Acadian Timber Corp. (TSX: ADN) is a Canada-based supplier of primary forest products in Eastern Canada and the Northeastern United States. The company's operating segments include NB Timberlands and Maine Timberlands. It generates maximum revenue from the NB Timberlands segment. 

Key Highlights:

• Attractive dividend yield: The stock of ADN carries a dividend yield of ~6.07% on an annualized basis, which looks attractive considering the persisting interest rate scenario. Moreover, in FY21, the company retained its dividend distribution to CAD 19.3 million, which is at par with the previous financial year. This is impressive as most of the companies are lowering their dividend distribution in order to retain liquidity.

• Bullish outlook: In FY21, the industry witnessed strong demand from the Hardwood sawlog segment due to growing traction within the industrial markets. Moreover, expected higher demand due to an expected increase in the repair & remodeling activity coupled with commencement of new home construction is likely to support the North American softwood and hardwood lumber consumption in the short to medium term. Additionally, the company’s operation is likely to be benefit from new customer relationships management, related to both the appearance and industrial hardwood lumber markets.

• Growth in sales volume: The company reported its Q4FY21 sales volume of 0.29 million cubic meters, which is the highest in the last four quarters. This indicates a revival in the overall demand, and continuation of the above trend is likely to support the company’s upcoming performance.

Quarterly Sales Volume (Source: Company’s Report) 

Risks associated with the investment:

The demand of its product is related to the US housing construction and a slide in the above activity would likely to dampen the company sales volumes.

FY21 Financial Highlights:

FY21 Income Statement Highlights (Source: Company Report)

• ADN announced its full-year result, wherein the company posted its sales of CAD 95.7 million, increased from CAD 91.0 million in FY20. This was supported by improved realization prices due to growing demand dynamics.
• Operating costs and expenses stood higher at CAD 73.9 million in FY21 from CAD 70.2 million in the previous year, due to higher cost of sales and higher silviculture costs, partially offset by a decline in Selling, administration and other expenses. Despite a rise in the operating costs, the company’s operating income improved to CAD 21.7 million in FY21 from CAD 20.8 million in FY20 due to improved top line.
• The period was marked by a lower net interest expense, while reported a lower gain from fair value adjustments and other amounting CAD 6.7 million versus CAD 12.0 million in FY20. Hence, income before income taxes slide to CAD 26.4 million in FY21, as compared to CAD 31.2 million in FY20.
• Net income stood lower at CAD 18.6 million in FY21, declined from CAD 22.08 million in FY20, due to lower income before income taxes, partially offset by a decline in income tax expense.

Valuation Methodology (Illustrative): Price to Earnings

Analysis by Kalkine Group

Stock Recommendation:

In FY21, the company reported improved cost management and posted operating margin and net margin of 22.7% and 19.5%, respectively, as compared to the industry median of 19.5% and 8.9%, respectively. Continuation of this trend is likely to improve the company’s performance in the coming days. We have valued the stock using the Price to Earnings based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered peers like Stella-Jones Inc, Cascades Inc etc. Considering the aforesaid facts, we recommend a ‘Speculative Buy’ rating on the stock of ADN at the closing price of CAD 19.06 at 9:48 AM Toronto Time on March 17, 2022. Additionally, the markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

One-Year Technical Price Chart (as on March 17, 2022). Source: Kalkine, Analysis by Kalkine Group 

 Technical Analysis Summary:

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest. 

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest. 

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices 

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.