Internal Maine Logging And Carbon Credits Will Unlock Efficiency

Key Takeaways

• Expansion of Maine operations and enhanced forest management are expected to boost capacity, lower costs, and improve profitability through higher margins.
  
• Delayed, higher-value carbon credits and growth in sustainable products and new market opportunities may diversify revenues and support long-term earnings stability.
  
• Heavy dependence on carbon credit sales and limited geographic diversification exposes Acadian Timber to revenue volatility, operational inefficiencies, and heightened regulatory and market risks.

Catalysts

Provides forest products in Eastern Canada and the Northeastern United States.

• Ongoing ramp-up of internal logging operations in Maine is expected to significantly increase production capacity and reduce unit costs by year-end, supporting margin expansion and higher earnings as operations reach optimal efficiency.
  
• Delayed issuance of carbon credits under the new ACR protocol is anticipated to result in higher-value carbon removal credits, which could command premium pricing and provide incremental, more sustainable revenue streams beginning in the second half of 2025.
  
• Stable to growing demand for softwood sawlogs, driven by U.S. housing starts and regional supply constraints, should support gradual revenue recovery and improved pricing, especially as Acadian fully utilizes its harvest capacity in both New Brunswick and Maine.
  
• Strategic efforts in forest management, including enhanced training and equipment optimization, have the potential to increase long-term forest yields and reduce variable costs, directly supporting higher EBITDA margins and future profitability.
  
• Exposure to growing markets for sustainable building materials and potential participation in renewable energy or real estate development projects could unlock new revenue streams, diversify cash flows, and improve long-term earnings stability.

Acadian Timber Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Acadian Timber's revenue will grow by 12.0% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 16.0% today to 15.3% in 3 years time.
• Analysts expect earnings to reach CA$18.9 million (and earnings per share of CA$0.88) by about August 2028, up from CA$14.1 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 26.3x on those 2028 earnings, up from 22.9x today. This future PE is greater than the current PE for the CA Forestry industry at 17.9x.
• Analysts expect the number of shares outstanding to grow by 3.34% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.3%, as per the Simply Wall St company report.

Acadian Timber Future Earnings Per Share Growth

Risks

• Heavy reliance on carbon credit sales for profitability introduces volatility, as evidenced by the significant drop in adjusted EBITDA and net income in quarters lacking such sales; further protocol changes could also reduce the total number of credits issued, impacting long-term revenue and margins.
  
• The transition to internal logging operations in Maine has created production inefficiencies, increased fixed costs, and negative EBITDA margins, signaling risk of ongoing higher operating expenses and earnings volatility if ramp-up challenges persist or desired efficiencies are not achieved.
  
• Geographic concentration in New Brunswick and Maine exposes Acadian to regional weather and regulatory risks, demonstrated by weather-driven production declines and tariff uncertainties, which can lead to ongoing instability in sales, margins, and cash flow.
  
• Declining prices in key hardwood markets, continued weakness in pulpwood demand, and overall reduction in weighted average selling price-even as softwood sawlog demand remains steady-may signal structural headwinds in certain segments, threatening revenue growth and long-term profitability.
  
• Growing costs associated with compliance to updated sustainability protocols (e.g., carbon credits, forest management) and the shift toward a fixed cost structure may compress net margins, particularly if timber product pricing remains challenged or if regulatory complexity increases.

Valuation

• The analysts have a consensus price target of CA$19.5 for Acadian Timber based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CA$123.7 million, earnings will come to CA$18.9 million, and it would be trading on a PE ratio of 26.3x, assuming you use a discount rate of 8.3%.
  
• Given the current share price of CA$17.86, the analyst price target of CA$19.5 is 8.4% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.