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PotlatchDeltic Appears Significantly Undervalued Compared To Private Market Timberland Values

May 01, 2020 5:51 PM ETPotlatchDeltic Corporation (PCH)11 Comments
Robert Ruggirello, CFA profile picture
Robert Ruggirello, CFA
1.41K Followers

Summary

  • PotlatchDeltic has strong quarter but guidance is reduced slightly.
  • The firm has sufficient liquidity and the dividend appears safe.
  • Using the current stock price we estimate the implied value per acre of Potlatch Timberland.
  • We estimate the fair value of Potlatch Timberland using a disclosure from the 10k and find the value to be much higher than the market implied value.
  • Potlatch shares appear materially undervalued when compared to private timberland values.

2020 Q1 Earnings Call Update

PotlatchDeltic (NASDAQ:PCH) Corporation has been deemed an essential business in all of the states that issued stay at home orders. Revenue was up sequentially, and year over year with consistent results from the Timberland segment. During the quarter the firm repurchased 401,000 shares @ $30.79 for about $12M. In late April the firm curtailed operations at the St. Mary's, Idaho plywood plant. Potlatch's six sawmills remain in operation. The firm slightly reduced harvest volume guidance for the remainder of the year. Potlatch (PCH) expects to harvest 5.5-5.8M tons of timber down from 6.0M tons.

Liquidity

The firm has about $79M in cash. Potlatch has an undrawn revolver with $380M capacity for total liquidity of about $459M. During the first quarter the business generated $48M of cash from operating activities. The quarterly dividend of $.40 aggregates to about $27M at the firm level.

Market Implied Value Of Potlatch Timberland

We estimate the market implied price per acre of Potlatch Timberland to be about $1,125. We are using the current stock price to back into the implied price per acre. First, we estimate the market value of the entire firm (debt and equity). Next, we subtracted all current assets, other non-current assets, using their book values as a proxy for market value. Finally, we estimated the market value of development assets and Potlatch mills using a P/B adjustment from similar publicly traded business. The remaining value is the implied value of Timberland:

PCH Price Per Acre(Source: Author Estimates)

Estimating The Appraised Price Of Potlatch Timberland

A deep dive Into PotlatchDeltic Corporation's (PCH) 2019 10K uncovers an interesting disclosure in the financial covenants section. The firm does not outright disclose what the estimated fair value of its Timberland is, but it does give us some of the pieces of the puzzle. We will

This article was written by

Robert Ruggirello, CFA profile picture
1.41K Followers
Robert Ruggirello, CFA is the Managing Director of Brave Eagle Wealth Management, a NY based fee-only Registered Investment Advisor. Previously, Mr. Ruggirello served as an Analyst at Centre Asset Management, LLC. Robert holds a MS in Financial Statement Analysis & Securities Valuation from Baruch College and BBA in Finance from Pace University's Lubin School of Business. Robert is a CFA charterholder and a member of the CFA society of NY. Brave Eagle Wealth Management specializes in holistic portfolio management for retired members of the FDNY. Our approach is differentiated in how we incorporate human capital into the asset allocation decision. We use financial assets to build a completion portfolio that diversifies away from the risks associated with our clients human capital. We use a combination of active and passive investments in an expanded asset allocation framework that includes real assets and absolute return strategies.

Analyst’s Disclosure: I am/we are long PCH. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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