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

[Liberty]

Another bit of news found via the SH board:

 

http://www.risiinfo.com/blogs/New-trends-of-the-paper-industry-in-China.html

 

A new grade that producers have been looking at is dissolving pulp (DP). With high expectations of soaring prices, paper mills were accelerating the pace of building DP, or modifying their existing lines to grasp a share of the hot market in the past year.

 

Last year, poor cotton harvests and a subsequent shortage pushed prices up for DP, a grade that can be made into viscose fiber, which can be used as a substitute for cotton. High DP demand soon triggered an investment spree in China, according to our PPI Asia newsletter.

 

However, the hot investment may not roll out for long. Shandong Chenming Paper Holdings, one of China's largest producers, is reportedly reconsidering its plans to start DP production on a new 700,000 tonne/yr beached hardwood kraft (BHK) pulp line at its site in Zhanjiang city, Guangdong province.

 

Shandong Chenming's reported hesitation could be due to declining DP prices in the Chinese market, according to the recent Asian newsletter. The latest estimates for world cotton production in 2011 show a record year, at nearly 27 million tonnes, or nearly 5 million tonnes above the low point reached in 2009, says RISI's World Dissolving Pulp Monitor.

 

Oversupply and weakening demand are a double whammy for the current market.

[Myth465]

Got a buy order for tomorrow on the pink sheet shares. It probably wont be filled.

[Liberty]

Got a buy order for tomorrow on the pink sheet shares. It probably wont be filled.

 

At what price, if I may ask?

[Liberty]

Did you get your order filled, Myth? Up 9.33% right now  :P

 

Update: Well, I sure hope you did because it's almost up 20% over the past 2 days.

[Myth465]

Of course not  :). I put in a buy at 27.5, should have went 29. Today is even worse lol.

[lessthaniv]

Invert.

 

You missed it at $29.

Does it still represent good value at $36?

 

:)

[biaggio]

Of course not  :). I put in a buy at 27.5, should have went 29. Today is even worse lol.

 

hind sight is 20/20

 

has happened to me a lot but have also had it where order gets filled only to drop further on price

 

at end of day have confidence in your valuation + just buy it if it is good value

 

I have been trying to average in i.e dollar cost avg... buy a 1/4 or 1/2 of a position + feel better when it goes down as you can buy more.

 

we re all value investors yet we all want to buy at the low-

 

if you think FTP is worth $60 then $27 or $29 or $30 what does it really matter(if its only worth $32 then forget about it)

[Myth465]

I think 70 isnt a bad bet for IV. I have about 10% cash and am trying to spend it wisely. I think we are in for a hell of a few quarters, and am trying to get the best value. ATSG was down to 2.5 times free cash flow and has solid growth prospects. I am severly overwieght there but, I am looking for similar ideas. I will get my FTP one way or another but prefer under 30.....

[Liberty]

I will get my FTP one way or another but prefer under 30.....

 

I know trying to time things in the short term is always dangerous, but if you really want to get in, keep in mind two short-term catalysts: Thurso starting to ship DP and a new acquisition, most likely at Level-sur-Quevillon. When either of those happen, it would be very surprising to see the stock not go up a fair amount, because any of those two things would remove a lot of uncertainty about either the capacity of Thurso to ship DP or about the capacity of management to repeat the great deal that they got on Thurso.

 

Latest news are that DP should start shipping in "early November", and most of the signals out of LSQ are that a deal could be announced in the "coming weeks". Who knows what will actually happen, though...

[Myth465]

One thing 2008 - Now has taught me is there is never one that got away. This girl will be out and ready to flirt sooner or later. I will be waiting with cash, if she gets taken off the market permanently there are plenty of fish in the sea....

[lessthaniv]

I agree it's wise to study all your opportunities. However, upon reflection I've no doubt missed  the forest for the trees on many an occasion. My personal experience is one where I've lost as many good entries as I've created by executing patience when buying stocks. And over the long run the opportunity cost of being incorrect has probably cost me about the same as what I've generated by earning higher profits when correct.

 

You may or may not agree with me, but I feel the value in Fortress Paper is about as clear as it gets and this happens to be one of those rare situations where a very short term catalyst exists to surface that value. If I think FTP is worth $65/share then buying at $30 or $36 will both make perfect sense in time. It's true that patience may offer you a better entry price but that right to buy in cheaper isn't for free. You must account for the opportunity cost of being wrong.

 

Interesting topic and one that I've struggled with over the years.

 

<IV

[Liberty]

Very good post, <IV.

 

That's why I make big efforts not to anchor too much on a single 'ideal' price. Buffett has said that he used to be too price sensitive - holding prayer meetings before raising the bid by 1/8 - and that it made him lose billions on things like Wal Mart.

 

I try to be a long-term investor, and there are very few businesses that pass my criteria checklist. So when one of those is selling much below what I think is IV, I try to remember that in 5 years it might not matter that much whether my average cost was 30 or 33, what will matter is if I decided to make a big enough move when I saw that value was available.

 

This might be less of a problem for someone with a different criteria checklist and more businesses that they are willing to invest in.. But my top tier list is awfully short.

[Myth465]

You may or may not agree with me, but I feel the value in Fortress Paper is about as clear as it gets and this happens to be one of those rare situations where a very short term catalyst exists to surface that value. If I think FTP is worth $65/share then buying at $30 or $36 will both make perfect sense in time. It's true that patience may offer you a better entry price but that right to buy in cheaper isn't for free. You must account for the opportunity cost of being wrong.

 

Interesting topic and one that I've struggled with over the years.

 

<IV

 

I completely agree with you oddly enough. My rule however is capital must earn a higher return as it gets lower and lower. At 10% cash with Europe tethering and many large catalysts that will send all stocks regardless of IV down. I have choosen to wait for my pricepoints. I am 90% invested on companies which are undervalued by 2x or 3x or 4x. If this gets away due to a move up. I will do just fine. If it comes down with everything else then the cash is there.

 

Plenty of doubles out there in this market. I can think of 10 - 15 no brainer situations right now. Plenty.....

 

I see where you guys are coming from, but you could have easily have paid 40 or 50 with that attitude. Also catalysts are very interesting with small caps, they often lead to nothing at all if Mr. Market is in show me the money mood, I hope FTP doubles in a market rebound and dont mind missing it as long as most other things rebound as well......

 

---

 

LOL on the Buffett. Isnt that the same guy who set a price on a stock and wouldnt buy no matter what until it hit that price. Same guy who missed the boat on Walmart or Costco due to anchoring. Who didnt sell US Airways because it never hit his sale price, and he ended up making all his money back. Buffett says and does alot of things, often they go against each other. More often they have to do with circumstances. I am sure his stickler for price has hurt him and helped him about the same when you add it all up. He also has billions coming in every month from 70 operating companies, and has a huge cash horde. If I were in his position I would feel a bit less sensitive lol. One has to think for himself at some point. With 90% cash I am buying a 5% or 10% stack in FTP tommorrow at under $40. At 7% - 10% cash with the leaders of the largest economy in the world asleep at the switch during a massive credit / debt crisis, I am waiting for the whites in their eyes cause I am low on bullets....

[Liberty]

All I'm saying is that it's possible that FTP was undervalued at 50, but that because it went to 25 or whatever and became ridiculously cheap, that anything much above that now feels expensive because we've anchored on the new low price.

 

http://en.wikipedia.org/wiki/Anchoring

 

Personally, I think Chad makes FTP a potential very long-term holding, not just a cigar butt that I'll dump when it reaches close to whatever the current IV is (I don't really invest in cigar butts anyway). This is a case where I'm mostly interested because of the owner-manager, and the same assets with a run-of-the-mill CEO wouldn't get a second look from me. There are many other factors, but this is an important one...

[Myth465]

I agree on the anchoring and am a frequent victim, and also really agree on the Manager. I think he will do something interesting should the downturn persist, also love the balance sheet. I have become a huge fan of hedging / forward contract sales and believe it shows how prudent he is. Should things get better and I have cash, I will just pay up a bit. Perhaps selling some of my stocks once they recovered to buy here.

[AZ_Value]

 

http://watch.bnn.ca/#clip547542

 

CEO interview.

 

[Liberty]

Thanks for posting!

 

Great interview. November 7 is target date for Thurso, so less than a month. Still low 600s/ton on the production side, so very promising. Looking for a couple more acquisitions in the next 6-9 months, which would also be great if the conditions are anything as good as Thurso.

 

But above all else, one more data point that tells me that Chad is very smart and knows his stuff.

[lessthaniv]

Summary of Video:

 

1) Thurso shutdown for conversion to DP. Should begin November 7th.

2) Spot prices are currently $1650 - $1700 for DP and rising.

3) All in cost delivered to Shanghai is in the low $600's once the Cogen facility is built out.

4) At current prices that produces about $1000 EBITDA/ton.

5) Capacity is 200,000 tons => therefore runrate EBITDA of $200M from Thurso

6) Only a handful of mills are actually suited for conversion, worldwide.

7) Intending to conclude a couple more acquisitions in the next 6-9 months.

______________________________

 

So, just for shits and giggles:

 

Dresden should do about $26M EBITDA in 2012 and I'll assign a 5.5X multiple to this business

Landquart should do about $13M EBITDA in 2012 and I'll assign a 8.5X multiple to this business

As per above if conditions hold, Thurso will produce normalized EBITDA of $200M. But the co gen isn't up and running yet and there is bound to be some hiccups getting to capacity. So, accounting for a ramp up of production and higher expenses due to no co gen facility I'll knock off 10% and suggest a annual 2012 EBITDA target of $180M. I'll assign a 6X multiple for this business.

 

Sum of the parts using 14.292M shares

 

Dresden: Value of $10/share

Landquart: Value of $7.75/share

Thurso: Value of $75/share

 

Sum = $92.75

 

___________________________________

 

A more conservative model would be to use the floor price of $1200/ton in your projections instead of using the spot price. The value of Thurso would become closer to $45 and reduce the sum to about $62.75.

 

This is how I did my original work but I believe I may be too conservative. The exodus of future oncoming supply has seemingly put a bottom in play at around $1600.

 

Then, if you take Chad's comment from today that he is "intending on concluding" a couple more deals in the next 6-9months ... the value may be substantially understated should he be successful.  Normally, I wouldn't value "intents to conclude" but Chad has proven to be one of the best capital allocators that I've seen. Just review the progression of this business. I believe that Chad is close to closing on at least one more mill based on current newspaper items highlighted on this board.

 

This is as good of an opportunity as I've seen since 2009.

 

 

 

 

[Myth465]

I caved and bought a small starter pack. Enough to where if it goes up I feel good, but can buy more should all hell break lose.... That means we will likely trade down.

[Liberty]

A more official release:

 

http://www.marketwatch.com/story/fortress-paper-announces-the-commencement-of-the-final-phase-of-the-dissolving-pulp-conversion-project-and-the-signing-of-new-banknote-paper-orders-2011-10-12

 

Thurso Quebec:

 

The Fortress Specialty Cellulose Mill was purchased by Fortress in early 2010 with the plan to convert the NBHK mill to a dissolving pulp producer commencing in May 2011. Moreover, the construction of a cogeneration facility to provide 18.8 megawatts per annum of green power to Hydro Quebec for a 15 year term has also recently broken ground, and is scheduled for completion in the second half of 2012.

 

Peter Vinall, Chief Executive Officer of Fortress Specialty Cellulose, commented: "The Thurso mill conversion has entered the final shutdown phase which represents the ending of NBHK production at the mill. We have mobilized a workforce of over 800 workers on site to assist with final mill connections and de-bottlenecking work. When the mill is restarted in early November it will be a low cost, high quality dissolving pulp producer with an annual production capacity of approximately 200,000 tonnes."

 

Landqart Switzerland:

 

Fortress Paper's Lanqart Mill reports the signing of new banknote paper contracts for 2012, which represent a significant portion of the mill's annual banknote production capacity.

 

Chad Wasilenkoff, Chief Executive Officer of Fortress Paper, commented: "Our Landqart Mill was among the winning bids for a number of banknote contracts. Bidding on contracts of this volume would not have been possible prior to our recent PM1 banknote machine upgrade, which increased our overall annual production capacity from 2,500 to 10,000 tonnes."

[Liberty]

I know it's just Mr. Market and it doesn't mean much in the short term, but it's nice to see FTP back over 40. In fact, it was at 42 not long ago. That's up over 70% from the low it hit recently... Talk about volatility.

[Myth465]

Yep its quite nice, I am glad I finally took you all's advice...  :)

Bought a bit of MERC too.

[Liberty]

Short video interviews with Chad in the G&M:

 

1.

 

http://www.theglobeandmail.com/report-on-business/small-business/sb-growth/success-stories/video-printing-and-protecting-money-big-business-for-fortress-paper/article2203819/

 

2.

 

http://www.theglobeandmail.com/report-on-business/small-business/sb-growth/success-stories/video-fortress-paper-chief-turns-tired-mill-into-multimillion-dollar-venture/article2203818/

 

3.

 

http://www.theglobeandmail.com/report-on-business/small-business/sb-growth/success-stories/video-entrepreneurial-paper-chief-explains-contrarian-investing-strategy/article2203820/

[Myth465]

This guy is going to make investors some serious money...

[lessthaniv]

He already has.

;)

 

::)