Bought a chunk of Tembec yesterday on the dip. the company reports first quarter results this morning. Tembec is my second forestry purchase. Bought Western Forestry Products last week. Unlike WEF, TMB derives more than half its revenues are from paper pulp, with the other half coming from lumber . A few weeks ago, French mill unions gave the go ahead to toallow the sale of two of Tembec's French pulp mills to APP, anIndonesian paper conglomerate. The price is approximately 100 millioneuros or $137 million Cdn. Many analysts have basically said that Tembec is going bankrupt, which is why the stock price is in the dumps (though it has risen significantly in the last couple months). With $490 million in debt and $200million in underfunded pension liability, as of December 31st, the sale of the mills goes a long way to shoring up their balance sheet. As does the price of pulp, by which the company stands to make a lot of money over the next few quarters. With 100 million shares outstanding the company could easily reach
.40 earnings this year with pulp prices at current levels. My back of the napkin earnings estimate is backed up by BMO, who expects earnings of 44cents in 2010 and 20cents in2011. BMO says Tembec has the highest leverage to pulpprices. It will be interesting to see how they open this morning. My understanding is that they only re-started some of the mills in February, so earnings may not be stellar just yet. If the stock dips, I will buy more.