EUR 850.00 For Business Accounts Only

Morningstar | Favorable demographics and tighter labor markets will drive stronger North American OSB profits.

Norbord is the largest manufacturer of oriented strand board in North America, with more than 7.1 billion square feet of capacity throughout Canada and the Southeastern United States. This is the result of the all-stock acquisition of Ainsworth in 2015, which added 2.5 billion square feet of capacity. Norbord also has a smaller European panel segment, which can produce roughly 1.8 billion square feet, including some that is allocated to particle board and medium density fiberboard. After seven lean years for residential construction, we expect favorable demographics, a tighter labor market, and looser mortgage availability to spur a mild improvement in homebuilding activity over the coming decade. We forecast U.S. housing starts to peak at 1.6 million in 2022 as pent-up demand is unleashed, before fading to a demographically sustainable 1.5 million in 2027. We expect robust profit growth for Norbord's North America OSB business (70% of revenue) over the next several years. We forecast North American segment EBITDA of roughly $500 million in 2022, down from $627 million in 2017 as panel prices ease following a number of near-term supply constraints. Over the same period, we expect EBITDA margins to contract from 36% to the mid-20s in this historically boom-or-bust business. We expect that strong pricing will attract additional capacity, and as housing activity wanes to midcycle levels, we expect margins to subsequently contract to roughly 20%. In Norbord’s Europe segment, we believe growth will be modest. Given that panel demand is tied so closely to homebuilding activity, we believe Europe’s anemic GDP growth rates will weigh on price and volume growth in the coming years. However, we think this segment will benefit from the tailwind of market share gains, as OSB remains relatively new to the market.