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

[triedtestedand]

We have a new leader ... largest FTP shareholder (excluding options/restricted shares) as of July 31st is no longer Chad ... it is now Invesco. 

 

From Morningstar.ca, SEDAR, and SEDI the following #'s are provided:

 

Invesco                              2410K                  -> Holds >10% ... up ~900K in last 3 to 4 months

Chad Wasilinikoff              2390K                  -> Holds >10%

Mawer                                724K                  -> up 30K in last 3mo

IA Michael (ABC Funds)        800K                  -> same   

FaithLife                              432K                  -> up 80K in last 3mo

Scotia Private                      199K                  (as of Mar 31/12)

Fiera                                    120K                  -> down 200K in last 3mo

Standard Life                        432K                  -> up 80K in last 3mo (is it the same as FaithLife??)

Industrial Alliance                  234K                (as of Mar 31/12)

Dimensional                          111K                  (as of Feb 29/12)

Manulife                                0                        -> sold out - down 226K in last 4mo

BMO Guardian                      222K                  (as of Apr30/12)

Trimark                                  113K                  (as of Mar 31/11 - down 160K in 3mo)

GBC                                      0                      -> sold out - down 208K in last 3mo

HSBC                                    144K                -> new in last 2mo

Bissett                                  134K                -> new in last 2mo

 

The concentration is increasing vs the June tabulation ... the total is now ~8.4M shares (vs 7.8M), or about 59% of 14.3M undiluted shares, spread across a similar -  but not the same - 14 players (2 new, 2 sold out).

 

It appears that Invesco's increase in July alone was ~400K shares, and that there were ~1.1M shares traded during that period. If that is the case, they sucked up 36% of the shares traded (about 90% of which traded below $17/share). Another ~450K shares and they hit 20%

 

Given the volumes traded, the market cap is obviously being set at the edges.

 

 

[OptsyEagle]

Here is their schedule.

 

http://www.bnn.ca/Schedule.aspx

[OptsyEagle]

Here is the clip.

 

http://watch.bnn.ca/#clip737398

[Guest valueInv]

Looks like the cotton situation is not that bad:

 

http://online.wsj.com/article/SB10000872396390444900304577583922816485442.html

[Liberty]

http://www.canadianinsider.com/node/7?ticker=FTP

 

Alfonso Ciotola sold a bunch of shares. Not sure what this means (you can never be sure why people sell).. But maybe he's being replaced by someone else to oversee the European operations and turnaround of Landquart?

 

I can't seem to find it again, but a few months ago there was an announcement about how Alfonso's title was changed. This could all be foreshadowing of a bigger change.

[lessthaniv]

March 30th press release:

 

The Company also announces that Alfonso Ciotola has resigned as President of the Company and Mr. Wasilenkoff has consolidated such position with his role as Chief Executive Officer. Mr. Ciotola will remain with the Company as Chief Executive Officer of Landqart AG and Managing Director of Dresden. In addition, Erich Sulser, Chief Operating Officer of the Company and Chief Financial Officer of Landqart AG, is no longer with the Company. His duties will be assumed by other officers at this time.

 

 

[triedtestedand]

Sedi.ca provides more detailed set of transactions.  He exercised then sold a bunch of $8 options. He did similar at end of 2011, so while not something you want to see, esp when stock is at multi-year lows, doesn't look like totally unprecedented behavior.

[Liberty]

Sedi.ca provides more detailed set of transactions.  He exercised then sold a bunch of $8 options. He did similar at end of 2011, so while not something you want to see, esp when stock is at multi-year lows, doesn't look like totally unprecedented behavior.

 

Thanks, that's useful.

[Arden]

Wanting to know what part of the full price of a T-shirt is raw material, I checked what is the price of a Rayon shirt when bought in bulk, and found this:

http://www.alibaba.com/product-gs/530547013/Customized_Logo_Women_s_Print_T.html

http://www.alibaba.com/product-gs/579326586/rayon_top_blouse_shirt_2012_fashion.html

 

(the price for cotton shirts is similar and perhaps a little higher:

http://www.alibaba.com/product-gs/475124715/Plain_white_color_printing_cute_logo.html)

 

Prices in bulk reach below 1$, which means the cost of producing it is even lower. How can it be this cheap? I'm missing some data regarding how much pulp is needed to make a T-shirt, and I know a T-shirt weighs about 150 grams. Furthermore, I need to know how much Pulp is needed to make a ton a Rayon.

 

I'm really not sure about the missing data, but with rough approximation I find it's pretty significant- about half the price, meaning a doubling in the price will really affect the price of (cheap) clothing.

[Arden]

My friend from another value investor community found the answer. In the chemical process that is used to produce Rayon, you start with C6H10O5 and some chemicals, and the final product is also C6H10O5, so it may be that the weight of the pulp is just marginally greater than the weight of the rayon produced from it.

 

 

If so, and assuming the price of DP is 1050$, then a 150 gram shirt contains 0.1575$ due to the price of the pulp. So even a serious increase in the price of pulp will do little to lower the quantity of product being sold, even in developing countries.

 

Source: http://web.utk.edu/~mse/Textiles/Rayon%20fibers.htm

[triedtestedand]

An article in this week's Economist about De La Rue, and the business of printing banknotes:

 

http://www.economist.com/node/21560275

 

 

[triedtestedand]

Sateri posted H1-2012 results late last week.  They are available at:

 

http://www.sateri.com/download/news/e20120816-Interim_Results_52.pdf

 

Sateri is one of the closest publicly listed proxies to FTP that I can find, as it has mix of DP and VSF production.  Some stats as follows:

 

Market Cap:          ~$790M USD

Revenue:              ~$750M USD (annualized by 2x'ing the results)

EBITDA:                ~$192M USD                    "

Net Debt:              ~$125M USD (calculated using current assets minus current+longterm liabilities)

BV:                        ~$1680M USD

 

Ratios (trades on Hong Kong exchange)

  Price/EBITDA            4.16x

  Price/BV                  0.47x   

  Price/Sales            ~1.05x

 

I don't think they scored the same deals as FTP in securing their assets, so as consequence their book value is higher. 

 

They currently have more DP production than VSF production, but they are building another VSF plant (at a cost of $500M USD!), and that will likely eat into the amount of rayon grade DP they sell externally (and likely eat into their cashflow as well). Further, while revenues from the two divisions are relatively equal, currently the majority of EBITDA comes from the DP side, especially as significant (~22%) portion of DP production is specialty grades (acetate, etc.).  Average selling prices across all grades sold externally (i.e. not consumed by VSF division) was $1300 for H1 (it was $1900 for H1 2011). 

 

[meiroy]

 

as a BTW on wood pulp:

http://www.newscientist.com/article/mg21528786.100-why-wood-pulp-is-worlds-new-wonder-material.html?DCMP=OTC-rss&nsref=online-news

 

"NCC will replace metal and plastic car parts and could make nonorganic plastics obsolete in the not-too-distant future, says Phil Jones, director of new ventures and disruptive technologies at the French mineral processing company IMERYS. "Anyone who makes a car or a plastic bag will want to get in on this," he says.

 

In addition, the human body can deal with cellulose safely, says Jones, so NCC is less dangerous to process than inorganic composites. "The worst thing that could happen is a paper cut," he says."

 

...and that would be absolutely amazing. "NCC will replace metal and plastic car parts and could make nonorganic plastics obsolete in the not-too-distant future"

 

[triedtestedand]

Some more market info from CCF ... it looks like VSF/DP market managing, despite apparent headwinds:

 

a) Lenzing volumes & profit are reasonable ... if take away the 2011 spike in VSF/DP pricing, they actually compare fairly well against prior years.

    http://wood.lesprom.com/news/53248/

 

b) YOY monthly DP imports to China YOY continue to be strong into July (see attached chart), implying that - at the least - VSF mills are importing lots of lower cost DP while spot price remains below $1200 cost threshold needed to ramp up some of the higher cost domestic mills.

 

c) VSF pricing has recovered fairly quickly from June/July dip, back up to ~16000 yuan/mt where it was at entering Q2 (see attached chart).  CCF has recently noted that VSF facility utilization is also now back up over 80%.  It appears that the higher price of domestic cotton in China, combined with import quotas reaching limits on cheaper foreign cotton, is squeezing margins of domestic textile manufacturers, and further encouraging the secular adoption of VSF from cotton.

 

That said, there are lots of variables at play in the macro world, including mixed messages on prognostications for cotton.  But it is encouraging as reinforcing general FTP strategy.    Now we just need Thurso to string a month or two of running at 90% or so. From trader's perspective, it looks like the last week or so has had most on the sidelines (or at the beach) ... most recent 5-day volume average traded on TMX is at a two year low.

 

 

 

[Liberty]

Thanks for the info, triedtestedand.

[triedtestedand]

Hey all:

 

Does anyone have detailed access to DP spot prices?  I can get sense via overview updates I've googled from likes of (ccfgroup.com; yarnsandfibers.com; emergingtextiles.com), but was wondering if anyone knew of other sources out there.  In any event, from each, it looks likes DP pricing is starting to follow VSF in bouncing off bottoms.

 

a) Aug 27th update from Yarns and Fibers alludes to recent quotes up to $1080/mt, and deals rising above $1000/mt lows to $1030.

 

  http://www.yarnsandfibers.com/preferredsupplier/news_fullstory.php?id=35203

 

b) CCFgroup.com alluded to similar yesterday (but don't have subscription to see details)

 

  http://www.ccfgroup.com/newscenter/newsview.php?Class_ID=500000&Info_ID=20120828027

 

 

This is happening even as NBSK prices head further south ... Resolute has apparently announced another $20/mt drop, to $830/mt for September.  Offsetting that (and presumably good for FTP as well) is that wood chip prices are falling as lumber business recovers and sawmills spring back into action:

 

  http://www.troymedia.com/2012/08/04/wood-chip-prices-fell-throughout-the-us-and-canada-in-the-2q12/

 

[lessthaniv]

A couple of new blog posts on the history of LSQ:

 

http://specialtycellulose.com/learning-mill-lebelsurquvillon-2.htm

 

http://specialtycellulose.com/history-lebelsurquvillon.htm

 

 

[OptsyEagle]

Hey all:

 

Does anyone have detailed access to DP spot prices?  I can get sense via overview updates I've googled from likes of (ccfgroup.com; yarnsandfibers.com; emergingtextiles.com), but was wondering if anyone knew of other sources out there.  In any event, from each, it looks likes DP pricing is starting to follow VSF in bouncing off bottoms.

 

 

The problem with dissolving pulp spot prices is that DP only trades perhaps once or twice per week.  It is too illiquid to get good pricing information.  That is why the idea that our customers would walk away from their long term contracts is pretty foolish.  If they had to rely on the spot market they would starve for product way too often and their factories would be shut down many days of the week.  Almost all DP is sold from long term contracts so the pricing of new long term contracts is really the metric for DP prices at any given time.

[sculpin]

From Raymond James this morning...

 

Fortress Paper August 30, 2012

FTP-TSX Company Comment

 

Daryl Swetlishoff CFA | 604.659.8246 | daryl.swetlishoff@raymondjames.ca

David Quezada CFA (Associate) | 604.659.8257 | david.quezada@raymondjames.ca

Forest Products | Pulp & Paper

 

Encouraging Developments in Chinese Rayon Markets

 

Event

Over the summer, inventories of Viscose Staple Fibre (“VSF” or “Rayon”), the

primary end market for Dissolving Pulp (“DP”) are down and prices are up. We

are encouraged by this trend seeing the potential further DP price hikes.

Recommendation

We regard Fortress’ valuation as inexpensive and expect the stock to react

positively to emerging positive commodity price trends and progress with the

Thurso dissolving pulp mill project.

Analysis

DP prices now trending up after bottoming at ~US$1,000/mt – According to

data from Chinese fibre consultants, CCF Group, DP price quotes are currently

in the US$1,050/mt range, up from recent lows of US$995 in July (see Exhibit 1)

in line with our US$1,050 2H12 assumption and our 2013 US$1,080 forecast.

We highlight that this runs counter to continuing weak textile markets (the

Bloomberg Asia Pacific Textiles Index is off 18% since Apr-12 and still trending

down). We regard this as evidence of a DP price floor at ~US$1,000 – supported

by high cash cost Chinese producers (in the $1,150-$1,250/mt range).

Substitution effects benefiting rayon – We note that while typically trading at

a $500-700/mt discount, relative Chinese cotton pricing has increased – now

trading at a $500/mt premium to rayon. As rayon and cotton are substitutes,

we expect this price differential has resulted in increased rayon demand (at the

expense of cotton) despite continuing weakness in the overall Asian textile

market. Chinese VSF inventories are reported at just 11 days supply (down

from 29 in Jun-12) which has spurred an 8% recovery in rayon pricing, now at

RMB15,700/mt (see Exhibit 2). In response, rayon producers have ramped up

production and are now running at 85% of capacity up from just 55% in July.

We expect this has prompted increased demand for DP feedstock contributing

to tighter markets and DP price increases. We highlight that current dry

weather conditions have resulted in spikes in food crop pricing (e.g., corn).

Should these trends continue, this could incent farmers to allocate less land to

cotton – potentially increasing demand for rayon (and DP) longer term.

Valuation

Our $40.00/share target price represents a 5.2x weighted average mid-cycle

EV/EBITDA multiple, in-line with the peer group average of pulp and paper

producers in our coverage universe.

 

[Liberty]

Thanks Sculpin.

[maxthetrade]

Plague of Broken Contracts Frays Cotton Market

 

The market for cotton, one of the world's oldest commodities, has been roiled by rampant breaking of contracts by farmers and textile mills.

 

Over the past two years, cotton prices nearly tripled before they fell by almost two-thirds, triggering the broken deals. Both cotton growers and the overseas mills that spin cotton into yarn have walked away from previously signed agreements after prices turned against them.

 

As much as 20% of the hundreds of thousands of contracts written since 2010—valued at as much as $12 billion—have been reneged on or rewritten, estimates Terry Townsend, executive director of the International Cotton Advisory Committee, an association of governments with cotton interests.

 

"It destroys people's confidence in these markets," says Neal Gillen, former executive vice president of American Cotton Shippers Association. The industry has been shaken, he says, by "the sheer amount of the losses, the audacity of the buyers, their feeling they can just walk away."

 

Full article: http://online.wsj.com/article/SB10000872396390444772404577589611222756168.html

[triedtestedand]

Friday afternoon reading ... latest update:

 

  http://www.stockhouse.com/News/CanadianReleasesDetail.aspx?n=8609485

 

Seems like general progress on all fronts, with holes continuing to be plugged. 

 

At 83% in August, still wanting Thurso to have a super good month for everyone to start nodding heads ... but still reasonable. Actually, if they clawed back the 4 days of production lost to tube failure, they would have been at ~95% of production, which indicates to me that de-bottlenecking is continuing to make progress and they are nearing their targets.

 

And if I was cynical and thinking they were looking to massage EBITDA, I'm guessing they could have pushed out planned maintenance into October, so view that as solid, especially as efforts look to include measures to ensure they get the cogen going for the new year. 

 

Note that with annual production rate target of ~200K tons/yr, and daily rate target of 575 tons (which itself is targeted at ~90% of max day rates north of 600 tons), this implies an estimate of ~2 weeks/year of various and sundry maintenance/downtime (200,000/575 =  348 days = ~50 weeks), so that's worth remembering.  And heck, if they continue to now run smoothly until the shutdown (i.e. at closer to max daily rates), even with the shutdown September could actually be a mid-to-high 80%'s month ... at worst though they set the tone nicely going into Q4.

 

And finally, while they probably need to check hemoglobin levels, it looks like they've been able to start applying the tourniquet at Landqart ... I think everyone was starting to get weary of the words "challenging month/quarter".

[Liberty]

Nice to see things moving in the right direction overall. Not too much to comment about, except that the plan for me at this point is just to be patient and wait for Thurso + cogen and then LSQ to be producing at full capacity. If they can execute and get to that point, I believe shareholders will do really well. If they can get Landquart in the green, even better. Wouldn't be surprised if they acquired another plant once they can self-finance a new conversion from cashflow (if good candidates are still available at the right conditions, of course), and we'll probably see some move over to specialty certification and maybe even some biorefinery stuff as soon as things are stable, which should boost margins..

 

Gotta say that Dresden's a real gem.

[Liberty]

http://longtermvalue.wordpress.com/2012/07/19/fortress-paper-at-last/

 

It might be a bit circular to post this here since they mention this board in the writeup.. :)

[jeffmori7]

http://longtermvalue.wordpress.com/2012/07/19/fortress-paper-at-last/

 

It might be a bit circular to post this here since they mention this board in the writeup.. :)

 

Merci Liberty! Circular or not, it's a great writeup, and the whole blog is really interesting.