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7/24/2019 UVIC- Analysis of financial statement
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CANFOR CORPORATIONUniversity of Victoria Student ResearchCFA Institute Research Challenge 2012
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Presentation Highlights
Overview
FinancialAnalysis
Valuation
Risks
Increasing Lumber Demand
Rising Lumber Prices
Competitive Advantages
!"#"!
!!#$%
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Co&'any Overview
Headuartered in !ancouver" #ritish Columbia
Lumber mill operations in #ritish Columbia" Alberta" $uebec" %ashington &tate"
&outh Carolina" 'orth Carolina
Largest Annual Production Capacit( in 'orth America )*+2 billion board ,eet-
*0+2. o/nership stae in Can,or Pulp Paper
Overview
FinancialAnalysis
Valuation
Risks
Source Canfor
North A&erican O'erations
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Overview
FinancialAnalysis
Valuation
Risks0
1000
2000
3000
4000
5000
6000
7000
80002010Total Regional SawnwoodLumberImports(!oard"eet#
Co&'any Overview(3a4or 3arets
&ource FAOSTAT
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Industry Overview(5& Housing &tarts and Lumber Prices
United States 67pected recover( in the housing maret /ill drive up lumber prices
0
500
1000
1500
2000
2500
0
100
200
300
400
500
600
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
$nnual%ousingSt
arts(T&ousands#
Lunmber'ries()perT
&ousand!oard"eet#
$nnuali*edont&l+,S%ousingStarts-s.ont&l+Lumber'ries
Source: Random Lengths, ForecastChart
5& Housing &tarts
Lumber Prices
0
100
200
300
400
500
600
0 500 1000 1500 2000 2500
Lumber'ries
,S%ousingStarts
/orrela on
Overview
FinancialAnalysis
Valuation
Risks High gro/th potential in 5& paired /ith Continued ne/ gro/th in China
Potential ,or
&upernormal &ales
8ro/th in medium
term
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Industry Overview(Harvesting Restrictions in China
Overview
FinancialAnalysis
Valuation
Risks
Restricted
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Industry Overview(8ro/ing&uppl( 8ap in China
Overview
FinancialAnalysis
Valuation
Risks
Sawnwood )u&*er +,'orts to China -.. /oard Feet0
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Overview
FinancialAnalysis
Valuation
Risks
Co&'etitive Positionin1( ChinaCo&'etitive Positionin1('orth America
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FINANCIA)ANA)2SIS
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Financial Analysis(Return 9n 6uit(
Overview
FinancialAnalysis
Valuation
Risks
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
2010 2011E 2012E 2013E 2014E 2015E
R
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Financial Analysis(Lumber &ales
US 3ousin1Re*ound
Increasin1
ChineseSu''ly4a'
Risin1)u&*erPrice
Overview
FinancialAnalysis
Valuation
Risks
0
500
1000
1500
2000
2500
2010 2011 2012 2013 2014 2015
RegionalLumberSalesrowt&()#
Canada
China
5nited &tates
:apan
9ther
5%!%
United States54%
Canada22%
China17%
Japan6%
Ot er1%
UnitedStates,
47.81%
Canada,
15.41%
China,31.68%
Japan, 3.15% Ot er, 1.95%
5%!6+
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Financial Analysis(Pulp &ales
%eaening
Demand
67cess
&uppl(
Dropping
'#&; price
0
200
400
600
800
1000
1200
2010 2011E 2012E 2013E 2014E 2015E
'ulpSales()illions#
Overview
FinancialAnalysis
Valuation
Risks
Can,or Pulp and Paper is not a
sustainable contributor to Can,or
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Financial Analysis(Pro4ected Ratios
2010 2011E 2012E 2013E 2014E 2015E
0.
*.
10.
1*.
20.
+/IT7A .ar1in
2010 2011E 2012E 2013E 2014E 2015E
0.
2.
=.
>.
?.
10.
12.
7e*t to Ca'ital Ratio
2010 2011E 2012E 2013E 2014E 2015E
0.
10.20.
@0.
=0.
Solvency Ratio
2010 2011E 2012E 2013E 2014E 2015E
1+002+00
@+00
=+00
Current Ratio
Overview
FinancialAnalysis
Valuation
Risks
&tabilit( Level
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VA)UATION
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Valuation
7iscounted
Cash Flow
.ulti'leAnalysis
+/IT7ARe1ression
Final Value87ece&*er5%!5
Overview
FinancialAnalysis
Valuation
Risks
Corrects ,or potential
inaccurate c(clical ,oresight
o, DCF
Captures the e,,ect o, short
term cash ,lo/s on Can,or
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7iscounted Cash Flow(Asset Proportions
Canfor, 100%
wners&ip Lumber
Other, 49.8%
Canfor, 50.2%
wners&ip'ulpand'aper
Canfor !"p#i$ited
artnership,24%
Canfors #!$&er
Opera onsand
Other, 76%
$ssetsb+!usiness,nit
Overview
FinancialAnalysis
Valuation
Risks
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7iscounted Cash Flow(PostAnal(tical FCF6 Pro4ection )201> 9n/ards-
Overview
FinancialAnalysis
Valuation
Risks
FCF+ 4rowth Cycle Illustration
6 2ear Positive 4rowth.in( %98 .a,( 5#69
: 2ear Ne1ative 4rowth.in( %98 .a,( 5#69
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7iscounted Cash Flow(Anal(tical Phase )2012201*-
Chan1e In Non;Cash
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.ulti'le Analysis(&imilarit( Assessment
'(CC
)ota"(ssets
)i$&er )en!res
C(*+Sa"es
Epos!re
Effi-ien-
Other /a-tors
!asisor'eer/ompan+Similarit+$ssessment
Overview
FinancialAnalysis
Valuation
Risks
/ompan+ $//
$ssets ST
In-estments
()#
/$RSales TimberTenures()# Regional perations
/anor 6.34 254 10.16 563.7 /anada9,S
'est /raser )i$&er 4.51% 2651.9 7.77% 544.1 Canada, US
)e$&e- 7.67% 1004 2.60% Canada, US, /ran-e
'estern /orest rod!-ts 7.08% 582 3.42% 249.9 Canada
'eerha!ser 7.05% 11962 7.29% 124.96 Canada, US, China, Ur!!a
(&iti&i&oater 5.08% 6846 2.19% Canada, US, S.orea
Ran:ing /ompan+
1 'est /raser )i$&er2 'eerhae!ser
3 )e$&e-
4 'estern/orest rod!-ts
5 (&iti&i&oater
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.ulti'le Analysis(%eighted Average 3ultiple
.
RSS$RI= 272.0Se""in*enera" and(d$inistratie Costs 39.80
!IT?!IT
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*
:o!sinStarts
US;Jariables
+/IT7A .ean( !$! .illion
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Final Value
Statistical
A''roach!%9
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RISS
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Invest&ent Risks
Overview
FinancialAnalysis
Valuation
Risks
Invest&ent Risks
3i1hest I&'act Disappointing 5& housing start gro/th
Lo/er than e7pected Chinese lumber demand gro/th
&ustained lull in lumber prices
67change rate ris
Dangers to natural environment
8overnment regulation changes
Failure to success,ull( renegotiate labour union terms
)owest I&'act Bermination o, &o,t/ood Lumber Agreement )&LA-
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/U2BU+STIONSCRisin1
)u&*er7e&and
4rowin1
)u&*erPrices
Stron1
Co&'etitivePositionin1
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Appendi7 A Financials
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Appendi7 # Financials
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Appendi7 C Financials
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Appendi7 D Financials
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Appendi7 6 FCF6 &ensitivit( Anal(sis
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Appendi7 F DCF Inputs
,
, , ,
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SoureTeamC analysis
,
, , ,
ar:et"atorsBposure FSuppl+
"undamentals
Appendi7 8 Comparables
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Appendi7 H Compan( &imilarit(
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Appendi7 I Comparable Fundamentals
/ompan+ $// /ostoPuit+$terTaB/osto
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Appendi7 :Applied Ratios
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Appendi7 ;Regression !ariables
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Appendi7 L 67change Rates
A di 3
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Appendi7 33anagement Change
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Appendi7 ' 3ountain Pine #eetle
+ntire ProvinceTi&*er 3arvestin1 )and /ase
PineVolu
&eAilled-&illionsof
cu*ic&eters