The Rising Influence of Rising Affluence

[DewDiligence]

Re: PCL valuation

On average, PCL sells acreage for 3-4x the balance-sheet book value of the land in question. (I.e. the cost basis on the balance sheet represents 25-33% of the sale value.)

In any given quarter, the ratio of the sale price of landholdings to their book value can vary depending on the kind of land being sold; however, assuming that PCL’s aggregate landholdings are worth 3x book value is a conservative approach for valuation purposes.

At 12/31/13, PCL’s landholdings had a book value of $4.18B; dividing this by 6.8M acres gives a book value per acre of $615. Applying the 3x factor discussed above yields $1,845 per acre as a conservative estimate of the market value per acre of PCL’s landholdings and yields $12.5B as the aggregate market value of PCL’s landholdings.

PCL’s long-term liabilities (less net current assets) at 12/31/14 was $3.8B; subtracting this figure from the $12.5B figure above gives $8.7B as a conservative value estimate of PCL’s landholdings less net financial liabilities.

Dividing the $8.7B figure above by the 177M.4 diluted shares at 12/31/14 gives $49/share as an estimate of the fair value of PCL’s timberlands less net financial liabilities.

Adding in a few bucks per share for PCL’s manufacturing assets, mineral rights, and participation in joint ventures raises the estimated fair value per share to a number in the low $50s.

During PCL’s Investor Day presentation in 2012, CEO Rick Holley said that PCL’s internal figure for fair-market value per share was “well north of $60,” and timberland market values have risen since then. Hence, it’s reasonable to infer that the low $50s estimate derived above is indeed conservative.