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Lumber Stocks on a Tear
Tuesday May 7, 2013, 4:30am PDT By Andrew Topf – Exclusive to Resource Investing News Resource investors who have seen their junior mining stocks beaten down over the past few months shouldn’t have tunnel vision and might consider looking at other aspects of the resource economy while they wait out a market upturn in metals commodities. One sector that is looking positively bullish is the Canadian forestry industry and associated forest products companies, which are capitalizing on an uptrend in US housing starts commensurate with an improving economy in Canada’s largest trading partner. Canada is the second-largest exporter of primary forest products behind the United States, and the US is Canada’s largest market for softwood lumber, used in home building. It is for that reason that the Canadian lumber industry closely tracks the trends in US housing starts, as well as the exchange rate between the Canadian and US dollar, since lumber is sold in US dollars. The Canadian dollar has been at near parity with the US greenback for the past two years, and that has made it more difficult for Canadian producers to compete against US forest companies. But what has changed in recent weeks is the surge in US housing starts, which has rekindled investor interest in the sector. A report quoted by the Financial Post shows new home sales during the first two months of the year at their highest level in more than four years. It’s a trend not seen since 2006, when the US housing bubble burst, followed by foreclosures, plummeting housing starts and demand destruction resulting in several years of low prices for Canadian softwood. Other factors working in lumber’s favor right now include brisk demand for Canadian lumber in China and a rebuilding effort in Japan following the 2011 tsunami. On the supply side, log supply is tightening due to mill closures that followed the 2006 housing market collapse, harvesting cutbacks in Quebec and the decimation of trees in British Columbia by the mountain pine beetle. Add it all up, and you have demand from Asia and the United States outpacing supply, which has led to a doubling of lumber prices compared to a year ago. The price of Western Spruce Pine Fir (SPF) 2x4s has shot up from $220 per thousand board feet in April 2012 to $440 in April of this year, according to Madison’s Lumber Reporter. OSB, or particle board, an important building material, has also enjoyed a significant price run, selling at US$357 per thousand board feet last week compared to $227 a year ago, reported Random Lengths. As producers ramp up production to take advantage of higher prices, lumber futures have retreated, around 20 percent since early March, but 2013 is still predicted to be a good year for lumber companies as US housing starts continue to rise. Unsurprisingly, the rise in lumber prices has translated to good profits and higher stock prices in the major producers. The S&P/TSX Forest Products subindex has gained nearly 108 percent over the past 12 months (from third week of April), and analysts are bullish. “At these prices, forest products companies are highly profitable,” The Globe and Mail quoted Patricia Mohr, an economist and commodity specialist at Scotiabank, as saying. “We are in a supercycle for lumber,” Raymond James forestry analyst Daryl Swetlishoff told the Globe, adding, “[w]e are in the third inning, and we see a lot of upside.” For investors looking at the forest for the trees as they weigh their resource investing options, here are a few companies to consider. While the 12-month targets listed below point to modest gains, Swetlishoff is more bullish, and predicts between 8 and 16 percent upsides for Canfor, West Fraser and Western Forest Products, and 35 percent or more for Interfor and Conifex Timber, according to the Financial Post. Canfor (TSX: CFP ) : Canfor has sawmills in British Columbia, Alberta, Quebec and the Carolinas in the United States, producing dimensional lumber, structural panels and value-added finishing products. Canfor’s stock has gained 100 percent, from $10.67 one year ago to its Monday close of $20.52. Scotiabank has a one-year target of $24.25. International Forest Products (Interfor) ( TSX:IFP.A ) : Diversified lumber producer Interfor churns out over 2 million board feet a year from operations in British Columbia, the US Pacific Northwest and Southern United States. Interfor stock has more than doubled from $4.55 a year ago to finish at $10.36 yesterday. Scotiabank has a one-year target of $11.50. Western Forest Products (TSX: WEF ) : Western Forest Products mills 800,000 board feet a year from eight operations on the British Columbia coast. A year ago, Western was trading at just under a buck, 91 cents, and it closed on Monday at $1.30, a 44-percent gain. Scotiabank has a one-year target of $1.65. Conifex Timber (TSXV: CFF ) : Conifex Timber manufactures SPF dimension lumber from Northern BC and also produces renewable energy . Conifex stock, which trades on the TSX Venture Exchange, was scraping a 52-week low at the end of December at $6.82, but has since risen 33 percent to finish at $9.10 on Monday. Thomson Reuters has a 12-month mean target price of $10.30. West Fraser Timber (TSX: WFT ) : West Fraser Timber produces SPF and SYP (southern yellow pine), as well as panels, pulp, newsprint and wood chips, from operations in Western Canada and the Southern United States. West Fraser’s stock has risen 101 percent, from $43.27 this time last year to a close of $86.62 on Monday. Scotiabank has a one-year target of $97, which would be a 12-percent gain from Monday’s price. Ainsworth Lumber (TSX: ANS ) : Ainsworth Lumber produces engineered wood products from four manufacturing facilities in BC, Alberta and Ontario. A year ago, Ainsworth was trading at $1.28; it closed on Monday at $3.84 for a 214-percent gain. Scotiabank has a one-year target of $5. Securities Disclosure: I, Andrew Topf, do not hold equity interests in any of the companies mentioned in this article. Continue reading
Franklin Templeton Launches Asian Dividend Fund For Mobius
03 May 2013 | 11:51 Dan Jones Franklin Templeton has launched an Asian Dividend fund for head of emerging markets Mark Mobius as it seeks to tap into investors’ growing desire to diversify income streams. The Templeton Asian Dividend fund, run by Mobius ( pictured ) and Tom Wu, will focus on companies offering attractive dividend yields, or those that have the potential to produce such yields over time. Investing in countries across Asia, it seeks to generate a higher income yield than its benchmark, the MSCI All Country Asia-Pacific ex Japan Total Return index. The investment universe includes countries such as Bangladesh, Cambodia, China, Hong Kong, India, Indonesia, Korea, Malaysia, Pakistan, Philippines, Singapore, Sri Lanka, Taiwan, Thailand and Vietnam. Mobius, who runs a wide range of funds at the group including Templeton Emerging Markets and Templeton Frontier Markets, will work with Wu to select stocks for the portfolio, but both will be supported by a large team of analysts. Launched as a Luxembourg SICAV, the fund will be registered in the UK, subject to FCA approval. “Dividend yields are an important source of income, as investors are finding it increasingly difficult to source meaningful yield in fixed income without higher specific risk,” said Mobius. He added the rising number of payouts in Asia make it an attractive area for income-hungry investors. Asian equity income funds have seen a surge in popularity among UK retail investors in recent years, with the likes of Newton, Invesco Perpetual and Liontrust all unveiling offerings in the space. Newton Asian Income, run by Jason Pidcock, has seen assets surge from £1.2bn at the end of 2011 to a current level of £3.9bn as investor demand for yield continues apace. more: http://www.investmen…s#ixzz2SJQecoz6 Investment Week – News and analysis for investment advisors and wealth managers. Claim your free subscription today. Continue reading
No Wealth Tax On Farm Land, Says Chidambaram
SPECIAL CORRESPONDENT The Hindu Finance Minister P. Chidambaram Minister relaxed tax benefit-related residency norms for foreign investors Finance Minister P. Chidambaram on Tuesday allayed apprehensions over the imposition of wealth tax on agricultural land within urban area limits to provide a big relief to farmers, especially in Haryana and Punjab. Mr. Chidambaram relaxed the tax benefit-related residency norms for foreign investors routing funds through countries such as Mauritius and lowered the withholding tax rate to five per cent from 20 per cent on interest payments on investments by non-residents in long-term infrastructure bonds and corporate debts. In his brief speech while moving the Finance Bill, 2013 for approval by the Lok Sabha, which took place without any debate in view of the Opposition walk out and paucity of time, Mr. Chidambaram, however, held firm on introduction of the Commodities Transaction Tax (CTT), arguing that derivatives trading in commodities would no longer be considered a speculative transaction when the new levy is imposed. The Minister also did not entertain the automobile industry’s plea for rolling back the excise duty hike on SUVs, proposed in the budget, from 27 per cent to 30 per cent. In view of the apprehensions of farmers, especially in Punjab and Haryana, and the notices already issued to such land-holders which were promptly sought to be utilised by non-UPA parties ahead of the general elections next year, Mr. Chidambaram was quick to clarify that there was never any intention of levying wealth tax on agriculture land. “There was apprehension that wealth tax was being imposed on agricultural land. Let me make it absolutely clear that the policy of the UPA government is not to impose wealth tax on agriculture land,” the Finance Minister said and credited Haryana Chief Minister Bhupinder Singh Hooda and other Congress leaders for drawing the Centre’s attention to the issue. The apprehensions were on account of the Punjab and Haryana High Court rulings, Mr. Chidambaram said and noted that he worked hard on Monday to prepare the amendment and obtain the President’s approval. “The matter should come to an end,” he said while asserting that urban land does not include agriculture land which “is so declared in government records.” In a further explanation on the issue after approval of the Finance Bill 2013 by the Lok Sabha, Mr. Chidambaram said: “As the wealth tax is levied only on unproductive assets, there was no intention to levy wealth tax on the agricultural land which cannot be termed unproductive assets”. It also noted that wealth tax is not leviable on urban land which is “classified as agricultural land in the records of the government; and used for agricultural purposes.” The proposed amendment would take effect retrospectively from April 1, 1993, he said. On another proposal to impose TDS (Tax Deducted at Source) at one per cent on transfer of immoveable property of over Rs. 50 lakh, Mr. Chidambaram said the person needing to deduct tax would not be required to obtain TAN (Tax Deduction and Collection Account Number). “…in order to be helpful to the person who is required to deduct the tax, we are dispensing with the requirement of obtaining a TAN. He need not have a TAN but he must deduct the tax,” Mr. Chidambaram told the House. Later clarifying on the issue, the Minister said: “In order to reduce the compliance burden on the deductor, deducting tax under section 194-IA (I-T Act), it is proposed to insert a new sub-section… to provide that the provisions of section 203A shall not apply to a person required to deduct tax in accordance with the provisions of new section 194-IA”. Mr. Chidambaram assured the House that he had rectified the provisions relating to one per cent tax on cash sale of bullion or jewellery to prevent misuse of the provisions of the I- Act. “There was an exclusion in parenthesis [relating to coin or article weighing less than 10 gms]…that exclusion was giving opportunity for misuse. That exclusion has now been withdrawn,” he said. Continue reading
