Repap: Not Just A Paper Tiger

Mention paper on the Street, and International Paper, Weyerhaeuser, and Champion International spring to mind. But some smart-money pros, including George Soros, are buying into Repap Enterprises (RPAPF).

Rep-what? It's North America's third-largest maker of coated paper, with a capacity of 1 million tons. No.1 Champion International's volume is 1.3 million tons, and Consolidated Papers' is 1.1 million. Demand for coated paper is on the rise this year after a long slump. Why are Soros and other savvy pros snapping up Repap? Two reasons: a turnaround and takeover talk.

Montreal-based Repap, in the red for about five years, made money at last during the fourth quarter of 1994. The betting is that earnings will be strong for all of 1995 and even more robust in 1996. Analyst Gary Craft of Genesis Merchant Group Securities in San Francisco expects Repap to earn 85 cents a share this year and $1.70 next.

Speculation is rife that a major paper producer wants Repap as a way to get in on the coming run-up in the coated-paper market. Buying Repap would be much cheaper than building new mills, says Will Weinstein, Genesis' senior partner. He thinks a Repap buyout "would be logical for any of the paper biggies, particularly the likes of Champion." But, he adds: "I frankly don't know which one will make a run for Repap."

Prices of coated paper--used mainly for magazines, catalogs, inserts, mailers, and annual reports--have firmed this year because of increasing demand. Craft expects Repap's turnaround will mean a higher price-earnings ratio for the stock, even without a takeover.

In spite of Repap's world-class operations and high-quality products, Craft says, it gets low marks from the Street. Based on its price of 61/2 a share and Craft's 1996 earnings estimate of $1.70 a share, Repap's p-e is low--3.9. Consolidated Papers, on the other hand, has a p-e of 9. Craft thinks Repap shares are worth 12, based on its fundamentals alone.