A year ago, lumber producers were suffering as lumber prices held well below cash costs even for low cost producers. This was primarily a result of an over-investment in log inventory, the analysts explains. However, producers avoided that mistake this year.<\/p>\n
Thanks to a mild recovery in U.S. housing starts and a severely depleted supply chain, year-to-date benchmark pricing is up 35%. While lumber prices are expected to see a seasonal decline during the second half of 2010, Mr. Swetlishoff expects pricing will remain above cash break-even levels, which he considers necessary for a deep value investment.<\/p>\n
\u201cWe expect lumber stock valuations to lead lumber price recovery and for the equities to eventually reflect peak normalized valuations representing more than 100% upside to current trading value,\u201d he wrote in a report.<\/p>\n
After 2013, the analyst sees a lumber super-cycle that could see benchmark prices sustainably exceeding $500 per thousand board feet (mfbm). After lumber prices climbed to US$282 in February<\/a> \u2013 a 85% year-over-year increase \u2013 they declined to US$275 in March. <\/p>\n \u201cThis would enable Canadian lumber producers to put up impressive EBITDA numbers \u2013 returning multiples of their market cap. Applying peak EV\/EBITDA multiples results in theoretical targets averaging 200% above current trading levels.\u201d<\/p>\n