GreenFirst Forest Products, Inc. (GFP), is a fascinating company. GFP used to be called “Itasca Capital Ltd.”, and it was basically a holding company with a lot of cash and investments. After a successful investment into “1347 LLC” (now a fully owned subsidiary), Itasca found itself holding a lot of dry powder. In 2020 the company purchased a sawmill in Kenora, Ontario, at this point Itasca decided to change its name to GreenFirst Forest Products, to better reflect the new operations. In 2021 GFP acquired sawmill and paper mill assets from certain Canadian subsidiaries of Rayonier. The sawmills produce about 50% random length lumber, and 50% studs, as well as chips, shavings, and bark as by-products. In the past, the sawmills have shipped between 45-65% of their production to US customers while the remaining production is shipped to domestic customers. The paper mill manufactures paper-grade products that are used to print newspapers, advertising materials, etc. In addition to the mill assets, GFP also received logging right for 2.7m cubic meters of annual cut associated with the Ontario sawmills and 0.7m cubic meters associated with the Quebec mills. Lastly, GFP entered into several agreements with Rayonier including a chip supply agreement, a non-competition agreement, and a service agreement. The chip supply & service agreements expire around 2040, while the non-competition agreement ends in five years. The Rayonier acquisition was massive, GFP paid about $232.6m, in various forms of cash, stock, and debt. The costs were gargantuan for a company of GFP’s size (~$275m) - however, the acquisition was intelligent, making GFP one of the leading lumber producers in Canada.
My quick analysis is to calculate the product between PE and P/BV. I look for a PE of 15 or lower and a P/BV of 1.5 or lower, multiple these metrics together to produce 22.5 or lower. Morningstar has a PE and P/BV of 4.13 and .930 for a total of 3.84. Analyzing GFP's (OTC: ICLTF) latest 10-Q, PE was 4.78 and P/BV of .952 for a 4.55 total. All under 22.5, so I moved on. Revenue of $ 421,360,000, operating expenses of $52,150,000 and sitting on cash of $54,108,470, produced a negative burn rate which prompted me to continue my analysis. The spread between current assets and total liabilities disqualified the firm as a true Net-Net, so I analyzed it as a Acquirer's Multiple investment. Market cap, at the time, was $202,409,800, interest-bearing debt of $77,710,140, no preferred stock or minority interest and the cash equaled an EV of $226,031,470. Operating earnings were $82,520,140 for an Acquirer's of 2.74. A multiple under 5; now I'm cognitively salivating! Industry-beating current ratio 4.23, D/E ratio .70, ROA 12,83%, ROE 21.80%, ROIC 26.26%, TSR 22.90% and a 37.82% insider ownership, all added to the company's positive attributes. FCF was -$31,408,990 due to a change in total assets of $54,912,260. The temporary increase in CAPEX didn't scare me off. At the time of analysis, the stock had a BV and TBV Margin of Safety of 4.80% and 34.03%, respectively. Not eye-popping, but present. My continued due diligence was performed when the stock was trading a $1.14 and today it closed at $1.12. I appreciate your talent for identifying high upside/ low manageable risk investments. I am now a proud GFP shareholder. Keep 'em comin'.
Beautiful write-up. Currently, at Stage III of my DD and strongly considering investing. Thank you for your research.
Thanks! - what conclusions have you come to? I haven’t checked up on GFP in a minute.
My quick analysis is to calculate the product between PE and P/BV. I look for a PE of 15 or lower and a P/BV of 1.5 or lower, multiple these metrics together to produce 22.5 or lower. Morningstar has a PE and P/BV of 4.13 and .930 for a total of 3.84. Analyzing GFP's (OTC: ICLTF) latest 10-Q, PE was 4.78 and P/BV of .952 for a 4.55 total. All under 22.5, so I moved on. Revenue of $ 421,360,000, operating expenses of $52,150,000 and sitting on cash of $54,108,470, produced a negative burn rate which prompted me to continue my analysis. The spread between current assets and total liabilities disqualified the firm as a true Net-Net, so I analyzed it as a Acquirer's Multiple investment. Market cap, at the time, was $202,409,800, interest-bearing debt of $77,710,140, no preferred stock or minority interest and the cash equaled an EV of $226,031,470. Operating earnings were $82,520,140 for an Acquirer's of 2.74. A multiple under 5; now I'm cognitively salivating! Industry-beating current ratio 4.23, D/E ratio .70, ROA 12,83%, ROE 21.80%, ROIC 26.26%, TSR 22.90% and a 37.82% insider ownership, all added to the company's positive attributes. FCF was -$31,408,990 due to a change in total assets of $54,912,260. The temporary increase in CAPEX didn't scare me off. At the time of analysis, the stock had a BV and TBV Margin of Safety of 4.80% and 34.03%, respectively. Not eye-popping, but present. My continued due diligence was performed when the stock was trading a $1.14 and today it closed at $1.12. I appreciate your talent for identifying high upside/ low manageable risk investments. I am now a proud GFP shareholder. Keep 'em comin'.