West Fraser Timber Co Ltd (WFT:TOR) Analysis

West Fraser Timber Co. Ltd. is a Canadian company that has been operating since 1954 and produces lumber, panels, laminated veneer lumber, pulp, newsprint, wood chips and energy. It operates through subsidiaries and joint ventures in British Columbia, Alberta and the southern United States. Its operations in Western Canada manufacture all products except lumber. Its sawmills in the southern United States produce lumber and wood chips. The company has 8,600 employees and is the largest lumber producer in North America.

Valorization

WFT se négocie à un prix correct, de 11.2 fois les bénéfices récurrents, 4.6 fois la valeur comptable corporelle, 1.3 fois les ventes et 11.8 fois le free cash flow.  En ce qui concerne le dividende on dira pour rester poli que West Fraser ne brille pas par sa générosité, puisque le rendement n'est que de 0.37%. Ceci étant dit, il faut relever que le distribution ratio est hyper prudent, à 4.2% par rapport aux bénéfices et 4.4% par rapport au free cash flow. Le grand bûcheron canadien près de ses sous a donc une marge énorme pour continuer à faire progresser ses distributions dans le futur. Le dividende est resté statique entre 2013 et 2016, mais a été augmenté en 2017 et sera à nouveau augmenté en 2018. Peut-être le signe d'un nouvel élan de charité...

Balance sheet & result

Just like the dividend (and especially much more), profits, cash reserves and asset values are growing over the long term, which proves the solidity of the Canadian company's business model. West Fraser clearly succeeds in creating value for its owners and this is reflected in the share price which has increased fivefold over the last ten years. The price has even increased 17-fold over the last thirty years...

Les réserves de liquidités sont confortables, avec un ratio de liquidité générale de 2.2 (en hausse) et un ratio de liquidité réduite de 1.07. WFT n'a donc aucun souci pour répondre à ses obligations financières courantes. La gross margin est elle aussi en hausse, même notable, à 39%, pour une marge de free cash flow appréciable de 11%. Egalement en hausse, le rendement des actifs est lui aussi remarquable, à 13.2%, pour une rentabilité en cash flow des actifs impressionnante de 20%. C'est à se demander si West Fraser n'imprime pas des faux-billets avec sa pâte à papier...

The long-term debt ratio to assets is slightly up, at 14.08%. Nothing to worry about, however, given the Canadian's impressive ability to produce cash. The company would indeed be able to repay its entire debt in one year by using its free cash flow. As for the number of shares outstanding, it even tends to decrease in the long term, which is obviously positive for shareholders by concentrating the assets at their disposal.

Conclusion

West Fraser is admittedly a bit stingy with its dividend. But when you see what a slot machine it is, you can honestly turn a blind eye to this drawback, while hoping that its management will come to better intentions in the future. In the worst case, you can console yourself with the added value of the share price.

WFC clearly has a bright future ahead of it. It is solid and relatively safe from new competitors due to its size and the know-how and all the resources needed to carry out its activity. The sector is also rather defensive in nature, which is confirmed by a beta of WFT slightly below 1. The business is also safe from technological obsolescence. It is therefore a stock that can be easily bought and forgotten in a corner.

I believe the stock is currently trading at a price that is fairly reflective of its intrinsic value, with perhaps a slight undervaluation. It is a bit expensive from a tangible asset value perspective, but quite cheap from an earnings perspective, especially considering its strength and profitability.

So I just took a position on WFT.