Plum Creek Timber Company, Inc. (PCL) penned a long-term fiber supply and services deal with the bioenergy firm, The Enova Group. As per the deal, up to 3 million tons of sustainably-managed wood fiber would be supplied by Plum Creek annually during the 10-year contract tenure to 3 pellet manufacturing sites.
Enova, which is headquartered in Atlanta, Ga., plans to build 3 mills in the Southeastern United States. The mills would help convert wood fiber into pellets, which in turn would be served to the global biomass markets. The pellet shipments are expected to commence in 2015.
We are encouraged by Plum Creek’s deal, as it would help the company broaden its customer base. Further, it offers the company an opportunity to capitalize on Enova’s focused approach toward a cleaner energy platform. Such a deal is expected to expand the company’s top line going forward.
Plum Creek is the largest publicly-held timber REIT, with a diversified timber and land base that enables it to benefit from large economies of scale. Earlier in Jan 2013, the company penned a 10-year agreement with UK-based Drax to supply up to 770,000 tons of sustainably-managed wood fiber per year and a deal with Vulcan Materials Company (VMC) through which Plum Creek will enjoy royalty payments from the production and sale of crushed stone, mined from the quarries for the next 25 years.
Such deals are a strategic fit and are expected to offer encouraging returns going forward. Notably, Plum Creek is aiming to increase its non-real estate adjusted EBITDA by $50 million this year. In this regard, it has already reported growth of $9 million in the second quarter
With solid fundamentals, Plum Creek is well poised to maintain its growth curves and simultaneously benefit shareholders. Yet, the cyclical nature of the business, declining harvest volumes, cut-throat competition and strict environment policies continue to remain our concerns.
Plum Creek currently has a Zacks Rank #3 (Hold). However, a number of promising stocks include Boise Cascade Company (BCC) carrying Zacks Rank #1 (Strong Buy) and Rayonier Inc. (RYN) having a Zacks Rank #2 (Buy).
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