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

[Guest 50centdollars]

http://www.theglobeandmail.com//report-on-business/fortress-papers-founder-chad-wasilenkoff-to-step-down-as-ceo/article25595506/?cmpid=rss1&click=sf_rob

[OptsyEagle]

Chad's interview on BNN today.

 

http://www.bnn.ca/Video/player.aspx?vid=661893

 

Pay close attention to what he says at exactly 6:16.  Was that a slip?  It seems to me the stock market heard it as well, when I look at the daily chart.

[lessthaniv]

The quarterly improvements mentioned have been anticipated for a while now.

[sculpin]

The quarterly improvements mentioned have been anticipated for a while now.

 

Yes with the Cdn $ where it is now & much lower energy costs, Q2 should be better however Q3 is supposed to be the quarter where the operational improvements at Thurso should really be seen. I want more info on the value of Landquart land and bldgs - this could be the game changer that allows them to pay off most of the convertible debt at the parent level....FTP had the land appraised. Now it appears there is the potential for a $100-130mm sale leaseback agreement based on the value of the land.

[lessthaniv]

These are the types of projects that I expect will hold Chad's focus in the near term given the managerial role changes recently announced.

 

 

[Cardboard]

So what would you hold and why? The stock or the convertibles? If the convertibles, which one over the other and why?

[misterkrusty]

the 2016s are easily the best risk/reward.  yes, you could get multi-bagger returns on the 2019s or the common if DP prices were to spike upwards at some point, but if you're looking for long-shot speculations there are better odds elsewhere on Bay Street (or Wall Street).

 

the pipeline of capacity additions is not as thin as one might expect given the pain experienced from 2012 through today

 

 

[sculpin]

So what would you hold and why? The stock or the convertibles? If the convertibles, which one over the other and why?

 

From a previous post on this Board. Arguments can be made that Landquart is worth more and that Thurso much less so but give you idea of upside leverage of the common. I do own more of the 2016 debentures however.

 

A very simplistic break up value of FTP based on the values estimated in the report issued by M Partners. Hinges on the +$300MM value to a private buyer of the FSC mill located in Thurso.

 

Fortress Paper - sum of the pieces

 

Cash position------------------------------$45 million

Thurso private sale estimate--------------$300 million

Landquart land & bldg---------------------$30 million

Landquart operations (mid-range)--------$77 million

FGC mill (low estimate)------------------$8 million

Total Asset Sale Potential----------------$460 million

Less All Debt ----------------------------$246 million

Value to Shareholders--------------------$214 million

 

Value per Share------------------------- $14.65 - based on 14.6 million shares outstanding

Current Share Price--------------------------$2.60

 

[lessthaniv]

I own both the 2016's and the common. I own more common shares. They are very leveraged to DP prices. If they can maintain through the trough of this cycle they will be positioned well for the he increase. It appears DP has stabilized and the exchange rate ( U.S./can) in my opinion should remain in their favour for a while now. While the $300m seems rich based on current conditions I don't think it's too far off normalized EBITDA multiples. IE: 6x $50m which can conceivably be targeted with DP prices of $1000 to $1100. I am comfortable with that as it's still below many producers cost.

 

 

[triedtestedand]

Some interesting recent stats via publicly accessible CCF sites:

 

- Chinese domestic cotton price and VSF price now almost equal (i.e. ~13250 RMB/ADMT +/- 50 RMB)

      - gap has in recent years been significant

- Chinese VSF inventory levels below 10 days (i.e. supply tightness despite above, and lower PSF prices)

- Chinese imported DP prices now at $840USD/ADMT (i.e. rebounding off of $800/USD/ADMT lows)

 

Combine that with:

 

- a $.77USD conversion to $1CDN

- significant progress over past 9mo to mitigate 13% duty by selling to other geographies and/or premium blends

AND

- operations that might approach (go below?) targeted $800CDN/ADMT production costs in a sustained fashion ...

 

and I can see why timing is good for Yvon to take reins.

 

Now Chad is freed (somewhat) to try and pull a few more rabbits out of hat to monetize/leverage:

- Landqart land assets

- LSQ assets

- other/new "strategic" projects?

[lessthaniv]

The "w" marker =>

 

By Pass Trade – indicating the "hidden" or iceberg portion of the order was not satisfied. Depending on whether the trade was used to move the price down in accordance with UMIR, or the ByPass Cross was put up, it may or may not set the last sale price. Please use the K marker to determine the last sale price. They are also included in the volume, value, and number of transactions

 

Recent Trades - Last 10 of 40

Time ET Ex Price Change Volume Buyer Seller Markers

14:10:40 T 5.00 0.29 50,800 33 Canaccord 33 Canaccord 

14:11:08 T 5.00 0.29 472,500 33 Canaccord 33 Canaccord W

14:10:14 T 4.97 0.26 300 33 Canaccord 79 CIBC W

14:10:14 T 4.94 0.23 100 33 Canaccord 39 Merrill Lynch W

14:10:14 T 4.91 0.20 1,000 33 Canaccord 1 Anonymous W

14:10:14 T 4.90 0.19 200 33 Canaccord 28 BBS W

14:08:41 T 4.86 0.15 1,900 33 Canaccord 1 Anonymous

 

Can anyone explain in laymens terms? Was this just an iceberg order with a portion that didn't execute?

[lessthaniv]

http://www.prnewswire.com/news-releases/sappi-results-for-3rd-quarter-ended-june-2015-highlights-impact-of-exchange-rates-in-seasonally-weak-quarter-300125394.html

 

Dissolving wood pulp prices in China have risen steadily over the past four months and this should translate into higher short term fixed prices with our major customers.  The weaker Rand/US Dollar exchange rate will support the profitability of this business in South Africa.

 

 

[sculpin]

First glance of FTP Q2 shows EBITDA profitability at both Thurso and Lanquart.

 

http://www.stockhouse.com/news/press-releases/2015/08/10/fortress-paper-announces-second-quarter-2015-results

 

Landquart looks to be on track for a $12mm + EBITDA year in 2015.

 

Thurso EBITDA positive with most key variable trending positively - Dissolving pulp price up, Percentage of pulp sold outside of China increasing, Cdn $ and energy price low and falling, hydro generation and other key production costs falling. Pointing toward a stronger H2 of 2015.

 

 

 

 

[triedtestedand]

More details available at:

 

http://fortresspaper.com/images/pdfs/financials/FTP%20Q2%202015%20MDA%20%20Financials.pdf

 

-> working capital constant at around $80M (with $31M in cash; $25M in restricted cash; 7K ADMT of DP inventory; etc.)

-> production costs of $816CDN/ADMT based on production of 40K ADMT of DP in quarter

 

My first question is ... how low can they get production costs?  40K of production is still low compared to target of 45K ADMT/qrtr ... so presume they still have room to lower such costs per ADMT.

 

That combined with Sculpin's points (lower Cdn$; higher DP prices; lower oil prices; increased hydro generation; more favorable product mix & geographic distribution) make Q3 quite promising.

 

With actual tailwinds (for once!), will also be interested in whatever Chad can focus on as relates balance sheet (LSQ/power contract; restricted cash; Landqart real estate; Nanotech shares & loan; etc.)

[lessthaniv]

A couple of things I noted.

 

-the improvement to the downstream markets for VSF and rayon filament. A key driver for DP.

-manufacturing and distribution cost as a percent of sales fell by about 9%, Q1 to Q2.

- the net loss as a percent of sales is about 10% in Q2. Needs to be offset with a combination of further cost improvements or higher pricing. Without Mofcom duties they would likely be onside again.

 

[sculpin]

Some key points from Raymond James in their upgrade of the FTP shares this morning:

 

We currently forecast US$900/mt 2016 average DP prices and note a US$10/mt change results in a 5% increase to FTP’s EBITDA and ~$1.00/share in theoretical equity value.

 

After languishing at roughly US$800/mt for the better part of 9 months dissolving pulp prices (del. China) began to tick upward around the end of March and reaching US$860/mt as of this week. Meanwhile, with the Canadian dollar now at US$0.77, pricing in C$ terms of just over $1,100/mt is up ~10% over this period. While Fortress is still forced to pay a 13% anti-dumping duty on shipments to China we believe, barring production disruptions, the company is well into cash flow positive territory under the current pricing environment while DP prices appear poised to move higher. In addition, as indicated in yesterday’s release the company is attempting to reduce its proportion of DP shipments to China which we expect will mitigate the impact of these duties.

Currency business also progressing well – Despite industry wide overcapacity we understand Fortress’ Landqart security papers mill has won some large contracts of late, taking the facility to near full capacity. As a result we expect the segment will post improving results throughout 2H15 and into 2016 contributing to our increased EBITDA forecast for 2016.

 

RJ has upped their 2016 estimates to $46mm in ebitda & $0.64 EPS.

[lessthaniv]

http://www.fortresspaper.com/images/pdfs/investor_relations/Q2%202015%20presentation%20-%20Aug%20112015.pdf

 

 

[triedtestedand]

Conf call replay tidbits (mostly from Q&A):

 

Thurso:

-> Cost side

    -> current $816CDN/ADMT production costs

        -> target to "low to mid 700's in next 18-24 months"

                -> mostly achievable via continued process improvement, with some limited CAPEX

                      -> keep working at "creeping up efficiency"

                          -> e.g. some process/etc improvement in November

                                  -> will help move cogen fm 22MW avg closer to 24Mw target

                -> would be "disappointed if not <$800CDN" ... "this mill can do that" (Yvon)

        -> current utilization near 80% ... targeting 80% to 82% in H2

                -> world class is 88% to 90% ... super is 92%

        -> production costs do not include $100USD/ADMT avg for shipping+commissions

-> Revenue side

    -> MOFCOM duty impact significantly mitigated

        -> blended impact currently about $25USD/ADMT to CCF (thx to geo mix & premium grade DP)

                  -> will reduce more as get further geo diversity outside China in H2

    -> currently at $860 CCF benchmark price (Q2 avg was ~$815)

    -> have looked at hedging ... but still evaluating

            -> prioritizing vs other uses for capital (e.g. cost improvement capex projects)

-> Inventories

    -> around 7K ADMT (stable with last quarter) and likely to stay there at this point

 

LSQ

-> "multiple interested parties"  ... but not much more than that ... except a stay tuned type message

    -> Chad alluded in response to question about reticence of previous owner (i.e. Domtar) to JV or similar (i..e any interested parties not likely are them)

    -> Chad also indicated cogen needs a steam source approved by Hydro Quebec (my note: presumably a green friendly one) ... e.g. have modelled about operating the steam source as a loss, but making it up with the hydro sales.

 

Nanotech

-> settled on 1.5M of the 3M shares, and will out of escrow ... will have >3M shares thus freely available for trade in 3mo (there is a note on this as a "subsequent event" in the financial statements)

-> also have $3M loan that is potential liquidity

-> FTP doesn't have access to other than public filings

 

Restricted Cash

-> $25M (increase owing to new contract)

-> with improved operations and balance sheet, appears they will be able to work with banks so won't need to restrict similar amounts for new performance bonds ... thus see total coming down "significantly" in next 6+ months

 

Landqart

-> few questions here (via Axel)

  -> DuraSafe pipeline sounded encouraging (of course no details) ... multiple evaluations/etc.

-> real estate monetization (via Chad)

  -> seemed a bit cagey ... indicated potential owing to strong Swiss franc, low yield, etc. ... thus had entities looking for yield ... indicated it was one of many things to help w balance sheet ... said no formal process ... but also said it was "deep evaluation"

  -> when then asked about valuation ... was also reticent to provide details, as didn't want to tip any potential future process ... indicated "huge ranges" in potential valuation ... except "it would be meaningful"

 

 

Other:

-> Check out SEDAR

    -> Invesco and Fidelity each reduced their share positions in July (Invesco by 475k; Fidelity by 271K)

 

[misterkrusty]

strange that common is down 11% and converts are flat on these results.  what more could any reasonable person could have expected out of 2q15 results and/or outlook?

[sculpin]

Thanks for the summary. Here is the link to the FTP Q2 conf call

 

http://seekingalpha.com/article/3429936-fortress-papers-ftplf-ceo-chadwick-wasilenkoff-on-q2-2015-results-earnings-call-transcript?auth_param=46n23:1askp1p:2653978c9604d1af9b411f86c6a240a6&uprof=44

 

 

 

Conf call replay tidbits (mostly from Q&A):

 

Thurso:

-> Cost side

    -> current $816CDN/ADMT production costs

        -> target to "low to mid 700's in next 18-24 months"

                -> mostly achievable via continued process improvement, with some limited CAPEX

                      -> keep working at "creeping up efficiency"

                          -> e.g. some process/etc improvement in November

                                  -> will help move cogen fm 22MW avg closer to 24Mw target

                -> would be "disappointed if not <$800CDN" ... "this mill can do that" (Yvon)

        -> current utilization near 80% ... targeting 80% to 82% in H2

                -> world class is 88% to 90% ... super is 92%

        -> production costs do not include $100USD/ADMT avg for shipping+commissions

-> Revenue side

    -> MOFCOM duty impact significantly mitigated

        -> blended impact currently about $25USD/ADMT to CCF (thx to geo mix & premium grade DP)

                  -> will reduce more as get further geo diversity outside China in H2

    -> currently at $860 CCF benchmark price (Q2 avg was ~$815)

    -> have looked at hedging ... but still evaluating

            -> prioritizing vs other uses for capital (e.g. cost improvement capex projects)

-> Inventories

    -> around 7K ADMT (stable with last quarter) and likely to stay there at this point

 

LSQ

-> "multiple interested parties"  ... but not much more than that ... except a stay tuned type message

    -> Chad alluded in response to question about reticence of previous owner (i.e. Domtar) to JV or similar (i..e any interested parties not likely are them)

    -> Chad also indicated cogen needs a steam source approved by Hydro Quebec (my note: presumably a green friendly one) ... e.g. have modelled about operating the steam source as a loss, but making it up with the hydro sales.

 

Nanotech

-> settled on 1.5M of the 3M shares, and will out of escrow ... will have >3M shares thus freely available for trade in 3mo (there is a note on this as a "subsequent event" in the financial statements)

-> also have $3M loan that is potential liquidity

-> FTP doesn't have access to other than public filings

 

Restricted Cash

-> $25M (increase owing to new contract)

-> with improved operations and balance sheet, appears they will be able to work with banks so won't need to restrict similar amounts for new performance bonds ... thus see total coming down "significantly" in next 6+ months

 

Landqart

-> few questions here (via Axel)

  -> DuraSafe pipeline sounded encouraging (of course no details) ... multiple evaluations/etc.

-> real estate monetization (via Chad)

  -> seemed a bit cagey ... indicated potential owing to strong Swiss franc, low yield, etc. ... thus had entities looking for yield ... indicated it was one of many things to help w balance sheet ... said no formal process ... but also said it was "deep evaluation"

  -> when then asked about valuation ... was also reticent to provide details, as didn't want to tip any potential future process ... indicated "huge ranges" in potential valuation ... except "it would be meaningful"

 

 

Other:

-> Check out SEDAR

    -> Invesco and Fidelity each reduced their share positions in July (Invesco by 475k; Fidelity by 271K)

[sculpin]

strange that common is down 11% and converts are flat on these results.  what more could any reasonable person could have expected out of 2q15 results and/or outlook?

 

The inefficiency of the Canadian small cap and debenture markets are mind boggling. Use it as a source of opportunity. Another debenture series that defies explanation compared to recent Company performance and value of the common shares is IBI Group. All debentures trade in low to mid $50's for >25% YTMs. IBG.DB, IBG.DB.a, IBG.DB.B.

 

Dundee Securities...

IBG (Buy, $3.50 target). The company is clearly getting itself out of a hole with sustainable backlog momentum, smaller

divestitures and focus on improving A/R collections. We don’t believe the business is broken (but sports a stranded capital

structure that will be fixed over time) and as one of the largest pure architecture firms on the planet, we think there is

strategic value in the platform that the market is not recognizing. With no oil & gas exposure (AB/BC presence is indirect, via,

infrastructure and buildings, estimated at around 18%), 30% leverage to the US which should allow the company to benefit

from both the economic recovery and strong USD (recall that along with Q1/15 results management increased revenue

guidance due to a favourable forex pickup), more international high-rise work and better transit momentum; we do anticipate

the margin profile to start normalizing this year as management has been doing a lot of processes optimization work while

successfully replenishing its book of business; Eglinton contract should also help once the financial close takes place later this

summer. At 6.0x 2016E EV/EBITDA IBG's multiples are reflecting the balance sheet overhang. We reiterate our Buy

recommendation on the shares along with $3.50 target price.

 

 

 

[lessthaniv]

I'm hoping to see these improvements lead the company to an operating facility for their performance bonds soon. Shoring up the unrestricted cash balances will be a meaningful boost to investor sentiment.

 

I have been accumulating more stock. Next quarter looks to be solid. (hopefully that just didn't jinx them)

[no_free_lunch]

Sorry to go off on a tangent but I am curious about IBI.

 

Looking at the company & history it seems that they already extended the payout on a series of debentures by 5 years.  If they don't make the payment then I am not sure if the YTM is relevant.  However, if fundamentals continue to improve and they are able to pay them off then yes would be a fantastic investment.  Which debenture do you like and do you expect them to be paid off in cash?  Is the situation that with improving fundamentals they would be able to obtain other financing to pay the debentures because I don't see them coming up with the cash.

[sculpin]

Sorry to go off on a tangent but I am curious about IBI.

 

Looking at the company & history it seems that they already extended the payout on a series of debentures by 5 years.  If they don't make the payment then I am not sure if the YTM is relevant.  However, if fundamentals continue to improve and they are able to pay them off then yes would be a fantastic investment.  Which debenture do you like and do you expect them to be paid off in cash?  Is the situation that with improving fundamentals they would be able to obtain other financing to pay the debentures because I don't see them coming up with the cash.

 

I like the IBG.DB as it has a lower conversion price of $5 per share as well as the IBG.DB.A which has the shortest maturity. The Q2 results will be out tomorrow so will be interesting to see the progress on boosting margins at the Company and thus free cash flow....

 

IBI GROUP INC. - NOTICE OF 2ND QUARTER EARNINGS RELEASE AND CONFERENCE CALL

 

IBI Group Inc. will provide its second quarter 2015 financial results for the three months ended June 30, 2015, on Friday, Aug. 14, 2015. Following the press release, IBI Group will host a conference call at 8:30 a.m. (Toronto time). Scott Stewart, chief executive officer, and Stephen Taylor, chief financial officer, will present the company's operating and financial results followed by a question and answer session. To participate in the conference call, please dial in before 8:30 a.m. on Friday, Aug. 14 (Toronto time), to 1-800-926-9197 for local and toll-free North American access, or 1-212-231-2912 for international access. An audio replay of the call will be available for 14 days by dialling 1-416-626-4100 for international access or 1-800-558-5253 for local and toll-free North American access, enter pass code 21771563 followed by the number sign on your telephone keypad.

[colinwalt]

CC Transcript: http://seekingalpha.com/article/3429936-fortress-papers-ftplf-ceo-chadwick-wasilenkoff-on-q2-2015-results-earnings-call-transcript?part=single