Opinions
Ross Healy
Norbord Inc.
OSB-N
COMMENT
Jul 29, 2014
Stock price when the opinion was issued
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Cut their dividend down to about 4%. Acquiring Ainsworth Lumber (ANS-T), which will be accretive for them. This is a play on the eventual US housing recovery. OSB prices have stayed really, really low at around $200. Eventually that has to turn up to justify the stock move that this company has had. He would consider Selling a Covered Call on this.
Seasonality on this is similar to most lumber stocks in Canada. Historically it is from October right through until April of each year. Last year it peaked out a little bit early, and did it again this year. Stock is now establishing a downward trend, trading below its 20 day moving average and is underperforming the market.
With the slowdown in US housing, this collapsed. It has oriented strand board production facilities in Canada, the US and Europe. He liked the way the company operated, and then the bottom fell out and it has been struggling ever since. The big thing they need is to see a turnaround in new start housing in the US. There have been some very good numbers, so he is tempted. Very well-run company and they produce a good product, but you need a very strong new housing market. He has been waiting for this to happen for months now.
OSB inventories are said to be at rock bottom levels. This is a concentrated play on US housing. They have merger synergies left with Ainsworth . They realized $20 million and there is a $45 million target. There is not a lot of growth out there and he is looking for names that can benefit from everything. The fact that this company sells into the US really helps. Dividend yield of 1.48%.
(A Top Pick Nov 5/15. Up 23.8%.) This was a play on US housing, OSB prices going higher, adjusting their Ainsworth earnings and a lower Cdn$. He still sees 18% EPS growth compounded annually over the next couple of years. This is a better place to be then with pure lumber players due to the trade dispute uncertainty. Thinks this is going to $38.
Their 12 months earnings forecast going out was $2.15 and the dividend is $2.40, so coverage is sketchy. They need a great big increase in the earnings outlook in order to get going again. However, his Fair Market Value calculation is pretty good, even based on those rather depressing earnings. He had a target of $32 and even higher. There is a good possibility, if those earnings get some momentum behind them, you’ll get back up to the $32-$33 area, about 4X Book. This is typically where this company has peaked in the past.