Hi fellow HC'ers. What an awesome time for those of us who kept...

Hi fellow HC'ers.

What an awesome time for those of us who kept the faith (and congrats to those who backed themselves and topped up) during the January/February routs!

But after reviewing the results and my TFC investment thesis I have been considering taking profits on a part of my holding when the current stock uptrend finishes, with a view to reinvesting at a potentially lower price in several years.

Importantly, any readers should take note that my investment thesis is that of a 'superannuation' style investor who is looking for the payoff to really kick in on a +5year time horizon.

So what is new following the result that we didn't already know (check TFC's website for broker research)?
1. Wood/oil price forecasts: the Cannacord Nov 2015 note forecasts a $US4,500 / kg price for oil over the next 15 years, so TFC's announcement regards forward sales is consistent. However, (and this is a biggie) the risk to these forecasts has now been significantly reduced
2. Fy16 guidance: Cash EBITDA growth of 5-10%, implying the Plantation sales pipeline for the year remains clearly visible with 1,500 ha of plantings.
3. Positive Operating Cashflow in FY16: we saw -$22m Operating Cashflow in 1H16 so should see a reversal in 2H16 (consistent with previous years), noting this will still likely see negative Free Cashflow for the year and a subsequent increase in debt. FY17 though could see positive Free Cashflow depending on what opportunities management see to investing in new owned plantations
4. 300ha of heartwood to be harvested by end FY16: This has been highlighted previously, but again it is a de-risking of revenue and earnings over the next two years
5. Debt refinance: the result presentation indicates a bank has been appointed and pre work complete (Slide 7) with a refinance expected after July 2016 (when the call premium falls from 8% to 4%). This is a positive as it will enable a reduction of interest expense or facilitate further expansion of TFC's owned plantations via debt not equity
6. Loan Book sale: the $38m loan book sale is expected to be completed by end FY16 which also offers a nice boost to cash on hand and lowers the risk of new equity beeing needed.

My key takeaway therefore is that this result de-risks forecasts by Cannacord over the next few years, with EPS of 5.0c, 9.9c and 11.0c expected in FY16/FY17/FY18. At the current share price of $1.74 this represents PERs of 32x, 17x and 16x with a bit of upside potential from lower interest rates. Should TFC generate positive free cashflow in FY17/FY18 then these multiples do not appear unreasonable.

However, what leads me to think about taking some profits is not the next three years of earnings, but what will come in FY19 and several years beyond. The vagaries of the MIS industry over a decade ago saw plantings fall, and so harvest volumes will fall sharply in FY19 and FY20 which I expect will see EPS drop considerably (potentially back to FY16 levels).

Can TFC bring forward the harvesting of plantations to make up for projected declines in FY19/FY20? It might mean losses of potential value by harvesting trees several years too soon, but does anyone have any idea if it would make sense to cut down 13 year old trees instead of leaving them to grow to 15 years? And if TFC brings forward harvests to make production flat for the next half decade it will mean the big profit jump will be delayed to FY23/24.

Whilst this downturn in earnings will only last for a few years, with a recovery and substantial increase in profits beyond FY22, I am unsure whether the Stockmarket will look through several years of declining earnings. Or if the harvest is smoothed then TFC will offer a ~16x PER for the next 5 years....will the market pay that PER for no earnings growth for half a decade?

On a big-picture perspective I am cautious on stocks in general over the next couple of years given slowing global growth, and also if China will do a big devalue of its currency.

So that's the case for taking some profits now and waiting for a new re-entry opportunity in ~3 years. What say you readers?