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

[Liberty]

It's starting to look like the 'fat pitch' days for this business might soon be over. Nobody knows what the stock will do in the short term, but I wouldn't be surprised if it kept going up for a while because: Thurso is getting closer to operations, the company confirmed in the last call that things were on track there, and they've started buybacks (small, but a signal - they issued stock in the 50s a few months ago and now they're buying it back in the 30s right before their earnings are set to explode, that should provide nice returns). There are also persistent rumors about a new acquisition at Lebel-sur-Quevillion in Quebec. The mayor there told a journalist they might be able to make an announcement in the next month. I trust Chad wouldn't do a deal if it wasn't on very good terms, so hopefully this turns out well.

 

I just feel fortunate to have been able to get a significant stake with an avg cost around 33, because I doubt we'll see those kinds of prices again once Thurso ships and/or if there's a second DP plant in the pipeline, unless Mr. Market goes uber-bear and everything goes down (but if that happens, FTP will have the cash flow for buybacks and more acquisition of distressed assets, so it's win-win).

[DCG]

I'm impressed with what I've read about Wasilencoff, but still have a tough time understanding the future of the businesses this company owns. The world is moving away from paper money, and wall paper went out of style in the 80's. I know there's more to FTP than that, but that makes up a good amount of their business.

[Liberty]

Don't give up, keep reading about it, DCG. Your questions are answered in various places/interviews/presentations (ie. paper money growing at a few percent a year even in countries where electronic payment is growing fastest, and because bills wear out and need to be replaced, you always need more. Paper money is also growing faster in the developing world, and if you have a technical lead, you can eventually take market away from competitors. As for wallpaper, it's still very popular in parts of Europe and Russia, and the non-woven kind is growing pretty fast, they're selling all they can make and want to increase production, and they're a low-cost producer).

 

But the real future of FTP is dissolving pulp. I wouldn't be surprised if they made 1-3 acquisitions in next couple years.

[OracleofCarolina]

http://www.nytimes.com/2011/07/07/business/07currency.html?_r=1&hp

 

Story on reduced printing of currency in today's NYT

[Liberty]

Interesting.

 

In 1970, at the dawn of plastic payment, the value of United States currency in domestic circulation equaled about 5 percent of the nation’s economic activity. Last year, the value of currency in domestic circulation equaled about 2.5 percent of economic activity.

 

Isn't 2.5 percent of current GDP much bigger than 5% of 1970 GDP? A relative low, but still a lot of bills.

[Liberty]

More rumors about FTP in LSQ.. something's going to be announced in "mid-july".

 

http://www.abitibiexpress.ca/Economie/Ressources-naturelles/2011-07-05/article-2624286/La-renaissance-de-Lebel-sur-Quevillon/1

 

Not confirmed that it's FTP, though, so a rabbit could be pulled out of the hat and it could be someone else...

[Liberty]

Interview with Chad on BNN:

 

[Liberty]

FTP down a fair bit over the past couple days. Might be one of the last entry points this low before Thurso goes online this fall and/or before a new acquisition is announced (we should soon learn if FTP is the one that bought the LSQ mill)..

[FFHWatcher]

How does ftp expect to produce DP for cash costs of about $650/t when Mercer and Fibrek can't produce NBSK for anything close to that?  Is DP production that inexpensive compared to NBSK?

[Liberty]

From the FTP Stockhouse board:

 

Here's a little discovery I have made.

 

 

On june 21, Fortress have register some new company names in Quebec. Those names are:

 

 

FORTRESS SAWMILL LTD.

 

FORTRESS GLOBAL CELLULOSE LTD.

 

and their french version.

 

https://www.registreentreprises.gouv.qc.ca/RQAnonymeGR/GR/GR03/GR03A2_19A_PIU_RechEnt_PC/PageResultat.aspx?T1.JetonStatic=7eeeb2c7-7f86-469e-8638-a6306ccdee8f&T1.CodeService=S00436#_ctl0_CPH_K1ZoneContenu1_Cadr_IdSectionResultat__ctl2_K1DetailsRecherche_Ancre

 

 

Make your guess, LSQ have a pulp mill and a sawmill. I guess the word "global" in "Fortress Global Cellulose Ltd." mean that this company will include both mills?

 

Who is this ROGER BOILEAU, CORPORATION'S VICE-PRESIDENT, SPECIAL PROJECTS? He officially start working for Fortress on feb 10, 2011.    

I tried to find informations about this guys, sure we will learn more if we know who he is.

 

eddyc

 

Very nice work, Eddy! I found a Roger Boileau with a Sawmill at La Tuque, which is far, but not THAT far from LSQ:

http://www.manta.com/ic/mt6fkpp/ca/produits-forestiers-la-tuque-inc

 

"Produits Forestiers La Tuque Inc is a private company categorized under Sawmill Consultants and located in La Tuque, QC, Canada"

 

Not the smoking gun, but a good sign.

[Liberty]

Looks like I was wrong about my previous call about timing, it appears that the debt issue in the US has spooked Mr Market and FTP has good down pretty significantly. Seems like a screaming buy to me right now, with Thurso on track and a very probably new acquisition soon... Heck, Thurso alone would more than justify the current market cap if it can start producing without major delays.

[Liberty]

http://www.marketwire.com/press-release/fortress-paper-announces-second-quarter-2011-results-tsx-ftp-1547264.htm

 

Fortress Paper Ltd. (TSX:FTP) ("Fortress Paper" or the "Company") reported 2011 second quarter EBITDA of $4.6 million on sales of $90.3 million. For the first quarter of 2011 EBITDA was $1.0 million on sales of $85.5 million and for the three months ended June 30, 2010 EBITDA was $8.3 million on sales of $60.5 million.

 

Fortress reported adjusted net loss of $1.0 million for the second quarter of 2011 or diluted adjusted loss per share of $0.07. In the first quarter of 2011 the Company reported adjusted net loss of $5.6 million or diluted adjusted loss per share of $0.42. For the second quarter of 2010 the Company reported adjusted net income of $4.5 million or diluted adjusted earnings per share of $0.39.

 

The Pulp Segment produced operating earnings of $3.3 million in the second quarter of 2011. This result reflects the innovation of our team to tailor a unique specialty product which enabled us to realize significantly higher pricing and a margin that could not have been attained producing traditional NBHK. Not only did this provide improved financial results, but through the extensive development and training that occurred to achieve the tolerances required for this new specialty grade pulp, we are better prepared for the coming transition to dissolving pulp production.

 

The non-woven wallpaper base segment nearly equaled its record first quarter performance with operating earnings of $6.8 million. Margins remain strong and the order log is healthy. We will complete an additional upgrade to our facility during our annual August maintenance shutdown. This will add approximately 10% additional capacity which is expected to have a positive impact starting in the third quarter of 2011. The waste recycling plant continues to increase the overall efficiency of the mill allowing us to further improve our competitive position.

 

The security and specialty paper segment experienced another challenging quarter with an operating loss of $6.8 million. The newly converted PM1 to a high security paper-machine is performing to specifications; however, similar to the first quarter of 2011, the Landqart mill second quarter 2011 results were impacted by high raw material costs and industry overcapacity due in part to the postponement of implementation of several major currencies. In addition, the strong Swiss currency continues to have a negative impact on the operational cost structure of the mill. As previously reported, the mill has consolidated production of bank note and security papers into PM1 and has temporarily suspended the commercial operation of the smaller PM2 which will be utilized for trials and sample production until such time as this additional capacity is required.

[bonechip1]

From the recent Rayonier conf call - thought it might be relevant to those who own FTP.  I think Rayonier's positive comments on commodity dissolving pulp market are important because Rayonier is much less biased and conflicted than FTP may be as Rayonier produces specialty cellulose, not commodity dissolving pulp such as FTP:

 

Michael Roxland – Bank of America/Merrill Lynch

 

Over the last couple of months, we’ve had a number of dissolving pulp capacity announcements aimed to start not only in China, but here domestically. And obviously, you are well entrenched in the market, but any concern that these proposed capacity additions eventually erode your market share? And practically giving the amount of capacity that’s targeted to come online, I think somewhere in excess of 2 million tons over the next year-and-a-half?

 

Lee M. Thomas

 

I think a couple of things, Mike. I think one, our product line is dissimilar from the capacity announcements that have been made. There haven’t really been any capacity announcements in our specialty categories. What I have seen has all been in the commodity viscose area and that’s really unrelated to the demand for our products. The second thing is just as an aside, I’d be surprised if all of that capacity came home. I have seen a lot of the announcements. I have gone to see a little bit about people who postpone the announcements, I mean, postpone the implementation. So I think both of those things, the big one from our point of view is it is not in the product categories that we produce.

 

Michael Roxland – Bank of America/Merrill Lynch

 

But in terms of let’s assume, for the sake of argument that you are right and that not all of that capacity comes on, but let’s assume that a certain amount does and just targeting the commodity viscose. Any concerns that as you start to ramp up your C mill in 2013 and start selling initially into commodity viscose that your margins get, I wouldn’t say get crushed, but certainly get impacted by the capacity that’s come on earlier?

 

Lee M. Thomas

 

We are really not concerned about that. And we’re not concerned for a couple of reasons. One, the discussion we had about bringing on our Specialty Cellulose as quickly as we can qualify customer orders. But the second reason is as we’ve done our work around commodity viscose and the demand for that, we think there will be strong demand for rayon on fabric for the long-term. We see – and we spend a lot of time looking at the growth and where that’s going, how it relates to cotton and cotton availability, so we actually think that commodity viscose will go through it up-and-down cycles, but throughout the process we think, you are going to have good steady demand for rayon.

 

Paul G. Boynton

 

In fact, Mike, if you track the announced expansion for the viscose customers through the same period, you’d see matching if not more planned demand for that other than these 2 million tons you have announced here. Our thought of course is all that’s going to retreat for a little bit and they come back on just as we have seen in the past. So I think history is a good teller here before we had prices of viscose pulp down in the $700 to $800 range, it went up to 13 to 14 at one peak there, a lot of announcements of capacity coming on, and then it dropped back down to $800, $700 a ton. A lot of those announcements went away and those people went away. And then it went back up to 26 and everybody said okay, well, we’re on it again. I think we will see the same thing. A lot of folks kind of change their mind.

 

And so it’s a very commoditized business. And one thing that we do is we stay focused on our business and our customers know that. And I think they appreciate it. So even the small number of players that can kind of flow in and out on the fringe of our business, our customers recognize that we stay with them even when prices on the commodity side are much higher. They know we don’t chase that and therefore I think that keeps us pretty solid in the marketplace.

 

 

http://seekingalpha.com/article/282853-rayonier-ceo-discusses-q2-2011-results-earnings-call-transcript

[Liberty]

Thanks for posting that Bonechip, interesting to have another perspective.

 

What did you think of the last Q and of the current price?

 

IMHO, a 370m market cap seems crazy for all the assets that they have and all the juicy catalysts on the horizon (even without any acquisitions..).

[FFHWatcher]

Thanks for posting that Bonechip, interesting to have another perspective.

 

What did you think of the last Q and of the current price?

 

IMHO, a 370m market cap seems crazy for all the assets that they have and all the juicy catalysts on the horizon (even without any acquisitions..).

 

1/ Myself and many others here own or have owned NBSK pulp producers in the past.  The companies always trade cheaper, usually significantly cheaper than the cost or value of their assets.  Fibrek and Mercer both trade at a fraction of what it cost to buy and/or build their mills.  This same valuation allows investors like Chad to pick up similar assets for pennies on the dollar.  I am perplexed how any pulp company can possibly consider building a new plant when you can buy an existing one for 25 cents or less on the dollar.  Therefore, certainly no investors want to pay for assets that Chad hasn't even purchaed yet.  That just seems a bit crazy.

 

2/ not only do pulp related companies trade at a discount to their assets but a discount to their earnings too, likely due to their cyclicality.  Since FTP has minimal earnings on their existing assets, and no earnings on their developing assets at Thurso, it doesn't make a lot of sense to pay up for earnings that should be there in the future...and therein exists the opportunity here.  As that timeline shrinks at Thurso so does the risk.  If the share price stays depressed, the market is saying that it wants to see the earnings before it is willing to pay for them.  Same goes for future assets.

 

I own merc, fbk and i am a more recent ftp shareholder. :(

[Liberty]

I can understand that NBHK isn't getting a high multiple, but I thought the market was usually a bit more forward-looking than that. With conversion on track and mostly on budget and a good track record of execution..

 

Oh well, I'm not complaining. Bought some FTP at 26 this morning :)

[bonechip1]

Liberty,

 

I am of the same opinion as you - have been adding aggressively below $30.  The recent Q was about what I expected.  I thought the remarks on Landqart's business pipeline were interesting.  They should be able to fill banknote capacity on PM1 and PM2 with recent announcements by ECB and other central banks - should ease competitive pressures.  Dresden is firing on all cylinders as usual - if they can get the other 2 divisions firing on all cylinders, FTP shareholders should do OK.  At some point, I believe that FTP will trade on a multiple of earnings, rather than a discount to asset value.

[T-bone1]

Fortress' last 10k sats there sensitivity to a 1% move in the CHF is only $19k . . . it seems like it had a larger effect in the last quarter though.  Swiss manufacturing is getting killed by the high franc right now, not sure how long this will continue or if anything can be done to mitigate this

[bonechip1]

Strong CHF is certainly a factor, in addition to higher input costs (cotton prices) and lower capacity utilization.  If Landqart can gain some traction in Durasafe banknotes over the next few years, these factors would have much less of an impact on results due to ultra high projected margins on the Durasafe notes. 

[Liberty]

High cottons prices are bad for Landqart, but they're good for Thurso, so you lose some, win some..

[lessthaniv]

I first picked up FTP stock when the price fell below $6 in December of 2008. When I took my position off the table I was ecstatic and reveled in my good fortune only to be completely humbled when time proved that I took my profits WAY too early.  Over the last couple of trading sessions, I've been able repurchase my entire position without too much of a premium to my earlier exit.

 

I think this is a $.50 cent dollar.

 

<IV

 

 

[Liberty]

I think this is a $.50 cent dollar.

 

IMHO it's even cheaper than that, but time will tell.

 

In any case, welcome back to the FTP club! Ejoy the ride  8)

[lessthaniv]

Hi Liberty,

 

I'll share my back of the envelope numbers. I do see the opportunity for this to be a much bigger business however that's dependent on too many variables for me to forecast. The three main ones are;

 

1) Chad's ability to find another Thurso, or two?

2) Dissolving pulp prices need to remain firm. Demand/Supply seems to support Chad's thesis but that could change over time.

3) Competition is already increasing. Mercer is looking to convert the Celgar/Stendal Mills. Paper Excellence bought Domtar's Prince Albert mill for conversion. Sodra is converting one of its lines. The Gore group bought Weyerhauser's Cosmopolis mill for conversion. Satire and Rayonaire are looking to increase capacity.

 

At the moment China's appetite and tough conditions in the cotton market seem to be creating demand that exceeds supply.

 

Anyway, with that in mind I'm just looking at the current opportunity right in front of our nose and I'll follow the other variables over time. I did a little sensitivity table using a range of EV/EBITDA multiples from 5X-6X (which I think is reasonable) together with projected EBITDA outcomes of $140M - $180M.

 

2012 EBITDA Estimates ($M)

 

$140 $150 $160 $170 $180

5 $700 $750 $800 $850 $900

5.5 $770 $825 $880 $935 $990

EV/EBITDA6 $840 $900 $960 $1,020 $1,080

6.5 $910 $975 $1,040 $1,105 $1,170

 

If I use the middle ground, I look for an Enterprise Value range between  $880M - $960M.  Net debt is about $24M implying an equity value range of $856M - $936M.

 

This puts a value of about $60 - $66 per share. 

 

Bottomline - the downside looks very limited, the upside looks fantastic and you get a fantastic operator in Chad who been outstanding to date . And, this all flows over a very low share count.

 

Cheers,

 

<IV

 

 

[lessthaniv]

Looks like the Dundee Analyst has a $70 target.

 

http://business.financialpost.com/2011/09/01/fortress-paper-a-top-pick-cheap-too/

 

Fortress Paper a top pick, cheap too

Don MacKinnon/National Post

 

Don MacKinnon/National Post

 

Chad Wasilenkoff, CEO, of Fortress Papers, poses for photographs with some of the currency his company produces in North Vancouver, B.C.

 

   

Eric Lam  Sep 1, 2011 – 9:53 AM ET | Last Updated: Sep 1, 2011 10:43 AM ET

 

If there’s anything more exciting than paper, we don’t want to know about it.

 

And the most exciting paper company at the moment is Fortress Paper Ltd., a top pick in the small-cap tree space from Richard Kelertas with Dundee Capital Markets.

 

“Fortress is moving ahead aggressively on all fronts in terms of expansions, upgrades, and profit acceleration,” he said in a morning update.

 

Fortress shares have been under “considerable pressure,” dropping 56% since touching a 52 week-high of $63.15 a share in February.

 

“We strongly advise investors to use this weakness to buy Fortress shares on the cheap ahead of upcoming positive catalysts,” Mr. Kelertas said.

 

These include the start-up of dissolving pulp production at its Thurso mill in Quebec by early October, possible new banknote paper contracts by the fourth quarter, and even another pulp mill acquisition.

 

Heading into the fourth quarter of 2011 and beyond, Mr. Kelertas expects performance in all the company’s divisions to improve substantially.

 

He maintains a “Buy” rating for Fortress and a target price of $70 a share.

[Liberty]

Small delay at Thurso:

 

http://www.marketwatch.com/story/fortress-paper-provides-update-on-dissolving-pulp-conversion-project-2011-09-02

 

I don't mind too much. I'd rather they take their time and get it right, and if it's partly because of the "rescheduling of the delivery and installation of specialized equipment", it might be out of their control anyway.