+ Watch UFS
on My Watchlist
The Company manufactures and sells fine paper, including uncoated free sheet and coated groundwood.
Diversification into private-label/personal care up to 13% of operations, a recent downtick from their high of $56/share, a February announcement to up their dividends and options for share buyback, awesome price/book, P/E, and dividend yields.On the con side, relatively flat revenue, a capital-intensive long-term debt reliance that will hurt them as interest rates inevitably rise, and inventory/receivables growth without comparable sales to justify them, implying overstocking or undercollecting on A/R.Despite these cons, I think they'll fare well over the next year or two.
Yield, value, diversity for portfolio
Innovation - just the attempt - gets moneyed interest.
low p/e, strong earnings for last two years with revenues below historical levels, good opportunity for market competitionLong UFS at 76.20
You can't bury the paper industry yet. Look at the paper around you These guys are environmentally focused and postiioned to succeed
In our search for value stocks, it usually leads us to very unconventional investments. Most stocks considered value plays are unloved, misunderstood or generally hated for whatever reason by investors. A stock becomes a value stock because something has happened which makes them very unattractive compared to sexier offerings such as Apple Inc. In my search, Domtar (UFS) is no exception to this. As a added benefit to my readers, I am a full time forrest products buyer which gives me an added understanding of both this company and this industry.Who are they?Domtar is the largest integrated producer of uncoated freesheet paper in North America. It’s products range from commercial printing paper to absorbant material found in diapers and tampons. They have 10 mills (8 in USA and 2 in Canada). They also engage in the business of selling raw pulp to other manufacturers. They also operate a paper merchant business where they buy, warehouse, sell and distribute their own products and products from other manufacturers to their customer base. This is the volatile part of their business!What I see:In this industry you must be a vertically integrated mill that owns its own pulp source or you will not survive! Many have already gone bankrupt as pulp prices have sky rocketed due to heavy chinese demand. Those who have managed to survuve are severly crippled due to incompetance of their hedge fund owners or just plain idiotic decision making at the MGMT level. I have personally seen this first hand. However, it doesn’t mean that there are a few profitable players worth looking at.Why should you care?Management has made significant progress for the last 3 years in improving their balance sheet thru reduction of debt to a more manageable level thru asset sales of the lumber division in canada (bad currency exchange rate) and their coated groundwood facility. All that leaves is their US pulp operations and uncoated freesheet manufacturing. At today’s closing price of $52.06 they are being sold at a 25% discount to book value and a whopping 74% discount to annual sales!!! The book value of this company is $63. Their ebita ratio is at a low of 2.77. They are showing strong margins due to their restructuring and other industry factors such as strong product pricing and high pulp prices for export. They have improved their liquidity and their earnings are now more 4 times the amount necessary to service debt. One area of concern is their total concentration on the UFS market. Even though prices have strengthened this year, it may falter in Q4 due to the Postal Regulatory commission’s decision on new postal rate hikes which should affect catalogers and publishers. I would very much like to see them diversify away fro UFS and focus on increasing more on the Fluff pulp business which should show strength in the next 3 decades. As baby boomers age they will start wearing diapers. Can’t lose business!!! The leader in this area is Rayonair but they are selling at much higher valuations which doesn’t fit in to the mission of this blog. We want to buy into good discounts!!!!! They are doing something very interesting and if it pans out could be a huge moneymaker. They are starting a pilot plant to produce Nanocrystalline cellulose. The applications are endless. Think bioplastics!!! A renewable forms of raw material that can be used to make super strong plastics and other materials while reducing our need for oil at the raw material. BTW, this stock pays a 2% dividend.If you want to see how to play this visit my blog at valuevulture.wordpress.com
Declining revenue, lots of debt, sells 'fine paper products'. I can't think of anything I would spend less money on during a recession, or during a 'long, fragile recovery'.
Will go bankrupt due to weak UFS demand
Deep drop of Canadian dollar currency is quite positive for Domtar and should help more than offset paper price pressure due to recession.
everyone uses paper.
Very long-term alt-energy play.
Good fundamentals, insider accumulation. Tightening supply in the uncoated fresh sheet market will bring increased revenues and profits to Domtar. When Comifex deal goes through (eventually.....!) later this year earnings will get a big boost. Rebounding dollar will also boost price.
The merger between old Domtar and the fine paper division of Weyerhauser is not going well.Even if the two companies were selling paper, the 2 business models were different- production, distribution, supply chain, etc. Aligning the two will take time and huge amount of money supposing they know which direction they going and what will the operational model. The CEO and COO are only focusing on the current merger, there is no-one planing for the future since they will be both retiring in a year or two. There is no clear plan, for example, how to bank in on the current US dollar depreciation and starting massive exports and distribution throughout Europe. The market is only shrinking and they do continue to do same things, the old way. How do you expect you will make profits with this company?
Huge value at these levels (6.08). Despite the horrible enviroment the company will still generate lot's of FCF. They will probably start a dividend sometime in '08. A great value stock
Canadian paper company which acquired the "fine papers" division of Weyerhauser (WY) on 7 March 07 for $1.3B cash. This includes "uncoated free-sheet" (hence the ticker symbol UFS) as well as paper for magazines, books, hamburger wrappers, wax paper, paper surgical gowns, and on and on... They even make an antibiotic-coated paper for use in medical offices - great idea!!! UFS was hemorrhaging financially in 2005 and cauterized the wound by closing some mills and firing some of the corporate suits. The effort was successful and in Q3/Q4 2006 they returned to profitability. The present acquisition is said to make them the largest producer of fine paper products in North America. The acquisition cleared anti-trust inspection by US and Canada, so they should be in the clear to dominate the market as much as they possibly can. Currently, the stock is around $9.85 with a PEG of 0.2-0.5, making this a deep value play for the long term.
Company's such as Xerox are hungry for paper.
Domtar purchased the five newest fine paper mills in the USA from Weyerhaeuser.All of which have been quite profitable as mills in the past several years and are the low cost producers of these grades. Over the short term I would expect their earning to have a profound effect on Domtars stock price.On the down side the demand for fine paper is projected to be approx 1.4% less for 2007. This will cause a further shake out in the paper industry with marginal mills being shut down.
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