From today's AFR "Canaccord retains a "buy" on sandalwood producer TFS Corporation and raises the price target to $3.24 from $3.02 previously. TFC has issued an additional $US25 million ($37 million) to an existing large bond holder with an effective yield to maturity of 8.5 per cent (interest cost of bond facility 11 per cent). This subsequently increases TFC's covenant light debt facility to $US200 million with maturity in July-18. Similar to its initial facility, the additional $US25 million has optional redemption terms from July-15; however, it has no attaching share options. In our view, the increase in its debt facility to an existing bond holder at a reduced relative credit spread illustrates their comfort in TFC's balance sheet and growth opportunities. In our view, this provides TFC with a significant cash buffer to undertake a material MIS buyback program (at a ROIC that exceeds its cost of capital); large scale land acquisitions for future year plantations; and an increase in its general working capital facility to take advantage of value accretive opportunities as they arise. If we were to assume TFC acquires all retail MIS growers between 2000-2005 (310ha for $60 million), it would result in a 30 per cent upgrade to our FY17-FY19 cash EBITDA forecasts."
SP still pretty sluggish of late, but it's still firmly in my bottom drawer!
TFC Price at posting:
$1.71 Sentiment: Buy Disclosure: Held
