BC Business
The bargain-priced forest company has a big upside if lumber prices continue to rebound
The stock: As the “Magnificent Seven” technology giants have been demonstrating lately, no stock keeps going up forever. And no one knows this better than investors in cyclical resource sectors. One subsector that may be coming off a bottom right now is the lumber industry. And if you’re looking for deep value, why not swing for the fences with a dirt-cheap, left-for-dead issue like Conifex Timber (TSX:CFX)?
The drivers: High interest rates have served to choke off home building and thus demand for forest products since the industry’s last peak in 2021. Shrinking timber supply and high log costs have been an added burden for operators in B.C. like Conifex, which operates a sawmill and biomass power plant in Mackenzie.
But while still in the red, the company’s financial picture is brightening. Revenue in the first quarter rose to $40.7 million while the net loss decreased to $4.5 million, or 11 cents per share. Lumber volumes and prices and electrical output all increased. Turns out people still need homes, no matter how high the financing costs.
With a closing price of $0.43 a share on Tuesday (July 30) and price-to-book value of just 0.15, Conifex could turn out be a winning lottery ticket should the rebound in lumber prices be sustained. Q2 results, expected in August, will help clarify the trend lines.
Word on the street: Raymond James analyst Daryl Swetlishoff recently raised his targets on a number of forest companies—including Conifex, to $2.75 from $1.75, with an “outperform” rating. (That implies a 540-percent gain over 12 months!) “With the average stock in our coverage universe trading well below book value and down 25 per cent year-to-date, we expect downward earnings revisions are largely priced in,” he wrote.
Coming and going: Mining major BHP Group and Vancouver-based Lundin Mining (TSX:LUN) have formed a 50/50 joint venture to take over Vancouver junior Filo Corp. (TSX:FIL) in a deal worth $4.5 billion. The companies aim to jointly develop the neighbouring Filo del Sol and Josemaria copper projects on the Chile-Argentina border. Filo shareholders will receive $33 per share. Both Lundin Mining and Filo are controlled by the Lundin family.