that many investors had discounted the possibility that Fortress would not be successful in reinstating the order. With this update, we believe investors can be confident that Landqart should cease being an earnings drag, and attention should be placed solely on Thurso. We acknowledge that investors continue to await confirmation that Thurso will reach full operating capacity and cost structure, but we believe at the current share price, Fortress should have a nice bump following this announcement. However, the overhang in the shares is likely to remain until Thurso’s operating rate and cost structure is confirmed, which may occur between now and the Q2/12 earnings call expected in early August. But, we view this announcement as a positive piece of news that should put some positive momentum in the stock. We reiterate our BUY recommendation and C$42.00 target price.

Valuation

Our 12-month target price of C$42.00 represents a 6.4x EV/2013E EBITDA estimate and is supported by our DCF valuation.

 

[lessthaniv]

I was praticularily glad to hear that DP pricing has decoupled from Cotton pricing as of late. Our long time thesis (on the thread) seems to be validated by witnessing DP pricing hovering around the Chinese producers cash costs. Good news.

[gokou3]

Thurso

o Confident of hitting ~$725/tonne cost basis once co-gen is up … for modelling purposes, before that add ~$100+/tonne

 

Thanks for the great notes, triedtestedand.  Regarding the $725 figure, I wonder if that includes shipping to China? In the March 2012 presentation, management presented a table with a DELIVERED cash cost to Shanghai of $659/tonne (after co-gen), which includes shipping cost of $100/tonne.

 

So, even assuming the $725 figure includes shipping, the cost projection has still crept up by $66/tonne or ~10%. Still not too bad, but of course would love to see them meet their original projections.

 

[lessthaniv]

gokou3,

 

This has been addressed by a couple of analysts recently. Variable costs have been affected negatively by inflation and its not expected that the original cash costs as presented will hold. Nothing management did - it affects the industry. Higher oil, chemicals etc ....

 

Raymond James is modeling all in delivered cash costs of $825 pre cogen and $725 post cogen.

 

Cheers,

 

<IV

[colinwalt]

I was wondering about that too, so thanks for the explanation <IV

 

This would mean (all other things being equal) that competitors are subject to similar cost pressures and therefore should mean that the higher break-even price for high cost producers will cause them to close down or postpone bringing on-line new production at a higher price point than in the past, resulting in a higher long term average price trend...

 

Anyone think there's something too simplistic with the above logic?

[gokou3]

<IV,

 

Thanks for the details.  It's good that the entire industry is affected equally for this cost increase.  FTP would be able to maintain its cost ranking.  However, it would be *relatively* less competitive vs cotton, at least in the short term.

[bathtime]

Yes, Chad indicated cost structure would rise across the industry - I forget what dollar amount he gave.

 

Not much I can add to triedandtested's great report. I want to comment on this part: "I was mostly interested in the Q&A, which was fairly thorough (lasted ~50min), and was refreshingly candid. I got what I was looking for, which was primarily reassurance."

 

I also felt Chad was candid. A big part of going to the meeting for me was making a subjective assessment of the personal qualities of the CEO. I liked him. I felt he answered questions directly and honestly. I left with a greater confidence in his capabilities.

 

 

 

[shoeless]

triedtestedand and bathtime I too thank you both for sharing your notes/comments from the AGM

 

[bathtime]

ZeroHedge "recommended" FTP on Friday:

 

http://www.zerohedge.com/news/material-banknote-order-reinstated

 

"Well, if the chart of De La Rue is any indication of how banknote printers respond to potential European disintegration, it just may be that the best hedge to a VIX soaring to 80, aka "disorderly Grexit" as explained earlier by Citi, just may be TSX:FTP."

 

Hussman quoted from the ZH article today:

 

http://hussman.net/wmc/wmc120611.htm

 

I believe that speculation that the order is related to the EU crisis/breakup is incorrect.

[Liberty]

http://www.marketwatch.com/story/fortress-paper-updates-status-of-dissolving-pulp-production-2012-06-11

 

VANCOUVER, BRITISH COLUMBIA -- (Marketwire) -- 06/11/12 -- Fortress Paper Ltd. ("Fortress Paper" or the "Company") (TSX:FTP) is pleased to announce that it has ramped up production of dissolving pulp at its Fortress Specialty Cellulose Mill to an average of approximately 92% of final targeted capacity during the last 10 days and have averaged approximately 83% over the last 4 weeks. The mill commenced production of dissolving pulp at the end of 2011 and has been steadily improving its production efficiency and technical capabilities. Following initial delays, we recently took scheduled periods of downtime to eliminate process constraints. These have proven successful and the ramp-up to full capacity continues to improve. The dissolving pulp being produced is meeting customer specifications and shipments to viscose customers located in China are increasing in volume.

 

Chad Wasilenkoff, Chief Executive Officer of Fortress Paper, commented: "We are pleased with the ramp-up of dissolving pulp production at our Fortress Specialty Cellulose Mill and the quality of the product. With our continually increasing production of dissolving pulp as well as process optimization, we are well on our way to achieving management's forecasted top quartile cost structure once our Cogeneration facility is fully operational. We expect our dissolving pulp segment to provide a meaningful contribution to our financial results as the year progresses."

[tombgrt]

Great news.  :) Next stop LSQ official closing of the deal?

 

For now really glad that I dared to buy more at $17 (and twice at $20). I hope others did it too! If DP price holds its spot price we should see major share price improvement in coming quarters once market factors in the value for Thurso + LSQ.

[Liberty]

Great news.  :) Next stop LSQ official closing of the deal?

 

For now really glad that I dared to buy more at $17 (and twice at $20). I hope others did it too! If DP price holds its spot price we should see major share price improvement in coming quarters once market factors in the value for Thurso + LSQ.

 

The way Chad was speaking on the CC (and what was reported from the AGM), I would expect LSQ to close any day now.

 

Glad I increased my number of FTP shares by 40% around $17-18 :)

[lessthaniv]

LSQ closing next up ..... and then an agreement to sell the output shortly thereafter? When Thurso was announced the steps were executed very quickly. Obviously, lots of planning went into this and I expect that round 2 will be no different. I suspect the flowchart on the white board of the boardroom has been drawn out for quite some time.

 

For Thurso:

 

March 18,2010 - announce aquisition of Thurso

April 30, 2010 - closes on Thurso

May 6, 2010 - energy supply agreement with Quebec

May 10, 2010 - NBSK pulp agreement with IFP

Jun 1, 2010 - production of NBSK begins

Jun 3, 2010 - appoints manager for conversion

Jun 7, 2010 - buys equipment for conversion

Oct 4, 2010 - announce DP contracts with China.

[Liberty]

Agreee, <IV. Chad's M.O. is not to do a deal unless he's already pretty sure that all the pieces of the puzzle will fall into place rapidly.

 

I would expect that if LSQ closes, it means that almost everything else's in the bag.

[gokou3]

Great news.  If anything, the market can now value the company as a ongoing business.

[OptsyEagle]

It's interesting that when Fortress announced the acquisition of LSQ, the stock market made some assumptions of how things were going and might work out in the future, and priced the stock upwards of $38.  Now, when the stock market knows that those assumptions are working out, it prices the stock at $23.

 

I would love to know how all that is rational.  I know in the long run it doesn't matter, but I always find this stuff so fascinating to watch.

[tombgrt]

And to think that some of us thought FTP was very cheap at $38! I've even bought a handful of shares at $37 thinking it was a steal... Nothing rational about the market. Stock ran up almost 40% in two days on news that we all expected sooner or later and it's still valued as if most will turn to crap.

 

[Liberty]

And to think that some of us thought FTP was very cheap at $38! I've even bought a handful of shares at $37 thinking it was a steal...

 

I still believe it was cheap at 38 (if you hold it for a few years), it just got a heck of a lot cheaper since then!

[tombgrt]

And to think that some of us thought FTP was very cheap at $38! I've even bought a handful of shares at $37 thinking it was a steal...

 

I still believe it was cheap at 38 (if you hold it for a few years), it just got a heck of a lot cheaper since then!

 

Don't get me wrong, I do too. I just had to be more patient I guess. Easy to say now, I'm already glad I don't time the market or look at macro stuff...

 

But easily worth $76 (twice $38..) by 2014 and possibly a bunch more but that will depend on broader markets and cotton/DP prices.

[prunes]

Agreed that this has been a good example of the manic-depressive nature of the market. No way that the intrinsic value of the company has changed this much in the past few weeks. Instead you probably had a large owner looking to liquidate and not enough demand, price being determined at the margin.

 

I still need to learn how to size my positions better. I snatched up a lot at $26, which I thought was a great price. (I still do.) After we fell to $17 I felt I had already allocated enough to FTP and didn't want to allocate more. At $26 I was afraid to miss out; at $17 I was sitting on my hands. Part of this is the psychology of the difficulty of catching a falling knife I suppose, but I think more of it is that when I see what I think is a good deal, I have trouble waiting for the price to fall lower before I max out my allocation.