Already diversified beyond wood products, CanWel is on the hunt for new acquisitions
The distribution company is capitalizing on the housing boom to improve its market position
The stock: If you’ve made any home improvements lately, you’ll know that the price of lumber has gone through the roof, largely thanks to the pandemic-era obsession with all things domestic. Internet memes are circulating about the lumber-to-bitcoin exchange rate and street-corner sales of wood fibre in dime bags. All of B.C.’s forest company stocks have benefited, but there’s reason to believe that CanWel Building Materials Group (TSX:CWX), a Vancouver-based manufacturer and distributor of specialty wood and other home-building products, still has room to go higher.
The drivers: What started as a joint distribution venture for local forest companies Canfor Corp. (TSX:CFP) and Weldwood of Canada (now part of West Fraser Timber Co. [TSX:WFG]) posted unaudited earnings of $60 million in the first quarter, beating the street’s $44-million consensus estimate by several board feet. Though CanWel is trading at a higher multiple than it has historically, its price-to-earnings ratio is still a modest 12.6, and its dividend yield is nearly 5 percent.
Management, led by CEO and Futura Corp. boss Amar Doman, hasn’t just been sitting back enjoying the show. CanWel has used the share-price appreciation to retire and refinance debt and to build a war chest for acquisitions. On April 21, it announced that it was issuing 7.5 million new shares in a bought deal, a kind of bulk equity sale, to a syndicate of institutions led by Stifel GMP and National Bank Financial (TSX:NA) at $10 apiece. Given that the stock’s been trading around $9.70 in recent days, retail investors have an opportunity to get in for less than the pros. The risk in this scenario is that the good times are short-lived and CanWel ends up overpaying for its new bolt-ons.
Word on the street: Whatever happens to housing in the medium term, National Bank Financial analyst Zachary Evershed said in a note to clients, CWX is coming out of the pandemic “fundamentally stronger, in our view, and better positioned to fund M&A without relying on external funds.”
Coming and going: Burnaby-based fuel-cell pioneer and recent market darling Ballard Power Systems (TSX:BLDP) gave up a chunk of its recent gains on Tuesday, falling nearly 20 percent following a big earnings miss. The company reported first-quarter revenue of US$17.6 million, well back of the consensus expectation of US$25.5 million. We’ll see whether this is a bump in the road or a full-on correction for the hydrogen subsector as other stocks, including local upstart Loop Energy (TSX:LPEN), also lost steam.