As you all probably know by now, I’m a huge fan of Chad and his Fortress Paper company. My judgment may, well is, biased. Anyhow, I’ll try to analyze Q3 report objectively.
In this Q3 I was looking for a reduced loss or even small gain on security paper division. Chad announced a bunch of security paper contracts in the last months so I expected new revenues. I was deeply disappointed in this. Loss for security paper mill increased to 8m for the quarter. But wait, did I dreamed the contracts? No. Here his an extract from MDA.
the Landqart Mill is now in the process of overcoming the low utilization with recent new contract orders representing a significant portion of Landqart’s 2012 banknote capacity.
Security paper production was profitable at 2500 tons a year. Capacity now is up to 10000 a year. With a ‘significant portion’ of capacity booked, I assume we will turn green and even make a descent profit this year(2012). We could even see a 0$ income on security for FTP 4th quarter.
I revised my estimates for 0$ profits on security for FY2012.
I expected a slow decline in revenues of wallpaper plant. After all, this plant is printing at full capacity! I thought raw materials or labour charges would slightly increase. It didn’t happen. Profits came strong at close to 7m, similar to q2.
Chad surprised me again…
The Wallpaper Base Segment completed an additional upgrade of our facility during the annual August maintenance shutdown. The upgrade was successful and has added approximately 10% additional capacity. The order book at the Dresden mill remains strong.
I revised my estimates for next year at 28m profit for FY2012.
Well that was a challenge to estimate. I planned major losses due to shut down for September. It didn’t happen. It seems Chad balanced the shut down cost with higher margin product of speciality pulp in the first two months of the quarter ending up loosing only 1m. I am pleasantly surprised. No adjustment to FY2012.
Make your own estimates on FTP, but on my bearish scenario the stock is fairly valued (I mean bearish). On my conservative estimates the stock has a 150% potential and in my dream scenario…well let’s say it is a dream.
Disclosure : very long FTP.