Industry Reports

Deutsche Bank Reports Summaries

080220 Deutsche Bank Report - TIN - Poised for Growth

Deutsche Bank - Equity Research

Temple-Inland {Ticker: TIN, Closing Price: USD 16.09, Target Price: USD 27.00, Recommendation: Buy}.

* Meetings with TIN suggest company is not for sale

We came away from those meetings convinced that Temple is not for sale(as some recent news reports had suggested). On the contrary, we believe Temple is positioned to make an acquisition and that it is the front-runner for Weyerhaeuser's large containerboard & corrugated operations. Our Buy rating is based on favorable valuation and a positive cyclical outlook in the corrugated packaging business.

* Good strategic fit between WY and TIN

With well-invested assets but some of the lowest margins in the industry, Weyerhaeuser's corrugated and containerboard operations fit many of the acquisition criteria outlined in our Temple discussions. WY is also a commodity-oriented box business with an emphasis on food & beverage markets, the type of business that TIN wants to grow.

* Opportunities for further operating improvements

With Temple now far more cost competitive at its containerboard mills, the focus has shifted to "sweating" the firm's box plant system. President Pat Maley termed this initiative the biggest financial opportunity of his career and suggested that in some cases it might be possible to boost a box plant's efficiency by a factor of 3x.

* Valuation/risk

Our $27 price target is based on the sum of separate valuations of the Corrugated Packaging and Building Products businesses. We value the Corrugated Packaging business at $3.1B and the Building Products business at $750MM. Adding the two implies an EV of $3.85B and an equity value of $2.9B, or $27/share. Key risks include momentum in the economy, US$ exchange rates, energy costs, and the housing market.