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Interfor's US lumber mill acquisition excellent, says Dundee

Interfor's US lumber mill acquisition excellent, says Dundee

Interfor's (TSE:IFP) acquisition of four lumber mills from Simpson Lumber has been hailed an "excellent" one by analysts at Dundee Capital Markets.

Dundee reiterated its buy rating and raised its target price on the North American lumber company to C$28.00 per share from C$26.00 previously.

Interfor announced today a deal to acquire the four lumber mills for US$94.7 million plus an estimated $30 million of working capital.

"Based on 9-month trailing EBITDA, the purchase price (excluding working capital) represents a multiple of 5x," said Dundee analyst Stephen Atkinson.

"Including the upgrade of the business we expect the EBITDA multiple will be under 4x."

The mills are located relatively near the Interfor lumber mills in the US, Dundee said, and the capital markets firm does not expect any US anti-trust issues given Interfor's "relatively low lumber capacity."

The analyst noted that the acquisition is expected to add $21 million to 2015 estimated EBITDA, and $34 million to 2016 EBITDA. The mills reported $17 million in EBITDA over the first nine months of 2014.

"Our forecasts are well above consensus owing to our expectation of slightly higher lumber prices combined with lower energy-related costs," Dundee said.

The capital markets firm also highlighted expected lower sawlog costs in the US Pacific North West, owing to less log buying from China given increased competition from Europe and Russia.

The primary risks, Atkinson said, are weaker than anticipated US housing starts, and a significant drop in Chinese buying, which could both lead to lower lumber prices.

"Interfor is one of our preferred investments. The company is very well-managed and selects its acquisitions astutely," the analyst concluded.

With a capacity of 2.6 billion fbm, the Vancouver-based company is the fastest growing lumber business in North America. Shares of Interfor jumped 10.6 percent to C$20.63 in Toronto on Friday afternoon.

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