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

[OptsyEagle]

They were advertising the interview all morning on TV, on their little tidbit promotion box in the bottom right corner of the screen.  It did eventually dissappear, however.

[Steady77]

Raymond James increased their target price today from $11 to $13.50 with an outperform rating.

 

http://www.cnbc.com/id/100490696

 

[tombgrt]

Here is the link to an excellent Bloomberg "Taking Stock" radio interview with Chad after the Q3 results were released.  I don't see it posted on this forum.  He discusses the dissolving pulp cost structure and the reason for differences in targets from analysts.  The week before the interview (November) they ran at 93% and had a $778 cash cost (almost at $750 target).

 

 

http://chirb.it/3b461e?utm_source=Email+Created+2012%2F11%2F26%2C+3%3A06+PM&utm_campaign=FPNov30&utm_medium=archive

 

$778 cash cost anticipating the cogen live that is..?

 

Also, now he expects average DP level to be $1100 in the future? Remember that time when he expected it to be $1400-1600?

 

 

Learned plenty of lessons with this one. Hindsight is easy but in retrospect my suspicions in december 2011 about his character (very sales-like oriented) were at least somewhat correct.

[triedtestedand]

Cash costs ($778) exclude a) shipping & commissions, but also b) cogen ... the two are about the same amount ($100/ton), so essentially wash each other out.

[OptsyEagle]

I seem to remember him saying "cash cost delivered to China" at $778.  I agree that the Co-gen is operating for that number, but I do believe the delivery cost is in there too.

[OptsyEagle]

Since I wasn't sure I decided to re-listen.  It comes at about 10 minutes into the interview. 

 

The target is "$750 per tonne, delivered to China" and he believes they will hit that target.  He went on to say that the week before they were operating at 93% of capacity and their costs were at $778 per tonne, and that made him feel very confident that they will meet the $750 target, once they reach full capacity.

 

I assume he is using an estimate for co-gen benefits in these numbers.

[tombgrt]

Yes, that's what I was saying. :)

 

He was ranting about those analysts as if they were all full of BS but I think they were actually rather accurate on the topic of fixed and variable costs and various other points. How did he say it again? "Those analysts that set rediculous price targets, sitting at their desk with their MBA or CFA or whatever." Just paraphrasing. Imo he's making up excuses and he's "hurt". Let's hope it helps to turn this thing around...

[Liberty]

I recently had a very interesting discussion with a knowledgeable person in the industry, and the impression that I came away with is that Chad is very good at the financial side of thing and pretty tireless when it comes to finding deals, structuring them, switching assets to higher value uses, etc.. but that his pulp industry experience was slim (I'm sure he's learned a lot in the past few years, though), so he had to rely heavily on his advisors for that side of things.

 

It would seem that Peter Vinall maybe was the one who "led Chad down the garden path" and convinced him that ramp up would be quicker than it actually turned out to be, and probably didn't keep enough margin of safety in the time-table for delays and problems (even excellent pulp companies have all kinds of delays and costs overruns when building or ramping up mills), etc.

 

Hopefully now with Pelletier in and another new board director who has decades of pulp industry experience, the operations will improve and the forecasts will also become more conservative.

 

Chad still deserves a good part of blame, the buck stops with him, but I still see value, the problems appear surmountable, and it seems that actions are being taken to rectify the course... We'll see how it turns out. As I said often, I'm disappointed with how things turned out, but I expect FTP to be worth multiples of $8/share within a couple years.

[netnet]

I have been diving into this name.  (Wow, learning the pulp industry is way more difficult than I had thought on first glance.)  It seems to me that

• People are very disappointed in the cost over runs and delays. (and obviously bummed about the stock price cratering.)
  
• There is some trepidation about the Chinese dumping action.
  
• Worried about the fluctuation in commodity pricing.
  

 

Now, that said, it seems to me that given the non-recourse nature of the debt, and the value of the producing assets,i.e. the wallpaper unit, why is this not a screaming buy?  If it was a deal at 35 is it not a better deal at 8?  Now obviously people are disappointed, and I would be complaining if I bought at 35, but really isn't this a  buy. And if it is not what am I missing? Or is this a case of a finance guy getting in over his head in a new industry?  I do not see any BK risk here and the balance sheet looks to solid enough even if more calamities ensue.  (I have totally discounted the dumping issue.  If you look at the political power line up in China, an adverse ruling is not zero, but it is low probability.) 

[Liberty]

To reiterate, the big picture that I'm looking at is:

 

Within a few quarters we'll see the cogen come online and thurso finish its ramp-up. Finally some good news for Mr. Market.

 

Within a few years, Dresden will probably be sold for something like 200-300m (by then it'll likely produce 60k tons/year or more).

 

Landquart will either start making some money or be dumped. There's been signs for a long time that more orders are coming in, that delayed orders are being reinstated, etc.. We'll see if that's real or not, but it's probably worth something in a sale to another security paper company or a printer. We saw what just its hydro assets and some farmland that they're trying to get re-zoned are worth, so the whole thing, including the patents, customer relationships, high-security facility, and modern papermachines, must be worth something. We can zero it out to be on the safe side, but I wouldn't be surprised if we got something ok for it. Unfortunately though, a lot will depend on the swiss franc-euro exchange rate, as that has been eating margins. Will we see a reversion to the mean over time, or do we have a new normal exchange rate?

 

Then what you end up with is a DP company that is much simpler to understand (and probably would get rid of the conglomerate discount) with Thurso and LSQ each with their cogens, hopefully with the LSQ conversion having gone more smoothly thanks to new management and Thurso's experience, and because LSQ seems like a much more modern plant than Thurso -- no old pipe problems there, please. (and if housing in the US picks up a lot, maybe the LSQ sawmill would generate something too)

 

At that point, if they produce about 450,000 tons of DP at around 750/ton, and if DP price is 950/ton (which seems conservative to me), that's $90m of ebitda. The total share count will depend a lot on the convertible debentures, but if they convert it means the share price is in the 30s, so that's not too bad for shareholders. With 18m shares, that's 5$ of ebitda per share, with 16m that's 5.62$/share, etc. At $1100/ton for DP and 16m shares that's $9.84/share ebitda. Obviously, a huge leverage to DP prices. That's been hurting lately, but it could also go the other way.

 

If they sell Dresden, what will they do with the surplus money not used to convert LSQ? Keep a rainy day fund? Retire their most expensive debt? Do share buybacks? All mix of all those? Interesting possibilities.

[lessthaniv]

Interesting.

 

BAL has been on the rise since bottoming in early June 2012. It's pushed through $55 today taking BAL to a new 8 month high.

It's a bit perplexing as world inventories are high (stockpiled in China). But Alexandra Wexlar wrote a good article in Barron's recently that sheds some light on the issue:

 

http://online.barrons.com/article/SB50001424052748704103204578314281371672300.html?mod=BOL_twm_col

 

It seems that the Stockpiles that China has are of lower quality. China began to auction off some of its estimated 42.6 million-bale stockpiles of cotton on Jan. 14, but domestic yarn and textile spinners have not jumped on board. To date, mills have taken only a third of the cotton put up for auction by the China National Cotton Reserves Corp. China has inflated domestic cotton prices to encourage plantings, however the product of those plantings is of poor quality. The Chinese textile mills can buy international cotton at 60% of the cost of domestic cotton and with shipping, taxes and duties the aggregate cost is similar but they get much better quality fiber.

 

The USDA just bumped it forecast of China's world imports to 14M bales - a 12% increase to previous guidance. U.S. cotton export sales to China are up nearly eightfold for the first six weeks of calendar 2013, compared with the previous year, according to data from the USDA.

 

Over the past season in the US, soybeans have increased 17%, corn increased 11% and cotton fell 8% leading up the Aug 1/2013 planting season.

[Steady77]

Irwin Michael from ABC Funds was on BNN's Market Call today.  Here is the segment where he made comments about FTP (beginning at approx 1 minute 35 seconds mark):

 

http://watch.bnn.ca/#clip875859

 

 

[jose]

http://www.risiinfo.com/techchannels/pulping/No-signs-of-this-market-dissolving.html

 

Low prices with strong demand growth now might actually be a good thing long term if Fortress can manage to stick around for the eventual squeeze caused by higher cost producers dropping out. 

 

Assuming of course that Fortress's full capacity cost projections turn out to be accurate.

[triedtestedand]

a) Cotton on a run up to 87 cents/lb:

 

  http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=COTTON&insttype=Future&freq=1&show=&time=8

 

b) China imported DP inching back towards $1000/mt?

 

  http://ccfei.net/ArticleDetail2.aspx?articleId=170062

 

c) China VSF market plateauing @ 15,000 yuan/mt?

 

  http://ccfei.net/ArticleDetail2.aspx?articleId=169951

 

d) China domestic (cotton linter?) DP sitting around 7,400 yuan/mt?

 

  http://ccfei.net/ArticleDetail2.aspx?articleId=170202

 

 

Key remains really to get operating rates to >90% ... that and cogen ... and no chinese anti-dumping brouhaha.  That all said, NBHK and NBSK prices continue to trend up recently.  N. American price increases for April announced at $930/mt for number of suppliers (Domtar, W Fraser, Canfor).

[OptsyEagle]

Thanks Jose for this:

 

http://www.risiinfo.com/techchannels/pulping/No-signs-of-this-market-dissolving.html

 

" Cotton will remain five times bigger than VSF, with the potential for larger share gains against this competitor being the most important upside risk to our demand forecast. Share gains by VSF relative to synthetics could also be faster than we are currently projecting due to the potential for large increases in raw material costs for synthetics and the better environmental footprint of VSF."

 

To me, this seems to be the point that most investors seem to miss.  They see the supply additions in the double digit rates and think, wow, they will swamp this market, driving down prices.  They need to look at the entire textile market, not just the DP market.  These DP supply additions are puny, compared to the overall size of the textile market.  These DP supply additions will add 1% to 3% per year, at best, to the entire textile market.  The growth in demand for textiles will have a hard time being supplied by cotton and synthetics.

 

"The Chinese share of growth in global VSF production will drop to 60% over the next two years, though, due to investments in new capacities in other parts of the world. India and Indonesia will stand out in this respect, as will Austria and a newcomer to the market, Turkey."

 

This is also nice to know.  More evidence to why the Chinese cannot afford to implement a tariff on imports and increase the inputs costs to their own domestic VSF producers.  Even if they did, the other 40% of VSF producers is still a pretty big market for FTP to sell into.

 

Very interesting article.

[OptsyEagle]

So we have earnings out at the end of the day today.  Chad Wasilenkoff is scheduled to be on BNN at 4:05pm today, to discuss things.

 

Tembec is still struggling with getting construction resources for it's upgrade to its Specialty Cellulose Mill in Quebec.

 

http://www.pulpandpapercanada.com/news/tembec-delays-completion-of-temiscaming-upgrade/1002126266/

[Liberty]

It'll be very interesting to finally get an update.

 

Mr. Market certainly seems to think that the news will be better than they have been lately, with the stock up over 50 cents right now.

 

We'll see.

[OptsyEagle]

Yeah, I am trying to read between the lines with Chad scheduling, almost two weeks ago, a BNN interview at 4:05pm today.  I have to assume he has scheduled the earnings release for that time as well, unless he doesn't plan to talk directly about Q4 (the BNN schedule says Q4 is the topic).  Previously, the earnings releases would get issued, like 10:30 pm or some time like that and his media interviews might come a few days later.

 

Anyway, no sense pondering something, when we should know in a few hours.

[Steady77]

They just said on BNN that Chad is still due for 4:05 PM ET and the earnings are due out right after the bell.

[Steady77]

Now they are saying on BNN that the earnings will be out a little later.  No surprise as the company usually reports later in the evening.

[Liberty]

Now they are saying on BNN that the earnings will be out a little later.  No surprise as the company usually reports later in the evening.

 

Is Chad on BNN anyway, or will that be later too? I can't watch live, but still curious...

[OptsyEagle]

Now they are saying on BNN that the earnings will be out a little later.  No surprise as the company usually reports later in the evening.

 

Glad I didn't read anything into it.  An earnings report at 4:05pm was quite the surprise.  He probably meant to come on BNN at 4:05pm Vancouver time. 

[ECCO]

Kind of getting used to delay with FTP anyway...

[OptsyEagle]

Kind of getting used to delay with FTP anyway...

 

I would place my bet that this s<rew up was BNN.  I really could not see Chad issuing a report at 4:00pm and giving us 5 minutes to look at it and then him going on TV to discuss it.  BNN certainly was responsible for the March 1st scheduling messup, so I will assume this is just another one for them.

[BRK7]

4Q results are out:

 

http://www.marketwire.com/press-release/fortress-paper-announces-fourth-quarter-2012-results-tsx-ftp-1766742.htm