STELLA JONES INC | Sept 2016
Stella Jones Inc. (TSE: SJ)
Kay Adekoya
Michelle Xia
Wei Xue
Sashia Godet
[email protected] [email protected]
Highlights
Recent Results: Stella-Jones reported 2016 3rd quarter
results as follows. The company reported revenues of
$512.6 million, up 18.4% from $433.1 million a year
ago.16.1% increase in net income to $45.7 million, or
$0.66 per diluted share, versus $39.3 million, or $0.57
per diluted share, last year. There was a significant
debt reduction of $92.5 million during the quarter
resulting from cash flow generation.
The conversion effect from fluctuations in the value of
the Canadian dollar, Stella-Jones' reporting currency,
versus the U.S. dollar, had a positive impact of $3.0
million on the value of U.S. dollar denominated sales
when compared with last year's third quarter.
Excluding these factors, organic growth was
approximately $18.9 million, or 4.4%.
Railway tie sales amounted to $186.6 million, down
7.0% from $200.6 million last year, primarily as a result
of lower industry demand in the third quarter
following a strong first half in 2016.
Sales of utility poles reached $160.0 million, compared
with $142.3 million last year. Excluding the currency
conversion effect and the contribution from
acquisitions, sales declined approximately 6.2%..
Sales of residential lumber totaled $107.3 million, up
from $53.2 million last year. This strong increase
reflects sales of $30.5 million from the Ram
acquisition, as well as the impact of the transition
from treating services only for wholesalers to valueadded full service direct offering for retailers.
Industrial product sales declined to $27.5 million, from
$28.4 million a year ago, due to the timing of orders
for rail-related products in the United States. Logs and
lumber sales reached $31.3 million, versus $8.5 million
last year, due to procurement efforts to support
residential lumber requirements and the timing of
timber harvesting.
[email protected] [email protected]
Key Statistics*
Sector
Industry
NAICS
Basic Materials
Forest Products
Wood Preservation
Stock Overview
Price as at 11/10/2016
12-mo Target Price
52-wk Price Range
Beta
Market Cap
Shares O/S
Profitability & Yield
ROE
ROA
Profit Margin
Diluted EPS (ttm)
Payout Ratio
Dividend per share
Dividend Yield
Valuation
Price/Earnings (ttm)
Price/Sales
Price/Book (ttm)
EV/EBITDA (ttm)
*data retrieved from Bloomberg Terminal
$41.93
$56.55
$39 - $54
0.35
$2.88B
$29.27M
18.2%
9.1%
13.7%
2.43
15.62
0.32
0.91%
17.5
1.6
2.94
12.6
STELLA JONES INC | Sept 2016
Business Description
Stella-Jones Inc. ("Stella-Jones" or the "Company") was founded in 1992 and is a leading Canadian manufacturer of pressure
treated industrial wood products, with a network of 34 wood treating facilities spread across 16 U.S. states and 5 Canadian
provinces. The Company supplies North America's railroad operators with railway ties and timbers, and the continent's electrical
utilities and telecommunication companies with utility poles. Stella-Jones also manufactures and distributes residential lumber and
accessories to retailers for outdoor applications, as well as industrial products for construction and marine applications.
Investment Summary and Recommendation
We issue a BUY recommendation on Stella Jones with a 12-month target price of $56.55 per share with a projected total return of
34.96% from its current price of $41.90. Our target price is calculated using a discounted projected free cash flow model to arrive
at an implied share price. Our recommendation is driven by our observation of double digit revenue growth for the next 4 years
(24% for 2017 forecast) and stable/consistent operating and net profit margin observed over the last 5 years.
In 2015, Stella-Jones earned the highest revenues and net income in its history while continuing to position itself for future growth.
The Company’s continental production network once again expanded through strategic acquisitions, thus enhancing its already
well-established role as a leading source and reliable supplier of treated wood products
Cautious Optimistic Outlook on Rail Way Ties
In Q2 2016, Railway ties sales amounted to $216.3 million, up 11.1% from $194.8 million last year. Excluding the currency
conversion effect, railway tie sales rose approximately 7.3%. While we had remained skeptical given 15% CAPEX cuts in railway
tie end market, the company delivered with another quarter of robust growth. Management expects second-half 2016 demand for
railway ties to be down on a year-over-year basis but revenue growth compression should be offset by Stella-Jones’ broader reach
in the residential lumber category allowing for continued benefit from steadily increasing demand for new construction and
outdoor renovation projects in the North American residential and commercial markets.
Revenue growth from robust residential and non-pole log growth
Towards the end of 2015, Stella-Jones enlarged its procurement department to support residential lumber requirements. These
lumber sales, along with non-pole-quality log sales, make up the logs and lumber product category. In Q2 2016, sales of residential
lumber totalled $152.1 million, up from $60.9 million last year. This strong increase reflects sales of $51.7 million from the Ram
acquisition, increased market demand as well as the impact of the transition from treating services only for wholesalers to a valueadded full service direct offering for retailers.
Strong and consistent profit margins
EBITDA Margins in Q2 2016 came in at 16% ahead of management guidance of 15-15.5%. Estimated EBITDA for 2016 has been
revised to a conservative 15.7% projected revenues given a 5-year historical average margin 15.6% and expected positive impact
of increased revenues through strong residential lumber sales figures.
Depressed market prices act as a value investment opportunity
Year-to-date returns on SJ.TO is currently hovering at -12.4% largely due to an expected decline in revenue from rail tie purchases.
Rail tie purchase decline can be attributed to a decrease in capex of class 1 railway companies, freight transport recession
stemming from historical lows in oil prices and production and record inventory levels. However, we note that Class 1 customers
purchase 70% of SJ ties and do so via contracts that span 3-5 years, thereby offering some downside protection. Furthermore,
Stella Jones management has continued to diversify revenue growth through acquisitions, the impact of which can be seen in the
increased growth in revenue from the residential lumber markets in Q2 2016. We expect that the market has priced in the slow
demand for residential ties but will continue to determine the impact of increased revenue from residential lumber and non-pole
treated wood, leading to a gradual but steady increase in SJ’s price over the next 12 months.
STELLA JONES INC | Sept 2016
Macro-economic Backdrop
Forecasts suggest that in the long run the Canadian Dollar, relative to the US dollar, is poised to remain on par with current
exchange rate levels which sit at approximately 0.70-0.75. However, this could be affected in the short term by the FOMC’s
decision to hike or hold the federal fund rate and OPEC’s decision to freeze oil output.
Inflation is expected to remain around the 2% mark in Canada and the US and with slowing economic growth in Canada rates are
expected to remain at historical lows. The overnight lending rate is expected to remain 0.50 percent with no foreseeable talks on
raising it. In the US, the Federal Reserve is likely to hold interest rates steady at 0.50 in the face of weaker than expected economic
data on growth and unemployment. However, the prospect of a rate increase in the near term persists.
Average annual real GDP growth in Canada is expected to reach 2.4% in 2017, driven largely by resumption of oil production and
reconstruction post Alberta blaze, then levelling off thereafter at 2%. Similar growth rates are forecasted for the US economy while
the Global Economy is expected to trend along at 3% for next 2-3 years.
Past trends suggest unemployment will continue to hover around the target 7% mark in Canada with job creation and losses having
a near net effect on the overall unemployment. In the US, unemployment sits around 5% however concerns of significant long term
unemployment and marginal wage growth underlie the ability of the US to maintain this rate going forward.
Industry Analysis and Competitive Positioning
Pressure treated wood products fall under wood preservation business, which is categorized under wood product manufacturing
industry, with reported revenue of $26 Billion in 2015. Even though wood reservation contributes only 3% to the industry (Figure
1), they share the same seasonal cycle (Figure 2).
Figure 1. 2015 Canadian Wood
Manufacturing Industry Sales Wood
160
140
1,500
120
Thousands
180
2,000
100
1,000
80
60
500
40
20
0
Jun-15
Nov-15
Jan-15
Aug-14
Oct-13
Wood product manufacturing: Total
Mar-14
May-13
Jul-12
Dec-12
Feb-12
Apr-11
Sep-11
0
Nov-10
44%
200
Jan-10
Veneer,
plywood
and
engineere
d wood
product
22% Millwork
17%
Sawmills
2,500
Jun-10
preservati
on
3%
Thousands
All other
wood
product
Wood
9%
container
and pallet
3%
Shingle
and shake
mills
2%
Figure 2. Sales of Wood Preservation
Wood Preservation
Demand Drivers
Continued U.S. Economy growth, yet not enough infrastructure investment
The wood preservation industry is expected to benefit from US economic recovery. GDP is expected to increase 2% year over
year, resulting in an increase in infrastructure investment. However, cost estimates for modernizing could be as high as $2.3 trillion
over the next decade for transportation, energy, and water infrastructure.
Energy Depression puts downward pressure on railway ties maintenance budget
As oil price maintain historic lows, transportation and rail freight industries are suffering from much lower cargo volume resulting
in lower revenues and compressed margins. In 2015, Class 1 railroad total traffic decreased by 6.1% mainly affected by 12%
decrease in coal and metals, and 3% decrease in chemicals. These three categories represent 60% of carloads and 3% of total
STELLA JONES INC | Sept 2016
traffic. As a result, Class 1 Railway companies have largely revised capital expenditures lower. It is expected that a lower CAPEX
budget in Class 1 Railway companies will put downward pressure on the pricing power of railway tie manufacturers.
Weak CDN exchange rate in favor of Canadian Manufacturers
Forecasts suggest that the Canadian Dollar, relative to the US dollar, is poised to remain steady at current exchange rate levels of
0.70-0.75 CAD/USD. Stella Jones revenue currency is USD but the company reports in CAD and has therefore benefited from
favorable exchange rates and may likely to do so if rates remain consistent.
Strong residential lumber sector growth backed by increasing Household Disposable Income and Housing Starts
U.S. housing market and household consumption continues to grow as a result of low interest rate environments. The steady
growth of those two indicators indirectly increase demand for residential lumbers. As housing starts continue to steadily increase
we expect this momentum to continue with organic growth opportunities for the residential lumber sector the highest among wood
preservation industry.
Figure 4. United States - Household
Consumption
Figure 3. United States - Total Private Housing
Starts in Million
1.40
7.30t
1.20
7.10t
1.00
6.90t
0.80
6.70t
0.60
6.50t
United States -…
United States -…
Competitive Positioning
As per management, Stella-Jones has positioned itself to grow through a two-pronged approach – focusing on operational
efficiencies to promote organic growth, and expand through strategic acquisition in the core railway tie and utility pole categories.
dependent on major customers for a significant portion of its
sales, and the loss of one or more of its major customers
Figure 5. Porter's Five Forces Analysis
could result in a significant reduction in its profitability. The
industry is also facing a rising threat of substitutes as
Bargaining Power
technology advances. Concrete and Steel railway ties and
of Suppliers
5
utility poles were widely adopted in Europe and Asia. Even
4
though studies have shown that the total energy requirements
3
to extract, produce, and use wood products are less than steel
Threat of New
Bargaining Power
2
and concrete over a lifetime of use, the industry should still
of Customers
Competitors
1
look out for any regulation changes and technology
0
innovations that may be in favor of the substitutes.
Threat of
Substitutes
Intensity of
Existing Rivalry
Based on Porter’s Five Analysis (Figure 5), the industry’s
strongest threats are Bargaining Power of Customers and
Threat of Substitutes. Customers in wood preservation
industry are concentrated, and volume based. Stella-Jones is
STELLA JONES INC | Sept 2016
Organic Growth
Internally, Management maintains a focus on continuous operational improvements, which includes containing overhead costs,
maximizing plant specialization and benefiting from the economies of scale of a larger organization. The Company continues to
expand upon its strong supplier relationships and the long-term customer relationships it has built in its core markets.
Strategic Expansion
As a market leader with a solid financial footing, Stella-Jones has been proactive as an industry consolidator in its core railway tie
and utility pole markets. This has resulted in substantial increases in sales and net earnings, stronger supply and distribution
networks, improved product and service offerings and a more significant presence in the United States. Acquisition opportunities
are considered based upon Management's stringent investment criteria.
Overall, Stella-Jones anticipates still greater possibilities in its traditional marketplace and steadily increasing participation in
untapped markets.
Financials
80. %
Figure 6. Revenue Growth (5yr - CAGR SJ vs
Peer Group)
60. %
40. %
20. %
.%
2011
2012
2013
2014
2015
Stella Jones has maintained a double digit annual revenue
growth over the last 5 years. Attributable to revenue growth
in residential lumber, industrial and non-utilities pole
segment sales which has hedged the depression in profit
margins due to the decrease in capex spending in class 1
railway companies and it’s impact on rail way ties sales.
Revenue growth has consistently meet or exceeded peer
group average. Projected revenues for 2016 are estimated to
meet a 24% YOY change in line with analyst expectations
and management guidance.
-20. %
Stella Jones
Interfor
Conifex
Western Forest Products
West Fraser Timber
Peer Average
An analysis of ROE shows that Stella Jones has maintained
an ROE between 15- 20% in the last 5 years and based on
our model forecast should hit an ROE of 17% for 2017. ROE
has consistently been over the peer group average as
observed in the trend line in the Figure 8.
Figure 7. ROE (SJ vs Peer Group)
40.0%
30.0%
Projected ROE is supported by consistent gross and
EBITDA margins with historical 5-year averages of 19.53%
and 15.57% respectively which has also been above the peer
group average during the same time period.
20.0%
10.0%
0.0%
(10.0%)
2011
2012
2013
2014
2015
(20.0%)
(30.0%)
Stella Jones
Interfor
Conifex
Western Forest Products
West Fraser Timber
Peer Average
STELLA JONES INC | Sept 2016
Valuation and DCF Assumptions
We valued Stella Jones Inc. with a Discounted Free Cash Flow to Firm (“DCF”) model. The DCF model used historical financials,
valuing with a combination of the present value of the unlevered free cash flows and the present value of the terminal year value.
In the determination of forecasted free cash flows, revenue was projected to grow at 24%, 20%, 18% and 12% for the next four
years and then assumed to fall to 5% for years 5, 6 and terminal.
Gross, EBITDA and EBIT were determined to be 19.53%, 15.7% and 14.17% which were determined based on the average of
historical margins over the last 5 years, as we observed historical margins remained fairly stable during the last the 5 years
Projected debt was assumed within the management disclosed covenant of 3.5x EBITDA with sufficient margin of safety and
interest payments were determined as the lesser of current blended interest rates (yields on notes payable) or 7.81% of EBIT (based
in a historical average EBIT/Interest of 12.8x) as this too had remained consistent over the last 5 years
Capital expenditures was maintained at 35.82% for the next 3 years reflective of the historical YOY growth average for the last 5
years and given the companies combination of growth through organic and acquisitions. Capex was then dropped to 10% in 2020
and then 5% in the years following.
These forecast and assumptions are based on current low inflation and interest rate economic environment as noted above and can
be subject to significant changes as determined by management and the Board of Directors
Based on model projections, the present value for unlevered free cash flow was determined to be $286M, EV was determined to be
$4.64B and the target share price was determined to be $56.55/share representing an upside of 24.5%
STELLA JONES INC | Sept 2016
Figure 8. Forecasted Income Statements
WACC was calculated based on CAPM for cost of equity and a blended interest rates on all outstanding Stella Jones notes payable.
The risk free rate used was 1.6% reflecting 30-year Government of Canada Bond yields and Beta was determined to be 0.4. The
base case for WACC was determined at 6.5% and the base case of terminal value growth rate was determined to be 2% or inflation.
Figure 9. DCF Valuation
Valuation Summary
Bear
Base
Bull
WACC
7.00%
6.50%
6.00%
Terminal Growth
1.00%
2.00%
2.00%
277
286
294
3,201
4,359
5,009
$3,478
$4,644
$5,303
PV of Cash Flows (MM)
PV of Terminal Year (MM)
Enterprise Value (MM)
Less Net Debt (June 2016)
Equity Value (MM)
Shares O/S (MM) - 09/21/2016
Equity Value per Share
Current Price
Upside/Downside
731
731
731
$2,747
$3,913
$4,572
69.20
69.20
69.20
$39.70
$56.55
$66.07
45.39
45.39
45.39
-12.54%
24.59%
45.55%
STELLA JONES INC | Sept 2016
Investment Risks
Interest Rate Risk
Given a probable increase in the federal fund rate in the near term, the interest rate risk of Stella Jones is perceived to be medium.
A signification portion of Stella Jones’s operations is conducted in the US; likewise, its debt exposure to the US market is also
significant with ~ 24% of its long-term debt based on variable rate. An increase in the interest rate could substantially drive up the
debt service obligation of the company which can in turn materially affect its profitability. To offset this risk, the company enters
into interest rate swaps to reduce the impact of fluctuating interest rates on its long-term debt. However, this does not guarantee the
company a complete hedge.
Liquidity Risk
We believe the liquidity risk of Stella Jones is moderate. As at June 30, 2016, the Company was in full compliance with its debt
covenants and contractual obligations. However upcoming additional demand for loan facilities see the company nearing the cap of
its revolving credit facility of (US$575.0 million). This is largely being triggered by an increase in accounts receivables stemming
from increased sales and the acquisition of a number of smaller firms.
Management considers that all recorded receivables are fully collectible as major customers, mainly Class 1 railroad operators,
large retailers and large-scale utility service providers, have good credit standing and limited history of default.
Business Market Conditions
YTD declines in Class 1 Railway Company Capex spending for 2016 has led to decline in demand for Railway ties leading to an
increase in year over year inventory levels and a decrease in purchases. According to the Rail Ties Association, the weakness in the
global economy is expected to continue and therefore weakness in the commodities markets and U.S. manufacturing sector may
continue. Despite these headwinds, the U.S. economy should grow by 2.4 percent leading to rail pricing stability across the sector.
However, greater world economic weakness or further direct or indirect currency manipulations, affecting U.S. GDP growth to a
more significant degree than expected, could present a further drag on tie demand.
Figure 10. Forecasted Base Case Tie Demand (2017)
Source: Rail Ties Association
Product Substitution
According to Dr. Allan M. Zarembsk in consultation to the RTA, while concrete tie designs have been around for many years, it
has only been in the last two decades that their performance has been deemed to be adequate to withstand the severe loading
environment of North American freight operations. Syudies funded by The National Precast Concrete Association (NPCA) have
shown that previously cited issues with concrete ties such as environmental emissions, maintainence/replacement cost of existing
wood ties and estimated life span of concrete rail ties have been subject to new research that show at least partialy feasibility and
justification for a move to concrete from treated wood rail ties. However tlarge scale product subsitiution is not of immediate
concern as market penetration of concrete rail ties hovers around 6.5% according to the RTA.
STELLA JONES INC | Sept 2016
Figure 11. Stella Jones Risk Matrix
STELLA JONES INC | Sept 2016
APPENDIX
APPENDIX I - RATIO ANALYSIS
2011
2012
2013
2014
2015
Inventory turnover
2.3x
1.7x
1.9x
2.0x
1.9x
Working capital turnover
Fixed asset turnover
2.8x
5.7x
2.0x
4.7x
2.1x
4.8x
2.2x
4.8x
2.1x
4.7x
Total asset turnover
1.1x
0.9x
1.0x
1.1x
1.0x
Current ratio
5.8x
5.9x
9.0x
8.5x
6.4x
Quick ratio
1.4x
1.2x
1.7x
1.6x
1.1x
Cash ratio
0.0x
0.2x
0.0x
0.0x
0.0x
Gross profit margin
19.5%
21.2%
19.5%
17.9%
19.7%
Operating income margin
14.3%
15.8%
14.0%
12.6%
14.2%
8.7%
10.2%
9.2%
8.3%
9.1%
Stella Jones
Activity Ratios
Liquidity Ratios
Profitability Ratios
Net profit margin
ROA
10.1%
9.0%
8.7%
8.3%
9.0%
ROE
18.2%
18.3%
17.8%
16.4%
17.6%
Return on common equity
18.2%
18.3%
17.8%
16.4%
17.6%
Solvency Ratios
Debt-to-assets ratio
29.9%
38.2%
34.9%
34.6%
37.7%
Debt-to-equity ratio
55.5%
78.0%
65.4%
64.3%
73.4%
1.9x
2.0x
1.9x
1.9x
1.9x
Financial leverage ratio
STELLA JONES INC | Sept 2016
APPENDIX II – PRICE TO BOOK
P/B
1.7 x
.5 x
3.4 x
P/BV
1.4 x
1.8 x
1.7 x
.x
.5 x
1. x
Peer Average
Interfor Corporation
1.5 x
2. x
2.5 x
Conifex Timber Inc.
Western Forest Products Inc.
3. x
3.5 x
4. x
Stella-Jones Inc.
West Fraser Timber Co. Ltd.
APPENDIX III – PRICE TO EARNINGS
P/E
26.8 x
1.3 x
19.3 x
72.6 x
13.3 x
27.3 x
.x
10. x
20. x
30. x
40. x
50. x
60. x
70. x
Peer Average
Conifex Timber Inc.
Stella-Jones Inc.
Interfor Corporation
Western Forest Products Inc.
West Fraser Timber Co. Ltd.
80. x
STELLA JONES INC | Sept 2016
APPENDX IV – Return on Assets
ROA
15.0%
10.0%
5.0%
0.0%
2011
2012
2013
2014
2015
(5.0%)
(10.0%)
Stella Jones
Interfor
Conifex
Western Forest Products
West Fraser Timber
Peer Average
APPENDIX V – Unlevered Free Cash Flows
Stella Jones Corporation
Unlevered Free Cash Flow Schedule
($ Millions)
Unlevered Free Cash Flow
EBIT (1-t)
Depreciation
Changes in working capital
CAPEX
Unlevered Free Cash Flow (DCF Valuation)
2016
2017
2018
2019
Projected
2020
2021
192.0
29.0
(248.0)
(50.8)
($77.8)
238.1
36.0
(276.5)
(69.0)
($71.4)
285.7
43.2
(282.5)
(93.7)
($47.3)
337.1
51.0
(305.1)
(103.1)
($20.1)
377.6
57.1
(233.9)
(108.2)
$92.6
396.5
60.0
(118.1)
(113.6)
$224.7
416.3
63.0
(117.6)
(119.3)
$242.3
437.1
66.12
(123.5)
(119.3)
$260.4
177.0
29.0
21.5
(6.4)
(248.0)
(50.8)
(77.8)
219.5
36.0
26.6
(8.0)
(276.5)
(69.0)
(71.4)
263.4
43.2
31.9
(9.6)
(282.5)
(93.7)
(47.3)
310.8
51.0
37.7
(11.3)
(305.1)
(103.1)
(20.1)
348.0
57.1
42.2
(12.7)
(233.9)
(108.2)
92.6
365.5
60.0
44.3
(13.3)
(118.1)
(113.6)
224.7
383.7
63.0
46.5
(14.0)
(117.6)
(119.3)
242.3
402.9
66.1
48.8
(14.7)
(123.5)
(119.3)
260.4
0.000
0.000
0.000
(0.000)
0.000
0.000
0.000
0.000
2022 Terminal
CHECK CALCULATION ON UFCF
Unlevered Free Cash Flow
Net Income
Depreciation
Interest Expense
Tax Shelter on Interest Expense
Changes in working capital
CAPEX
Unlevered Free Cash Flow
Check
STELLA JONES INC | Sept 2016
APPENDIX VI – Margin Comparison (Historical 5 yr. SJ vs Peers)
STELLA JONES INC | Sept 2016
APPENDIX VII – FINANCIAL PROJECTION
Stella Jones Corporation
Cash Flow Statement
(C$ Millions)
2015A
Net Income (Cash Flow)
Depreciation, Depletion, Amortization
Net Increase(decrease) in Working Capital
$219.5
$263.4
$310.8
$348.0
$365.5
$383.7
$23.3
$29.0
$36.0
$43.2
$51.0
$57.1
$60.0
$63.0
($248.0)
$0.1
Net Cash from (used by) Operating Act
$0.0
$0.0
$0.0
$0.0
$171.3
$307.3
$329.1
$345.5
($69.0)
($93.7)
($108.2)
($113.6)
($119.3)
($119.3)
($100.0)
($163.9)
$124.58
$0.88
$0.00
$98.30
$24.16
Net Change in Cash & Cash Equivalents
($6.40)
($181.75)
$0.0
($103.1)
$0.00
($100.18)
$0.00
($26.55)
Net Cash from (used by) Financing Act.
($93.7)
$0.00
($91.74)
($103.1)
$0.0
($69.0)
$0.00
($22.08)
Other Cash from (used by) Financing
$0.0
($73.87)
$0.00
Payment of Dividends & Other Cash
$66.1
($123.5)
$0.0
($50.8)
Net Change in Revolver
($117.6)
$56.6
($113.1)
$2.11
($118.1)
$0.0
($62.6)
$117.39
($233.9)
$24.1
($37.4)
$0.0
($305.1)
$402.9
($21.0)
Cash Acquisitions
Issuance (repayment) of Debt Securities
($282.5)
Terminal
($42.0)
Projected Capex
Issuance (purchase) of Equity Shares
($276.5)
$0.0
($4.7)
Net Cash from (used by) Invesment Act.
2022F
2021F
2020F
$177.0
($169.3)
Other Adjustments - Net (change in taxes)
Projected
2019F
2018F
2017F
2016E
$141.3
($113.6)
$0.00
$0.00
($155.16)
($159.16)
($214.69)
($209.33)
($201.60)
($96.13)
365.00
366.00
$0.00
($76.74)
$0.00
$0.00
($54.82)
$0.00
($139.68)
($119.3)
$0.00
($52.21)
($124.66)
$0.0
($92.53)
$0.00
($46.61)
$0.00
$0.0
($106.95)
$0.00
($39.50)
$0.00
($108.2)
$0.00
($108.55)
$0.00
($32.92)
$0.0
($57.56)
$0.00
($147.35)
$0.00
($134.30)
$46.30
$75.46
$0.0
($119.3)
$0.00
($92.94)
$0.00
($60.44)
$0.00
($153.37)
$72.84
Stella Jones Corporation
Working Capital Schedule
Days per year
366.00
(C$ Millions)
Receivables
Payables
Inventory
Other
Net Working Capital
365.00
365.00
2019F
2018F
2017F
2016E
2015A
Projected
2020F
365.00
365.00
365.00
Terminal
2022F
2021F
$159.0
$196.9
$244.8
$293.8
$346.6
$387.2
$407.6
$428.0
$75.0
$50.1
$62.3
$74.7
$88.2
$98.5
$103.7
$108.9
$449.4
$114.3
$804.0
$989.3
$1,230.0
$1,476.0
$1,741.7
$1,945.4
$2,048.3
$2,150.7
$2,258.2
$0.0
$0.0
$0.0
$0.0
$0.0
$0.0
$0.0
$0.0
$0.0
$888.0
$1,136.0
$1,412.6
$1,695.1
$2,000.2
$2,234.1
$2,352.2
$2,469.8
$2,593.3
Change in Working Capital
($248.0)
($276.5)
($282.5)
($305.1)
($233.9)
($118.1)
($117.6)
($123.5)
Stella Jones Corporation
Balance Sheet
(C$ Millions)
Projected
2015A
2016E
2018F
2017F
2019F
2020F
2021F
2022F
ASSETS
Cash
Accounts Receivable
Inventory
Other
Total Current Assets
$42.9
$42.9
$196.9
$989.3
$0.0
$1,229.1
$42.9
$244.8
$1,230.0
$0.0
$1,517.8
$42.9
$293.8
$1,476.0
$0.0
$1,812.7
$42.9
$346.6
$1,741.7
$0.0
$2,131.3
$42.9
$387.2
$1,945.4
$0.0
$2,375.5
$42.9
$407.6
$2,048.3
$0.0
$2,498.8
$42.9
$428.0
$2,150.7
$0.0
$2,621.6
$375.0
$412.4
$285.3
$0.0
$1,926.7
$427.2
$285.3
$0.0
$2,230.2
$453.0
$285.3
$0.0
$2,550.9
$495.7
$285.3
$0.0
$2,912.2
$541.6
$285.3
$0.0
$3,202.4
$589.9
$285.3
$0.0
$3,374.0
$640.6
$285.3
$0.0
$3,547.4
$50.1
$74.0
$124.1
$62.3
$0.0
$62.3
$74.7
$0.0
$74.7
$88.2
$0.0
$88.2
$98.5
$0.0
$98.5
$103.7
$0.0
$103.7
$108.9
$0.0
$108.9
Senior Secured Term Debt
Total Long Term Liabilities
$738.7
$738.7
$917.4
$917.4
$1,001.8
$1,001.8
$1,085.5
$1,085.5
$1,069.5
$1,069.5
$925.3
$925.3
$767.4
$767.4
Total Liabilities
$862.8
$979.7
$1,076.5
$1,173.7
$1,168.0
$1,029.0
$876.3
$913.5
$150.4
$1,064.0
$1,064.0
$186.5
$1,250.5
$1,250.5
$223.9
$1,474.3
$1,474.3
$264.1
$1,738.5
$1,738.5
$295.8
$2,034.3
$2,034.3
$310.6
$2,345.0
$2,345.0
$326.2
$2,671.1
$1,926.7
$2,230.2
$2,550.9
$2,912.2
$3,202.3
$3,374.0
$3,547.4
Net PP&E
Goodwill
Other
Total Assets
LIABILITIES AND EQUITY
Accounts Payable
Accrued Liabilties
Total Current Liabilities
Common Shares
Retained Earnings
Shareholder's Equity
Total Liabilities and Equity
Check
(0.0)
(0.0)
0.0
0.0
2018F
2019F
0.0
0.0
0.0
2021F
2022F
Stella Jones Corporation
Key Ratios and Covenants
2016E
EBITDA
(C$
Capital Expenditures (C$
Total Debt
(C$
Net Debt
(C$
Interest Expense
(C$
Total Book Capitalizat(C$
Projected
2020F
$376.1
$50.8
$738.7
$695.8
$21.5
$1,759.7
$451.4
$69.0
$917.4
$874.5
$26.6
$2,125.0
$532.6
$93.7
$1,001.8
$958.9
$31.9
$2,433.2
$596.5
$103.1
$1,085.5
$1,042.6
$37.7
$2,781.1
$626.3
$108.2
$1,069.5
$1,026.6
$42.2
$3,060.9
$657.7
$113.6
$925.3
$882.4
$44.3
$3,227.3
$690.5
$119.3
$767.4
$724.5
$46.5
$3,395.6
1.8 x
1.9 x
1.8 x
1.7 x
1.6 x
1.3 x
1.0 x
Interest Coverage (EBITDA / Inte Covenant
EBITDA Cushion
17.5 x
17.0 x
16.7 x
15.8 x
14.8 x
14.8 x
14.8 x
Interest Coverage ((EBITDA - CAPCovenant
EBITDA Cushion
15.2 x
14.4 x
13.7 x
13.1 x
12.3 x
12.3 x
12.3 x
39.5%
41.2%
39.4%
37.5%
33.5%
27.3%
21.3%
Net Debt / EBITDA
EBITDA Cushion
Net Debt / Capitalization
MM)
MM)
MM)
MM)
MM)
MM)
2017F
Covenant
Covenant
< 3.5 x
< 50.0%
Restricted cash
Includes revolvi
STELLA JONES INC | Sept 2016
Disclosures
About Queen’s MFin Portfolio Management Group
Queen’s Master of Finance Portfolio Management Group (PMG) seeks to invest a portion of the Queen’s
endowment. We aim to reinvest our investment proceeds to benefit the Queen’s MFin program and PMG.
Furthermore, a large part of the program is relevant to investment management and we believe PMG offers an
excellent platform for transition to real-life application.
The purpose of our fund is to not only bridge the gap between the classroom and practical application, but we also
seek to cultivate investment intuition and entrepreneurial instincts in our members while refining leadership and
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While our long-term investments follow a value-oriented selection process, we may also employ a macro-tactical
framework to capitalize on short-term opportunities. Our Annual Investment Outlook helps provide direction for the
latter approach, whereas the former is driven partly via fundamental analysis, sector-specific focus and the Annual
Investment Outlook.
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