Construction materials Supplier in Canada
Isclaimer: The following analyses entail the Fund Manager and Research Associate's initial impressions of particular stocks. These analyses are not comprehensive and should be subject to more detailed intrinsic and relative valuations before conclusive investment decisions may be reached. As such, the analyses contained herein do not constitute investment recommendations, solicitations to invest, or any other similar professional obligations.] Published Date: November 6, 2014 This is an excerpt of the watch-list report that my Fund Manager and I prepared. Equity Screening Criteria: Market Cap: 300m P/E Ratio < 25 Dividend Yield > 1%
Sobey IMPACT Fund
ROMAN BURGESS, Fund Manager
SHEIKH SADIK, Research Associate
- WESTERN FOREST PRODUCTS INC. (WEF)
Western Forest Products (WEF) is an integrated forest products company specializing in softwood products. The Company currently operates in the coastal region of British Columbia. WEF’s activities include the harvesting of timber, reforestation, forest management, the manufacture and sale of lumber and wood chips, and the sale of logs. The Company sells its products in over 25 countries internationally. WEF is the largest timber tenure holder and producer of lumber in the British Columbia coastal region. WEF is also the world’s largest producers of western red cedar, one of the most widespread trees in pacific north-west.
Lumber production is commodity-based and, thus, fluctuates with the business cycle. Further, the lumber market is highly competitive. Housing starts, changes in the level of competition, industry capacity, and foreign exchange rates are some of the key drivers within the industry. Also, the availability, quality, and cost of fibre and wood impact the productivity of the sector.
WEF displays weaker EBITDA and operating profit margins than its peers (Table 1). However, the Company’s net profit margin of 12.8% is notably higher than the peer median of 7.2%. The source of this difference is WEF’s lower level of financial leverage, which implies lower interest expense (Table 4). From a risk perspective, the Company’s high interest coverage of 18.0x compared to the peer median of 7.7x is particularly attractive. WEF’s ROA and ROE significantly outperform the peer medians and indicate strong profitability.