TSX Commentary

Canfor Pulp Income Fund (CFX.UN) – $7.96 – Strong Fourth Quarter Funds Distribution Increase
Outperform, Above Average Risk
Distributable cash was $0.31 per unit, above RBC CM’s forecast of $0.21 and the consensus of $0.19. Distributable cash was almost double $0.16 in the prior quarter and many times better than $0.02 earned a year ago. EBITDA was $27MM, also above RBC CM’s forecast of $22.6MM and 8% higher than $25.0MM in Q309, reflecting higher pulp prices, higher energy sales and lower SG&A costs, partially offset by the 4% appreciation of the C$ in the quarter. The February distribution will be $0.12, up from $0.08 in January and December, which was itself an increase from $0.05 in November and $0.01 in the prior nine months. Cash from operations before working capital was $21.3MM for the quarter, $39.4MM for the year. Capex was kept low, at $2.9 in Q409 and just $17.3MM in 2009. Free cash flow was $18.4MM in Q409. Net debt to capital was a conservative 16% at year end. Prices for NBSK have recovered since hitting their April/May lows last year, with the February price increase announcement of US$30/mt taking North American prices to US$880/mt, up 39% or US$245/mt. RBC CM expects low global producer and consumer inventories and robust demand from China will support the implementation of the February increase, but remains cautious on the sustainability of further increases given continued weakness in fine paper demand.