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Event: Tembec’s fiscal Q4/10 EPS from continuing operations were $0.12 compared to the First Call Mean of $0.14 and our forecast of $0.24. Our estimate assumed no tax. EBITDA was $36mm, $3mm below our forecast of $39mm. The shortfall was in Lumber due to unfavourable mix (lower grades of lumber). Reported EPS of $0.02 included early debt redemption costs and closing charges for the Pine Falls mill.Impact: Slightly Positive. We are raising our target price to $3.25 from $3.00.Forecasts: We have lowered our fiscal Q1/11 estimate to allow for additional maintenance. In dissolving pulp, Tembec announced contracts in dissolving pulp at an average US$200/tonne above current prices thereby adding $60mm to profits beginning in fiscal Q2/11. We expect this grade to remain strong in 2011 and 2012, driven by a shortage in cotton. According to FOEX, the European NBSK price is $959/tonne, down from $990/tonne in June 2010.
