Interfor Corp (TSX:IFP, Financial) (“Interfor”) – Interfor is one of the largest producers of lumber in North America. While headquartered in Canada, most production is in the U.S. and the vast majority of its production is used in U.S. single-family home construction and repair and remodel markets. Outside of the U.S., British Columbia, Canada is North America’s largest producer of lumber. However, poor log availability and high costs in B.C. have caused a 20% reduction in B.C. lumber production over the last year. For that reason, many lumber producers have been buying and building lumber mills in the U.S. South where housing markets have been very robust and logs are plentiful and cheap. Over the last several years, those U.S. South mills have been bought and built for prices often in the range of $600 - $650 per thousand board feet (“mbf”) of production capacity. Interfor, which is among the best capitalized lumber producers in North America, is currently trading at prices that imply roughly $220 per mbf, a discount to replacement value of roughly 65%. This valuation translates to approximately 2x Interfor’s 2018 EBITDA. On a price to book basis, the company is within a whiff of its Global Financial Crisis lows, when the U.S. housing market was actually the epicenter of the crisis and the industry was staring into the abyss of rapidly declining home prices and a decade-long recovery.
From the Third Avenue Value Fund (Trades, Portfolio)'s first-quarter 2020 commentary.
