Listed companies serve as industry barometer

Wednesday 8 Aug 2018

BMO Capital Markets is just one of the major North American banks that track and report closely on the performance of publicly listed forest companies based in North America. One of those with operations and forests in New Zealand is of course, Rayonier. While their results are not directly comparable to other local forest management companies or divisions of other international companies, they do provide somewhat of a barometer.

Rayonier's Q2 in 100 words
Bottom Line: Good qtr - aided by strength in Northwest and NZ results as well as some 1-timers. The key issue for BMO? Southern timber (biggest EBITDA driver for RYN) remains depressed. We think much of the upside from recovery in southern sawlog prices is already priced into the stock. RYN's stock is trading on top of our estimate of prudent net asset value (NAV). We maintain our Underperform rating on valuation.

Key Points

New Zealand: Another solid quarter. Adj. EBITDA $25.8mm, Q1 $21.7mm, 2Q17 $18.0mm (net of land sales). Vols +20% y/y. Export & domestic sawlog prices both up 9% y/y. RYN concerned that ongoing trade tensions between U.S. and China could pressure export sawlog prices. Midpoint of FY2018 EBITDA guidance trimmed $5mm to $84-89mm. Prospective buyout of 23% JV partner in NZ has grown more complicated. RYN is interested in the 23% stake, but at the right price.

Southern timber: In-line. Adj. EBITDA $30.6mm, Q1 $28.2mm, 2Q17 $21.6mm. A $5mm y/y jump in non-timber income (3 pipeline easement sales) drove the upside. Vols +10% y/y; sawlog prices up 2% y/y and flat q/q. RYN (and others) are working to foster a southern log export market - RYN’s 2018 vols should double from 2017. Can they grow exports enough to create pricing tension? H2: modestly lower vols and ~flat prices. Midpoint of FY2018 EBITDA guidance up $3mm to $106-110mm.

Pacific Northwest: Solid quarter. Adj. EBITDA $15.0mm, Q1 $14.2mm, 2Q17 $5.5mm. RYN pulled forward vols (+36% y/y) to take advantage of favorable conditions. Sawlog prices +26% y/y & +8% q/q. H2: modest decline in prices and slightly lower vols. Midpoint of FY18 EBITDA guidance up ~$5mm to $43-46mm.

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Source: Equity Research Publishing Group, BMO Capital Markets

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