Mercer International

Mercer International recently caught my eye as a potential value investment. It currently sells for the low, low price of 3.47x earnings. It had an excellent 2010 (looks like the “absolute best year in company history” sort of excellent) and it is wildly cyclical, which explain why the valuation is so low. It also isn’t really in the tax-paying business right now, so I’d probably want to tax-adjust that P/E. Figure a 40% tax rate, so 3.47/(1-.4) gives an adjusted P/E of 5.78. The debt load is high for such a cyclical industry (770M Euros!), but the debt structure looks like it might be less risky than it appears at first glance. Worth a bit more digging, perhaps…