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Resolute Forest Products Inc. – Investing Idea

by CFD Guru Team   ·   

Resolute Forest Products Inc. – Investing Idea

$RFP is a Canadian manufacturer of wood products.
as a manufacturer of a commodity (lumber), it was hammered by the recent price drop in the lumber price.

The company’s market cap is currently $421m.
I will try to make conservative assumptions about the company.

Let’s assume that the free cash flow from operation (which was on the low side last year) will continue from now on about $330m-$380m/year.

Then we need to reduce the Capex, manufacturers have a lot of depreciation and they need to invest a lot of money back on the business to keep the facilities in good shape, the company assumes $150m/year spent on Capex (data from the earnings call), some of it for expansion and some of it for maintenance.

So the free cash flow is going to be something around $180m – $230m/year.

Now, if the price of Lumber will go down it’s another story, but it seems that it’s “settle” between $330 – $400/per ton. to view the chart click on the link below:

The balance sheet.

It’s looking alright, I mean there is the debt ($416m) and burden of the unfunded pension plan ($1.23b), Resolute is lowering both of them year over year. this year they are going to fund the pension plan with another $100m.

In 2016 the liabilities of both the debt and the pension were $2b the current figures are $1.7b, and next year probably around $1.6b.

I don’t see a huge MOAT here but I can see that the business is very cheap at this point in time based on price/FCF and P/B.
By the way, the book value is about $17.7/share.

This investment can take some time to mature, and we need to follow up closely after the $lumber price, but when the price of the stock will catch up with the story I think we can see a very nice return on our investment.

Good luck $RFP 🙂