I have reviewed the new Moelis Analyst Report, available on...

I have reviewed the new Moelis Analyst Report, available on TFS's web site, and have found a couple of gems which further my belief that TFS is way undervalued:

1. On page 12 there is a table clarifying the optionality that TFS is obtaining by buying back MIS forests due to be harvested over the next four years or so. Delaying harvest by just 2 years increases the oil yield by 36% and increases the IRR from 24.4% to 27.1%. This is great news and will have a huge impact on filling the gaps in the harvest during these years. I also note that bringing forward a harvest by one year only decreases the oil yield by 10% and the IRR to 23.5%. This also allows great optionality just before the much larger harvests. The next buyback should be launched by TFS shortly, so it has said.

2. The Moelis report, which has a target price of $3.15, bases its DCF analysis on an assumed Risk-Free-Rate of 5%. This is very generous when current 10 year bonds are under 2% (including Australia) and in some cases are now under 0% (e.g. Germany). If these lower bond rates are here to stay, a recalculation of the DCF using a risk free rate of 2% would result in a considerably higher valuation. Furthermore, as TFS convinces the market about its future and its diversified revenue sources, the beta value (to reflect share price volatility) should also reduce from 1.5 to closer to 1 (i.e. the market value). We can then look forward to even higher valuations, even with no other changes whatsoever.

Based on my analysis above, I topped up my holding this morning and TFS is now in my top 4 holdings in my SMSF. I am looking forward to growing value over the next five years.