Cascades: CAS

The stock market in the modern-day is truly a remarkable thing.

From the comfort of your dining room you are able purchase ownership in almost every industry imaginable. Companies which entrepeneurs spent years toiling away to build you are able to purchase with the click of a mouse in a matter of minutes on your favorite brokerage site. A true democratization of capitalism.

Today I bring you the write up of my largest position, and what is currently the single best risk-adjusted common share opportunity listed on the TSX bar none, Cascades Inc. (CAS:TSX). While I was fortunate to purchase my position back when the shares were sub $10, the lion share of the gains are still to come as a huge catalyst lies on the horizon. The shares currently trade hands at $11.68.


Who are they?

Cascades produces 100’s of paper products individuals and businesses use every day.
See here


Their operations span North America and Europe with 90 operations in 6 countries and across 2 continents. Broadly speaking, their EBITDA can be broken down into four major segments:


Cascades current earnings trades dirt cheap. Using the 12 month trailing adjusted earnings of 1.28 and Cascades current share price of 11.68, Cascades currently trades at a Price-to-Adjusted Earnings of 9.125. This is a material 59% discount to an average of its packaging peers in the US despite having growth in line with the industry.

Here is a comparison of Cascades against their major peers in the space: Graphic Packaging Holding Company GPK, International Paper Company IP, Sonoco Products Company SON, West Rock Company WRK, and Packaging Corporation of America PKG.

Packaging Peers Price/Adjusted Earnings
Graphic Packaging Holding Company 16.13
International Paper Co 15.34
Sonoco Products Company 19.7
West Rock Company 20.63
Packaging Corperation of America 16.8
Peer Group Average 17.72
Cascades  9.125

If Cascades were to trade inline with its group average that would imply 94% upside, if that sounds incredible…just wait.


The stock looks even cheaper on a multiple basis if you net out their relatively liquid 20% interest in Boralex (BLX:TSX), a renewable power company. Their Boralex position is non-core to their business and in theory they could distribute this stake of shares to their current shareholders. Their 20% stake based on Boralex’s current valuation equates to 280million or $3.08 worth of value per CAS share. When we net the Boralex investment out of the share price, Cascades’s current Price-to-Adjusted Earnings ratio drops to a staggering 6.7x. But wait….there is more.

Near Term Catalyst: Containerboard Price Hike

Here is where things get exciting, recently players in the containerboard industry representing 80% of capacity agreed to a 8% price hike of $50 per tonne.This hike has been mostly implemented already. Cascades derives 47% of their EBITA from containerboard, if we assume a base case of all else constant this would mean an extra 57million straight to their bottom line, or an additional 60c earnings per share.


Bringing their 2017 Adjusted Earnings Per Share to $1.88. If we net out Boralex again that brings their Price-to-adjusted earnings ratio to 4.57.

Cascades reports earnings on March the 2nd for the period of October-December, the price hike was implemented in October so this upcoming earnings season is where we will begin to see the magic. The full effects won’t be felt until the subsequent quarter mind you as some contracts need to roll off the books and be renewed

Why is this so cheap?

Two Big Reasons:

  1. It’s tough to screen for the stock due to the differential between adjusted earnings and GAAP earnings
  2. The company has a smaller marketcap and many larger funds can’t touch it

Bottom Line

If we are extremely conservative and assign a 15x earnings multiple to Cascades we come up with a price of 28.2, adding in the 3.08 for the Boralex investment, the fair value for this stock is 31.28 which implies a 167% return.




10 thoughts on “Cascades: CAS

      • International paper seemed to have been upgraded yesterday, maybe people looking within the sector for cheaper names

        Bought Vip and cas (not typical behaviour for me), like highliner, don’t like manulife and aima but just because i don’t like the respective sectors, not the picks itself

        Anymore i need to look at, living in europe, i’ve been trading out of the euro into mainly nok, cad, gbp and small portion aud, so always on the look for canadian companies since i have a good portion of cad due to sale of some gold miners a few months ago

        Sent your blog to a couple of friends, you’ve gained a few european followers


    • Not sure why I can’t reply to your other comment so Ill reply here.

      Yes IP was upgraded we also saw results out of of Westrock (nothing killer there but did confirm the containerboard supply/demand picture) import costs did creep up.
      As shareholders of Cascades we also have the benifit of seeing 5 more of their peers report before Cascades will.

      VIP is certainly cheap, I don’t know what you risk tolerance is but the 5 Strike Sept ’17 Call Options look like one of the greatest oppurtunities i’ve seen in a while I am accumulating.

      Manulife is a legacy pick from last year (+40%ish since purchase), I am holding it mainly to balance out interest rate risk with some of my rate sensitive picks, I think it could easily rise to low 30’s this year mind you.

      Glad you enjoy the blog.


  1. Cascades going like clockwork, veon not doing as well as i thought, but still in the plus with the dividend and still cheap.
    I’don’t know why but i want to buy Highliner Foods. Is it a go at these prices? it’s an addiction, i keep going back to it, but can’t really pull the trigger. Any other targets you’re looking at or having the same problem as a lot of other value investors, not a lot of cheap value out there anymore


  2. I am not positive where you’re getting your info, but great topic. I must spend a while learning more or figuring out more. Thanks for fantastic information I used to be searching for this information for my mission.


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