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A Spinoff That Will Pay Off

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July 14, 2014 – Comments (2) | RELATED TICKERS: RYAM

As someone who looks for significant upside in investments and as a smaller investor likes to take advantage of opportunities that some of the large funds cannot, I enjoy investing in smaller companies. The Small Caps column in Barron's often has very interesting investment ideas. This week's is no exception. It extols the virtues of a company that I have been writing quite a bit about lately Rayonier Advanced Materials (RYAM).

I posted about RYAM last month, After years of waiting, the catalyst is nearly here, and in early May, Limitless Paper in a Paperless World .  One thing that I really like about the company, besides the fact that it is a spinoff and its management is very aligned with shareholders, is that there is quite a bit of excess capacity in the specialty cellulose industry.  Huh?  Why is that a good thing you ask?  Because the time to buy a company is when its pricing power is weak.  That's when you can buy it cheapand profit when the pricing for its products improves.  Analysts expect demand for specialty cellulose products to grow and when it does, guess who controls the vast majority of the excess capacity in the industry?  RYAM.  They have the ability to turn off this excess capacity, so to speak, now and bring it on line whengradually as demand improves.  They are setting themselves up to be the dominant player in a growing sector.  What competetitor is going to want to expand in this space when they know that RYAM can easily soal up any incremental demand in any time it wants to?

Here's what Barron's had to say about RYAM:

"SIZING UP SMALL CAPS

Rayonier Advanced Materials: A Spinoff That Will Pay Off

The outlook is bright for Rayonier Advanced Materials, the leader in specialty cellulose.


http://online.barrons.com/news/articles/SB500014240531119036...

Top management appears to like the prospects. Last month, CEO Paul Boynton resigned from the top job at Rayonier timber to take the helm of the spinoff.

Rayonier's shares have popped 15% since they were issued, but still look attractive at a recent $41.50. In the next few years, there could be plenty of upside.

Steven Chercover, an analyst at D.A. Davidson, thinks the shares could gain 30% in the next 12 to 18 months...

Chercover, the D.A. Davidson analyst, thinks that pricing will hold steady in 2015, and that specialty-product volume will grow. He forecasts sales of 530,000 metric tons of cellulose specialties this year, rising 6% in 2015. Sales of commodity products could total about 150,000 tons this year.

In time, management could shift all of its production to higher-margin specialties, without having any commodity-based volume. That would boost earnings before interest, taxes, depreciation, and amortization from an estimated $302 million this year to $500 million.

Chercover values Rayonier Advanced Materials' shares at $53, based on an enterprise value of eight times normalized Ebitda of $400 million.
"

Thanks for reading everyone.  If you have any other interesting ideas, please share them.  I've already done quite well with the great idea that JeffryClarke was kind enough to share with everyone here, ABGB.

Jason

2 Comments – Post Your Own

#1) On July 23, 2014 at 12:46 PM, boozalex (30.23) wrote:

http://seekingalpha.com/article/2296955-rayonier-advanced-materials-a-spin-off-at-a-fair-valuation

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#2) On July 29, 2014 at 10:11 AM, boozalex (30.23) wrote:

Any news lately on RYAM?  

Or just an orderly selling of a spin-off?..:) 

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