Canfor Pulp Products' Northwood Pulp Mill in Prince George
Credit: Canfor Pulp Products' Northwood Pulp Mill in Prince George

Analysts see 40 percent upside for the pulp and paper producer

The stock: Most forest products were caught up in the recent downdraft for commodities sparked by fears of an impending global recession. Not so for pulp and paper. U.S. pulp prices have risen sharply this year on supply constraints and analysts hold out hope for some more good news when Canfor Pulp Products (TSX:CFX) presents its second-quarter results on July 29 along with parent company (with a 54.8 percent stake) Canfor Corp. (TSX:CFP).

The drivers: With all four of its mills located in northern B.C., Canfor Pulp Products has been adversely affected by timber supply reductions and sawmill closures that have curtailed its supply of wood chips. (Blame the mountain pine beetle.)

It’s also suffered shorter-term setbacks with boiler and digester breakdowns and transportation disruptions over the past 18 months. The company posted a net loss of $44.4 million in 2021 on sales of $1.14 billion. Q1 2022 saw a $26-million loss on $219.6 million in revenues.

But a move into the black may be nigh. Kevin Edgson, a veteran executive from Eacom Timber Corp. and Miller Western Forest Products, was appointed CEO in April, raising hopes for an operational turnaround. Meanwhile, the price of Northern bleached softwood kraft (NBSK) pulp, used in packaging, printed materials, tissue and air filters, hit a record high of US$1,745 a tonne in the U.S. market in May.

Word on the street: RBC Dominion Securities analysts Paul Quinn and Matthew McKellar anticipate a “significant financial turnaround” in the second half of the year as Canfor Pulp sorts out its supply-chain issues and pulp prices stay strong. Changing hands for $5.63 as of Tuesday, the stock “is trading at a huge discount to its replacement value,” they wrote in a July 18 note to clients, citing rival Domtar Corp.’s recent $300-million sale of its Kamloops pulp mill, representing a much higher asset value multiple based on output. As a result, RBC upgraded the stock to “outperform” with an $8 target.

Coming & going: West Fraser Timber (TSX:WFG) stock shot up 16 percent Tuesday on unattributed reports of a takeover bid by private equity outfit CVC Capital and Austrian wood panel manufacturer Kronospan.