I’ve promised myself never to write about stocks I own, but here I am, breaking my own rules.
I did pretty well last year with Conifex stock and wasn’t expecting to buy it again (like ever), but after lumber prices hit the bottom in 2021 and started to rise again, I couldn’t resist and bought some CFF shares.
Except for high lumber prices, there were other good news:
- At the end of 2021, Conifex announced more buybacks, an extra 4M shares for C$9M.
- At several conference calls, Ken Shields, CEO of Conifex, was talking about their plans to build a data center or mining farm in McKenzie and sell electricity to it. Which is a kind of crazy idea, but why not?
- In January 2022, US decided to lower tariffs on lumber for Canadian mills, starting fall 2022 it will be 11.64% instead of 17.91%.
- At the same time, lumber prices were going up to $1300 and even at the beginning of 2022 still holding well above $1000.
I understood that such an abnormally high price of lumber wouldn’t last, but I’ve decided to get involved with this god-forbidden stock yet again:
- Whatever happens to lumber prices, it is not going to bankrupt the company as CFF is virtually debt free.
The price of lumber goes down? Should be not a problem, curtail production and just keep producing electricity and paying down power plant debt.
As I remember, lumber production is unprofitable for Conifex if the lumber price is somewhere below $600. It was below $400 before COVID. I think it should be the same for other mills now, so this might be a new floor for lumber prices going forward, i.e. if the price stays below $600 for too long, mills will start curtailing.
- Price goes up? Well, lots of free cash flow.
- I’m not a big expert on that, but I think that stock is trading way below the company’s book value.
- It makes no sense for such a small company to stay public, so I hope Conifex will be acquired sooner or later.
Better sooner, of course. I’m upset it didn’t happen in 2021. I have some ideas why, but just don’t want to speculate on that.
The only downside risk I see is if the management messes something up.
Also stock is trading so thinly sometimes, that it’s a pain in the ass to buy or sell any meaningful amount of shares without moving the price.
So, now what?
- Shitcoins mining farm is still a crazy idea and, with the recent events in the crypto universe, it might never happen.
- It looks like lumber prices hit another bottom and slowly climbing up again, even though there are talks about recession and the housing bubble.
- Conifex management decided to pay C$0.20 special dividends, cause they have too much cash. Almost C$33M as at May 31, 2022, while market cap is below ~C$80M right now! But I have mixed feelings about this distribution.
I like dividends, especially that big, but I would rather have smaller and regular quarterly dividends, which could attract dividend investors and do more buybacks to push the stock price higher.
My opinion: “BUY LIKE THERE IS NO TOMORROW“.
Either it gets acquired or stays undervalued for a long time. Or it stays undervalued for a long time and only then gets acquired.
Disclaimer: Not an investment advice! I’m a very biased owner of CFF shares at an average price of C$1.95 (yep, underwater) and hopelessly hope that something material will materialize. 😀