Opinions
Barry Schwartz
Acadian Timber Corp
ADN-T
TOP PICK
Oct 16, 2017
Stock price when the opinion was issued
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Trevor Rose’s Insights - Trevor’s most-liked answers from 5i Research. Long-term demand supported by new housing. Heavily dependent on the commodities market. Good financials and growing asset base. Diverse revenue mix. Unlock Premium - Try 5i Free
Trevor Rose’s Insights - Trevor’s most-liked answers from 5i Research. Timber demand supported by US housing. Premium valuation but attractive dividend. Lost backing from BAM. Stock is sensitive to lumber prices. Unlock Premium - Try 5i Free
In the last year, ADN saw it's price see a slight drawdown, but total return was up by 3%. ADN continues to be a solid dividend payer with a yield of 7.14% while payout ratio is quite good at 37.36%. From a valuation perspective, trading at 25.9x forward earnigs seems expensive, but it also trades at 0.9x price-to-book which is attractive. We think that ADN could benefit from tailwinds related to housing shortages as well as interest rates being peaked. The lumber industry can experience cyclicality, but we like the industry outlook and it trades at an intriguing valuation multiple. EPS is forecasted to see a drawdown in 2024 but then rebound in 2025.
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ADN may be better positioned to navigate trade tensions between Canada and the US. It mostly focuses on timberland ownership, and it does not own processing facilities. We could see the name being slightly negatively impacted by any tariffs, but overall, we continue to focus on individual management and company fundamentals for each name.
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This gives you equity-like returns on assets like timber, that grows every single year. There are going to be big benefits from them if the US housing market continues to recover. When he does the math on their acreage and what the stock is trading at, it is undervalued by at least 20%. In the meantime, you have excellent returns. They have grown the dividend twice already in the past few years. On pullbacks this is one to own. Dividend yield of 5.8%. (Analysts’ price target is $19.)