BMO Capital Resumes Coverage of AbitibiBowater

BMO Capital analyst Stephen Atkinson is resuming coverage on AbitiibiBowater Inc. (ABH) now that the beleaguered newsprint maker has secured three financing agreements worth C$1.1-million, and appears on track with its massive restructuring plans.

The analyst increased his price target on the shares from C$10 to C$14, and has a "market perform" rating. Shares closed at C$12.57, down C$0.46 on Thursday.

Mr. Atkinson said he likes that there is no cross-collateralization of debt with the Abitibi debt backed by Abitibi assets, and the Bowater debt by much more profitable Bowater assets.

He told clients:

In effect, if the Abitibi assets were to default on their debt repayment commitments, AbitibiBowater could cede the Abitibi assets to the Abitibi debtors but retain the Bowater assets.

He said tight world newspaper markets due to mill shutdowns by AbitibiBowater and NorskeSkog alongside wastepaper shortages in Asia, should bode well for newsprint prices going forward. He forecasts a 2008 price of C$645 per tonne and a 2009 price fo C$680 per tonne, up C$15 from his prior forecast. Currently, newsprint prices are C$620 per tonne.

Don't expect healthy newsprint prices to automatically equate to higher earnings, however, wrote Mr. Atkinson. He revised downward his earnings estimates due to increased energy and energy-related material costs as well as wood and wasterpaper costs. His 2008 estimate fell from a loss of C$6.44 to a loss of C$7.05, and from C$3.25 to C$3.54 in 2009.