Author Topic: RFP - Resolute Forest Products Inc  (Read 24441 times)

alertmeipp

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RFP - Resolute Forest Products Inc
« on: August 05, 2013, 09:14:49 AM »
Down 10%+ after Q release. The quarter looks pretty solid to me, does the outlook spooked the market?


txlaw

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Re: RFP - Resolute Forest Products Inc
« Reply #1 on: September 05, 2013, 07:59:33 AM »
How is it that this thread has no activity, given that both Francis Chou and HWIC have huge positions in RFP?

I've not done any detailed analysis of the company, and the only thing I can think of here is that they are valuing the company like a timber company, rather than a paper company.  But that's just speculation.

I would love to hear a detailed thesis from somebody who is invested in RFP. 

WhoIsWarren

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Re: RFP - Resolute Forest Products Inc
« Reply #2 on: September 05, 2013, 08:07:21 AM »
Me too -- I'm all ears!

racemize

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Re: RFP - Resolute Forest Products Inc
« Reply #3 on: September 05, 2013, 08:16:00 AM »
I presume it is because of this thread, and a lot of people were upset:

http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/resolute-forest-products-commences-takeover-bid-of-fibrek/

Does seem worth discussing at this point though.

Nnejad

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Re: RFP - Resolute Forest Products Inc
« Reply #4 on: September 05, 2013, 10:04:51 AM »
I'll kick start this.

RFP
Market cap: 1.25 B
Net debt: 350 mm
Pension deficit: 1.8 B
TOTAL: 3.4 B

Assets:
Lumber: ~600m on 100m EBITDA
Pulp: ~1 B for 1.7 mm tonnes of pulp post Fibrek.
Paper: ~ 1 B at $200 ton for 5 mm  tonnes
TOTAL: 2.6 B

Two swing factors here.
One, you have 5B plus of tax losses. This is somewhat of a stretch, but if you were to add 33% to the values above, you have an NPV of 860mm for the tax shield. Getting you to fair value.

Two, your pension deficit is valued at a low interest rate (I believe 4% discount rate), although this adjusts at every year end. They mentioned on their Q2 conference call that the move up in interest rates up until then would have decreased their pension deficit to 1.4B. The upward move in interest rates since then may mean it's more like 1.1B today.

These pension assets (6.5B) are managed by Prem & Co. Or more specifically, they selected most of the same managers as they selected for SickKids. See:
http://www.theglobeandmail.com/globe-investor/how-prem-watsa-turned-sickkids-portfolio-around/article1317596/
"The strategy has made SickKids Foundation among the best-performing foundations in North America in terms of financial returns."

And I guess as a last kicker - I've heard that pension surpluses can be withdrawn in Canada.

Uccmal

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Re: RFP - Resolute Forest Products Inc
« Reply #5 on: September 05, 2013, 01:21:22 PM »
I think this is your detailed thread:

http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/abh-abitibibowater-inc/msg107498/#msg107498

Secular decline versus cyclical decline?  I go with secular in which case book value is overstated.


GARP tending toward value

txlaw

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Re: RFP - Resolute Forest Products Inc
« Reply #6 on: September 05, 2013, 01:59:19 PM »
I'll kick start this.

RFP
Market cap: 1.25 B
Net debt: 350 mm
Pension deficit: 1.8 B
TOTAL: 3.4 B

Assets:
Lumber: ~600m on 100m EBITDA
Pulp: ~1 B for 1.7 mm tonnes of pulp post Fibrek.
Paper: ~ 1 B at $200 ton for 5 mm  tonnes
TOTAL: 2.6 B

Two swing factors here.
One, you have 5B plus of tax losses. This is somewhat of a stretch, but if you were to add 33% to the values above, you have an NPV of 860mm for the tax shield. Getting you to fair value.

Two, your pension deficit is valued at a low interest rate (I believe 4% discount rate), although this adjusts at every year end. They mentioned on their Q2 conference call that the move up in interest rates up until then would have decreased their pension deficit to 1.4B. The upward move in interest rates since then may mean it's more like 1.1B today.

These pension assets (6.5B) are managed by Prem & Co. Or more specifically, they selected most of the same managers as they selected for SickKids. See:
http://www.theglobeandmail.com/globe-investor/how-prem-watsa-turned-sickkids-portfolio-around/article1317596/
"The strategy has made SickKids Foundation among the best-performing foundations in North America in terms of financial returns."

And I guess as a last kicker - I've heard that pension surpluses can be withdrawn in Canada.

Cool.  Thanks for starting it off.

txlaw

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Re: RFP - Resolute Forest Products Inc
« Reply #7 on: September 05, 2013, 01:59:53 PM »
I think this is your detailed thread:

http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/abh-abitibibowater-inc/msg107498/#msg107498

Secular decline versus cyclical decline?  I go with secular in which case book value is overstated.

Maybe we should merge this thread with the ABH thread?

Phaceliacapital

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Re: RFP - Resolute Forest Products Inc
« Reply #8 on: September 05, 2013, 02:17:23 PM »
There are also interesting comments in Chou's latest letters.
The harder you work, the luckier you get.

JEast

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Re: RFP - Resolute Forest Products Inc
« Reply #9 on: September 05, 2013, 02:32:04 PM »
Follow-up to Nnejad's comments:

NOL are more like $4.5B and of the total about $1.8B is State & Local, so I think your NPV estimate is a little high.

The 2012 discount rate for US GAAP was 4.3%, so I would be cautious on being too optimistic about possible new discount assumptions.

Pension liabilities, H&W do not control the assets (maybe a small portion) plus the mix (stock/bond) is a standard mix due to regulations.  So I would not get too optimistic here either, but markets are up YTD.