International Paper maintains outperform & Temple-Inland negotiations

RBC Dominion Securities report that International Paper are maintaining their outperform rating, trading at only 5.7 their trend EBITDA forecast of $3.35B. The company is in a great financial position so  this valuation is inexpensive.

2011 Quarter 2 results were better than were anticipated with a reported normalized EPS of $0.80. The adjusted EBITDA was $939MM.

There were weaker q/q results for consumer and industrial packaging, but Printing Papers were up in the 2^nd quarter.

Sector                                     adjusted operating profit         % change

Industrial Packaging                  $269MM                                  -2%

Printing Papers                          $222MM                                  +6%

Consumer Packaging                  $98MM                                    -3%

International Paper’s quarter 2 results were affected by increased packaging shipments, higher coated paperboard prices, lower printing paper manufacturing costs, higher overall productivity and an increased contribution from llim Pulp, all offset by higher cost inflation and higher packaging downtime for maintenance and flooding.

The potential acquisition of Temple-Inland seems to still be at the price negotiation stage. Temple’s executives are anxious to get the best deal for their shareholders, which will also mean a substantial windfall for themselves. Raising their offer to $35 per share should speed up the transaction. IP's CEO expects the DoJ anti-trust review to be completed no earlier than the end of October.

Despite strong operating rates in June, it’s believed that pricing power will be controlled in the short term as IP attempts to calm concerns regarding its bid for Temple. At the same time, Temple may push prices lower as it tries to maximize its own earnings by pushing for volumes over price in its bid to increase IP's offer.

Posted Date: 29th Jul 2011