Looks like I was wrong on the lumber supply crunch…I confused lumber production with lumber transportation.
I really haven’t heard anyone tell me there are delays on what they were due to be shipped. So far, everything seems to be on schedule https://t.co/qvmbAVIGpo— Stinson 🌲🪓 🏠 (@LumberTrading) November 29, 2021
Here the lumber question: are BC mills producing even though they can’t ship it out? This is recipe for pricing crash once infrastructure is repaired.— Stinson 🌲🪓 🏠 (@LumberTrading) November 29, 2021
Still, lumber price seems to be holding up:
BC has just experienced a one-in-a-100-years flood. Major highways have been split in half and the state of emergency has been declared. Both road and railway traffic is severely compromised.
Here are some pictures that suggest the extent of the damage:
I own an investment which has operations in this area. The company is Atlas Engineered Products, ticker $AEP. I wrote about it here.
Two of the company’s subsidiaires are in BC: one in Nanaimo and one just south of Abbotsford. Both of these regions have been heavily impacted hard by the floods.
Today I was pondering what to do with my investment and whether I should anything to begin with.
On one hand, I think it’s unlikely that the business will experience no impact at all. The CEO has tweeted this:
Whatever it takes to get the job done. pic.twitter.com/wrrfwD8NIQ— Hadi Abassi (@hadiabassi) November 18, 2021
While I’m not surprised that he would go the extra-mile for his customers, it’s obvious that every business and the overall economic activity in the region will suffer somehow.
On the other hand, I think (and hope, for the people out there) that these pains will be temporary. And if we look one or two years ahead, who’s to say they won’t be beneficial for AEP. The real champions shine in periods like these and this when they can solidify their credibility and their relationships. Moreover, I assume there will be a lot of house to be rebuilt once this is all behind, on top of the pre-existing strong construction trend in the area.
So I think AEP might have a bad quarter, but it should be more than OK afterwards. I decided to take one third of my chips off the table, for now.
EDIT (2021-11-29): I should also say, part of my thinking is that the whole region has been fragilized, and any further rain or event could have even greater marginal impact.
I put half of that back into $GFP.V, because of the damage to the supply-chain which will have a direct consequence on lumber supply out of the region. This coincides with the BC government’s decision to curtail logging in old-growth forest.
Looking at lumber futures, the reaction has been fairly strong already:
The stock price of $GFP.V has been on the rise this week, but nothing extraordinary yet. I haven’t pulled the trigger fully on it in part because of the disappointing U.S. home construction data of October which has also been hampered by supply-chain disruptions, and in part because $GFP.V hasn’t showed the market any numbers yet.
By the way, $AEP.V stock itself remains absurdly cheap at these levels. Here are the updated numbers, they are crushing it:
And my updated valuation:
I’m not 100% sure these decisions are directionally correct, which is why I kept the magnitude of the moves relatively small. Importantly, all this was inside my RESP account, so no tax impact.
Ironically, $AEP.V surged 6% today after I sold, which surprised me to be honest. Thankfully, $GFP.V ended the day up 5% as well.
AEP’s price has oscillated between $0.58 and $0.61 since I sold (at $0.58, fucking dummy). It seems the market is not as concerned as I am about the consequences of the flood. Or they are more confident about management’s ability to navigate through it (no pun intended). Or they are thinking longer-term.
AEP has announced a LOI to acquire another truss business in BC. Details here. At ~5x EBITDA, doesn’t look super cheap but maybe strategically attractive.
BC is still battling with the water and more rain is expected this week. I hope it won’t be too bad, they are in bad situation already.
I believe GFP’s price gained about 10% so far since I added, on the back of slightly higher lumber prices. I was expecting this increase to be steeper, but the rail companies were surprisingly quick to resume traffic. Kudos to them!
The U.S. have doubled softwood duty rates on most Canadian producers. Here’s an excerpt (full article here):
Until next time, stay cool & stay invested!