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CANFOR CORPORATION University of Victoria Student Research CFA Institute Research Challenge 2012

CANFOR CORPORATION University of Victoria Student Research CFA Institute Research Challenge 2012. Presentation Highlights. $14.41. Overview. Competitive Advantages. Financial Analysis. Rising Lumber Prices. Valuation. $11.70. Risks. Increasing Lumber Demand. Company Overview.

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CANFOR CORPORATION University of Victoria Student Research CFA Institute Research Challenge 2012

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  1. CANFOR CORPORATION University of Victoria Student Research CFA Institute Research Challenge 2012

  2. Presentation Highlights $14.41 Overview Competitive Advantages Financial Analysis Rising Lumber Prices Valuation $11.70 Risks Increasing Lumber Demand

  3. Company Overview North American Operations Overview Financial Analysis Source: Canfor Valuation • Headquartered in Vancouver, British Columbia • Lumber mill operations in British Columbia, Alberta, Quebec, Washington State, South Carolina, North Carolina • Largest Annual Production Capacity in North America (5.2 billion board feet) • 50.2% ownership stake in Canfor Pulp & Paper Risks

  4. Company Overview: Major Markets Overview Financial Analysis Valuation Risks Source: FAOSTAT

  5. Industry Overview: US Housing Starts and Lumber Prices • United States: Expected recovery in the housing market will drive up lumber prices Overview Financial Analysis Lumber Prices Valuation US Housing Starts • Potential for Supernormal Sales Growth in medium term Risks • High growth potential in US paired with • Continued new growth in China Source: Random Lengths, ForecastChart

  6. Industry Overview: Harvesting Restrictions in China Overview Financial Analysis Valuation Restricted Risks

  7. Industry Overview: GrowingSupply Gap in China Sawnwood Lumber Exports to China (MM Board Feet) Overview Financial Analysis Valuation Risks

  8. Competitive Positioning: North America Competitive Positioning: China Overview Financial Analysis Valuation Risks

  9. FINANCIAL ANALYSIS

  10. Financial Analysis: Return On Equity Overview Financial Analysis Valuation Risks

  11. Financial Analysis: Lumber Sales 2010 Increasing Chinese Supply Gap Rising Lumber Price US Housing Rebound Overview Other Japan Canada Financial Analysis China United States Valuation Risks 2015E

  12. Financial Analysis: Pulp Sales Dropping NBSK price Excess Supply Weakening Demand Overview Financial Analysis Valuation • Canfor Pulp and Paper is not a sustainable contributor to Canfor’s Value Risks

  13. Financial Analysis: Projected Ratios Overview Financial Analysis Valuation Risks Stability Level

  14. VALUATION

  15. Valuation Overview Financial Analysis Corrects for potential inaccurate cyclical foresight of DCF Valuation Captures the effect of short-term cash flows on Canfor’s value Risks

  16. Discounted Cash Flow: Asset Proportions Overview Financial Analysis Valuation Risks

  17. Discounted Cash Flow: Post-Analytical FCFE Projection (2016 Onwards) FCFE Growth Cycle Illustration Overview Financial Analysis Valuation Risks 5 Year Positive Growth Min: 0%, Max: 2.5% 3 Year Negative Growth Min: 0%, Max: 2.5%

  18. Discounted Cash Flow: Analytical Phase (2012-2015) Overview Change In Non-Cash Working Capital Financial Analysis Inflows Non-Cash Charges Net Income Valuation Outflows Capital Expenditures Risks 2012 2013 2014 2015 Net Borrowing FCFE, NET: $102.94 $104.03 $120.23 $108.40 • Continued deleveraging • Notable fixed capital investments December 2012 DCF Value: $15.40

  19. Multiple Analysis:Similarity Assessment Overview Financial Analysis Valuation Risks

  20. Multiple Analysis: Weighted Average Multiple Overview Financial Analysis Weighted Average EV/EBITDA: 8.80x 2012 EBITDA: $233.09M Enterprise Value: $2,051,192,000 Valuation # Shares Outstanding: 142,710,000 FY End 2012 Share Price: $14.37 Risks • West Fraser Timber and Weyerhaeuser are the most comparable to Canfor

  21. EBITDA Regression: Variables • Method: Regress regional EBITDA over the following macroeconomic variables in each region. Overview Financial Analysis EBITDA Mean: $171 Million Valuation Risks

  22. Final Value Overview $14.41 $14.37 Financial Analysis $15.40 Valuation $10.58 Risks

  23. RISKS

  24. Investment Risks Overview Financial Analysis Valuation Risks

  25. Rising Lumber Demand Strong Competitive Positioning Growing Lumber Prices BUY QUESTIONS?

  26. Appendix A: Financials

  27. Appendix B: Financials

  28. Appendix C: Financials

  29. Appendix D: Financials

  30. Appendix E: FCFE Sensitivity Analysis

  31. Appendix F: DCF Inputs

  32. Appendix G: Comparables

  33. Appendix H: Company Similarity

  34. Appendix I: Comparable Fundamentals

  35. Appendix J: Applied Ratios

  36. Appendix K:Regression Variables

  37. Appendix L: Exchange Rates

  38. Appendix M: Management Change

  39. Appendix N: Mountain Pine Beetle Entire Province Timber Harvesting Land Base Pine Volume Killed (millions of cubic meters

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