Conifex Timber Inc. (TSX: CFF) is a Canada-based forestry company operating in lumber and bioenergy. The Company is engaged in timber harvesting, reforestation, forest management, processing logs into lumber and wood chips, lumber finishing and distribution. It is also engaged in the production of electricity for external sale and internal supply.

Why Should Investor’s Book Profit?

• Insiders are net sellers: Over the past 1-years insiders are net sellers and recently in November and December they have offloaded some their position. This is not good especially in a small size company, as it typically reflects that management is not so bullish on the future prospects of the company. Moreover, insiders are net sellers amid times when the underlying commodity (lumber) prices are quite strong.

Insiders’ activity over the past 5-year. Source: REFINITIV, Analysis by Kalkine Group

• Relative strength is weak against the underlying commodity: Despite solid surge in the lumber prices over the past 3-months, CFF shares have significantly underperformed against the movement in the underlying commodity. This implies that the company is not able to capitalize the solid increase in the underlying commodity.

 3-months CFF’s Price vs LBC1 (lumber Price) relative performance

 Source: REFINITIV, Analysis by Kalkine Group

• Reported lackluster performance in Q3FY21: The company has reported poor performance in Q3FY21, with gross margin significantly contracted to 16.3% from 51.5% reported a quarter before, EBITDA margin shrunk to 5.6% vs 36.8% a quarter before and reported negative operating as well net margin during the quarter under consideration. The margin contraction was mainly on account of sharp plunge in the underlying commodity during the quarter under consideration. This reflects that the company’s business is significantly volatile.
  

Valuation methodology (illustrative): Price to Earnings – based valuation

Source: REFINITIV, Analysis by Kalkine Group

Note: Premium (discount) is based on our assessment of the company’s growth drivers, economic moat, competitive advantage, stock’s current and historical multiple against peer group average/median and investment risks. 

Stock recommendation

Despite a solid recovery in the underlying commodity prices, CFF shares have significantly underperformed over the past 3-months, implies lower relative strength in CFF shares against the underlying commodity movement. Moreover, insiders are net sellers, which is not good. Hence, based on the above rationale and valuation done, we recommend a “Sell” rating on “CFF” stock at the closing price of CAD 2.12 (as on January 13, 2022).

1-Year price chart (as on January 13, 2022). Source: REFINITIV, Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

Disclaimer

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