An Attempt to Assess DASA Free Cash Flow

I'll try to make an estimate of what would be DASA Free Cash Flow. It's a very interesting company, but it's very hard to analyse it.

Investments in Work Capital

Inventories and receivables has been quite steady between the range of 25-30% of net revenue since 2005. The average is 26.5%. On the other hand, suppliers are floating around 4-5%, in an average of 4.3%. So the net investment in work capital historically has been around 25% of net revenue growth. 

That is, if revenue grows from 1 bi to 1.1 bi we can expect a net investment in work capital of 25 millions.

Margin of Safety on Suzano Business

I usually look at the potential "permanent loss of capital", before estimating potential upside in a determined investment. Now I was wondering how much capital we could (permanently) loss in Suzano Pulp and Paper (SUZB5).

So I took all assets and properly discounted by a rate that I think is proportional to the risk of conversion of that assets in money. I also considered all liabilities recorded plus 50% of possible demands that wasn't provisioned (they only record provisions whose chances of loss are probable).

Cielo vs Analysts: 1 x 0

Now the analysts praise Cielo. One year ago, then included CIEL3 on the SELL list. At that same time, I was buying. God save the all mighty analysts!!!

Exame: Cielo encerra 2011 ainda no céu dos cartões (e quem podem desafiá-la?)

Citigroup recomenda compra para ações da Cielo e Redecard"

Estadão: Cielo foi a ação mais rentável em 2011, diz Economática"

EBITDA x CFO

After reading this post I was wondering by how much EBITDA overestimate cash generated by companies operations (CFO). 

In order to get an answer for that I took the 10 greatest non-financial companies listed on Bovespa and compared EBITDA with CFO reported.

And here goes my conclusions/notes:

Unbelievable

That's really funny, king of all nonsense (by O Pequeno Investidor):

Pessoas comuns já estão lucrando na bolsa de valores

EBITDA Fantasy

Nothing besides what we know, but the article is interesting anyway.

A Fantasia do EBITDA

They point out that EBITDA is inadequate to measure cash flow, mainly because it doesn't count for financial expenses. Besides that, I add the following EBITDA flaws:

• Ignore tax payments
• Ignore investments in work capital (inventories and receivables) as revenue grows
• Ignore investments made by the company
• Count all account trick as being cash (like reversal of provisions or gain on biological assets)

Yes, EBITDA was created on purpose to overvalue companies real gains!

Thought of the Day - 02

Bovespa has a lot of excellent stocks. And also has a lot of cheap stocks. However, it's difficult to find excellent and cheap ones.

Lirio Parisotto

Thought of the Day - 01

Sit Still: with individual stocks, 10% of the time they’re cheap enough to buy, 10% of the time they’re expensive enough to sell, and the rest of the time you should just hold them if you own them and avoid them if you don’t.

Steve Leonard of Pacific Capital

SUZB5 - Market Value x Enterprise Value

Regarding the previous post (Market Value x Enterprise Value), I did some calculations on Suzano numbers (average last 3 years).

1. I first calculated cash from operations and then divided by its market value, which gives a nice yield above 20%.
2. Then I added to the previous calculated CFO interests expenses and then divided by enterprise value, yielding 12.5%.

ALPA4 - Alpargatas

Alpargatas stands out in creating and managing brands that are desired by consumers in many countries (like Havaianas). Besides that, is controlled by a well known and defined group (Camargo Correa). Also shows strong and stable cash generation.

So I decided to take a look at the three last cash flows available (2011 was multiplied by 4/3 to put in an annual basis):

As you can see, it's an exceptional company, with average FCF over Equity above 20%. However, it's not cheap right now.
I added it to my wish list.

Market Value or Enterprise Value

What to look at? Market value or enterprise value (market value plus net debt)?
For example, SUZB is currently valued for BRL 2.7 billions. However, if you buy the whole company you'll still have to pay more BRL 5.3 billions to pay all debts.
So, how much Suzano worth today?

Shopping Malls

Quick glance at the three larger shopping malls in Ibovespa.
None of them is attractive right now.
Multiplan is my favorite for the future.

Magnesita's 3Q11 Cash from Operations = deception

Take a look at this shit: Release 3Q11

They start the release with this big achievement:

MAGNESITA REGISTRA FLUXO DE CAIXA OPERACIONAL DE
R$ 461 MILHÕES, RECORDE NO ACUMULADO DO ANO, E LUCRO
LÍQUIDO 12% SUPERIOR AO DO 2T11

Let's see the 2011 acumulated Cash Flow Statement at page 21.

It starts with net earnings and add some adjustments, as usual.
Then things start to get interesting:

1) They added 63.116 of judicial litigation received - that's ok for a cash flow statement, but doesn't justify all the cheers about the CFO, because it's NONRECURRENT.
2) They added more 48.883 of asset sales - shouldn't this be cash from investiments? This is obviously NONRECURRENT and probably NONOPERATIONAL
3) They added 119.321 of the increase in accounts payable (Fornecedores e empreiteiros). This is also NONRECURRENT.

Subtracting all those NONRECURRENTS the CFO would be only 229,68 millions. It's just a 50% difference from the headline!
I looked for any comments about the CFO but they just cheered about their great accomplishment.

Very Good News

Times are becoming so good that now even analysts are pessimists!
This one says that Ibovespa valuation is fair enough and don't expect it over 60.000.

O que pensa a analista mais pessimista (realista?) da bolsa sobre 2012

LOGN3 - Log-in Logística

Here goes my main notes about Log-in:

• Cash flow from operations since 1Q2010 is BRL 73,7 mi. Since receivables increased a lot, total cash flow generated is under BRL 20 mi (less than BRL 3 mi per quarter).
• Cost of debt is very low. Almost 3/4 of it is TJLP + 2.5%.
• According to the company, cost of TEU per day of own boat is 80% less than chartered boat (Cost TEU/day of BRL 6.00 x BRL 29.00).
• One boat just begun (Jacaranda) and other will begin (Jatoba) commercial operation soon.

So, if you believe company is pre-operational (except for TVV Vilha Velha) and the new boats will reduce costs and increase FCF, it may be a good pick. 

But bear in mind that today it doesn't generate cash and doesn't pay dividends, so you'll have to make a bet. What is yours?

Food and Meat Companies

I took a look at the three major food/meat companies.

By far BRFS3 it's the best, not just because it's not indebted, but also because of its core business: 50% of net sales comes from milk and processed foodstuffs, sold in internal market. It's not a commodity like business. But it's not cheap. Cash flow is 8% of market value and, after deducting investments, I guess a 5% FCF Yield.

The other two (JBSS3 and MRFG3) are rubbish. JBS has a huge revenue, if it improves margin a little, it can generate a lot of cash. But Marfrig can't even generate a dime!

Analysts (In)Accuracy Forecasts

I simply can’t understand why so many guys spend so much time engaged in forecasts. They are always too optimistic and with so little chance of success. In short, it's completely nonsense.

Here is what James Montier says about this:

Let’s say you invest according to the following process: forecast the economy, forecast the path of interest rates, forecast sectors which will do well in that environment, and finally forecast which stocks will do well in that sector. Let’s assume you are right on each forecast 70% of the time (massively above the rates actually seen). However, if you require all four forecasts to be correct, you have just a 24% chance of getting it right! (This assumes each forecast is an independent event).

Vale 25 billions lawsuit

Vale is being sued to pay BRL 25 billions due to tax contigencies (4.66 per share) that hasn't been provisioned. Since it's being paying since 2008 an average of 1.66 per share in dividends, that amount to be paid is 2.8 times average dividends distributed.

Also, Vale has provisioned just 1.44 billion for tax contingencies and the total possible tax demands hits BRL 40 billions!

In addition to contingencies for which we made provisions, the company is part in claim where the loss expectation is considered possible for Vale and for its attorneys and that represent on September 30, 2011 and December 31, 2010, the total amount of R$ 40,769,086 and R$ 9,605,546 in the consolidated company and R$ 34,262,857 and R$ 4,484,876 on the parent company, respectively. For these cases it was not recorded provision. The variation in the claims values regarding reasonably possible contingencies is related with cases in which is discussed the payment in Brazil, of income tax and social contribution on net income on the profits of foreign subsidiaries.

How Things Work - Part 03

Following the previous post, this one is even better.

On November 2010, Itau gave a strong buy recommendation for Hypermarcas. They say (Google translated):

Hypermarcas shares is a good way to increase exposure to consumer goods sector, which has recorded strong growth in Brazil. The company gained market share recently, which helps to keep revenues growing.

In addition, Hypermarcas has a history of acquisitions "impeccable." With 2.4 billion dollars in cash, the expectations of analysts is that the company continues to make purchases that generate business value.

How Things Work - Part 02

On June, 2010, Bank of America reduced the target for USIM5 to BRL 66.00 (equivalent of BRL 33.00 after 50% split) but stressed the buy recommendation.
Please notice that the target price was even bigger before this.
Infomoney

Today, exactly the same bank says that the price paid by Ternium of BRL 36.00 was too expansive. How can that be?
Exame

Who on the earth still gives a shit to what these "experts" say?

MULT3 - Multiplan

Multiplan has interesting key features:

• Needs low investments to keep going on. Of the total invested in 2011 less than 6% was directed to maintenance;
• Nice return projected on new investments: 15.6%. I think that ROE is lower because older assets are updated  to reflect market value increases;
• Assets are cash and properties, that don't depreciate like machinery (in fact, are protected of inflation). Net income is also adjusted by inflation

FFO (Net Income + Depreciation), that's very similar to CFO, is nearly 400 millions (6.4% of market value).
I think it's not at an adequate price right now, but it's a company I wish to have if market offers this opportunity.

LAME4 - Lojas Americanas

Very brief analysis of LAME:

I gave it up because it's not cheap, its debt level is high for its expansion plan, needs lot of capital to increase (receivables)...

VALE5 - Vale

As I saw that a great deal of funds are buying VALE5, I compared its main numbers with competition ones.

Vale is indeed the most profitable and is cheaper than the others two (considering its higher EBITDA Margin).

What the big guys are buying?

I'm having a free time these days so I finally had a time to build an excel function to automate reading CVM data.

The tables below shows what the best funds are buying (July 2011). This may be appropriate to get some insight to where looking for.

Which bank is better - Part 3

Now I decided to take a closer look to the financial statements of the three major banks (click to enlarge):

As I had commented, BBAS3 charges proportionally less for loan losses than BBDC3 and ITUB3 does. Also, note that BBAS3 is paying more taxes than the other two.

Which bank is better - Part 2

I just forgot to take into account allowance for loan losses. Also included Banrisul figures.
Now BBAS becomes even worse: with more risk it's one that have the least allowance for loan losses!
Or put in other way, BBAS only can get ROE over 20% because its high leverage level and, probably, charges insufficient allowance for losses.

Which bank is better?

I remember I've read that the best way to analyse banks profitability is to look at Return over Assets. In so doing you're able to calculate return without considering leverage level (risk).

In the table bellow it's clear that, although all banks have similar returns over equity, ITUB is the most profitable with less risk (leverage/BIS ratio). BBAS on the other hand, can reach similar ROE to private banks just if it leverage too much.

Is the BACEN fuelling the bubble?

Today in Estadão: BC incentiva crédito no momento em que a dívida de brasileiro bate recorde

It's the goverment trying to push the economic cycle beyond its limits. We have seen how its ends.

Warren Buffett: If the stock is cheap, we will buy it

Look at who has been buying in the middle of this turmoil?

Financial Time: Buffett reveals $10.7bn stake in IBM

Risk x Upside

Ex-richest man in Ireland declares bankruptcy

Before you can look to the upside potential as did this Irish guy, you need to take into account the risk of fatal loss. As said Klarman once:

By holding expensive securities with low prospective returns, people choose to risk actual loss. We prefer the risk of lost opportunity to that of lost capital, and agree wholeheartedly with the sentiment espoused by respected value investor Jean-Marie Eveillard, when he said, "I would rather lose half our shareholders...than lose half our shareholder's money".

Japan's Debt

Japan has a debt as a share of GDP over 200% and also incurs in primary budget deficit:

Compared with Italy, the latest target of creditor angst, on many counts Japan is more troubling. Its net debt is bigger as a share of GDP and it has a primary budget deficit (ie, before interest payments), whereas Italy has a surplus. With the fastest-ageing society on Earth its growth prospects are not obviously better than Italy’s.

Source: The Economist

Autometal and Metal Leve

I'm taking a look at Autometal (AUTM3) and Metal Leve (LEVE3).
Both have high margins and return on investments.
It seems that its FCF is also high.
What about?

The World Is In Trouble

At least is what assures Jim Rogers, an author, financial commentator and successful international investor, and bullish about China:

We're certainly going to have more crises coming out of Europe and America; the world is in trouble. The world has been spending staggering amounts of money that it doesn't have for a few decades now, and it's all coming home to roost.

 Last time, America quadrupled its debt. The system is much more extended now, and America cannot quadruple its debt again. Greece cannot double its debt again. The next time around is going to be much worse.

Source here: Jim Rogers Blog

Investors Fees

Have you ever thought about how much investors have to pay to buy stocks?
I did a rough calculation after reading BVMF3 earnings release:

• Current dividends paid: with Fundamentus data, I multiplied current yield by market value to get all the dividends paid in 1 year.
• Costs with BM&f Bovespa was easily got in its earnings release.
• Brokerage commissions: here I had to make an assumption that one trade would cost, on average, BRL 15.00. That's because I can't get the total brokerage revenue, so I have to estimate it. Considering 83.9 millions of trades in spot market occurred in 2010, revenue would be 1.25 billions. I think that this amount is underestimated, because I'm not taking into account options, derivatives, term market, and so on.

Electric Power Companies x Inflation

Are electric power companies earnings automatically adjusted by inflation?
As I told you yesterday, I now suspect that it isn't.

We can visually verify this looking at the historical earnings/dividends graphs, available at Fundamentus.
Now it's easy to see that, except for ELPL, that has several nonrecurring items, earnings and/or dividends are rather steady since about 2007.

Good news

Valor: Bolsa perde mais de 22 mil pessoas físicas no ano

OHLB3 - My View

In the first half of 2011, when all concessions were yielding money, OHLB generated BRL 290 mi in cash (earnings + depreciation + others adjustments). I don't know if there is some seasonality, but let's consider a cash generation of BRL 600 mi in cash per year (15% mkt value).
Now we have to discount normal investments. On page 12 of 2Q11 report they say that they spent BRL 90 mi in maintenance. For the sake of prudence, let's say that they will spend BRL 200 mi in investments regularly. So FCF would be BRL 400 mi (10% of mkt value).
That's too good to be true. And it is. I see at least 2 problems:

OBRASCON HUARTE LAIN BRASIL S.A. - OHLB3

I took a look on this road concessions company and found that it may be worth to dig in for more information.

The Oscar for nonsense goes to this guy

Exame: Bolsa não é para pessoas físicas, diz especialista


Pequenos investidores teriam poucas chances de ganhar dinheiro com ações devido à composição do índice Bovespa

São Paulo – O que segue abaixo é o depoimento de um especialista em finanças que já serviu de fonte de informação para centenas de reportagens sobre a bolsa. Sob a condição de não ter seu nome publicado, ele fez uma análise bastante sincera sobre a chance de as pessoas físicas ganharem dinheiro no mercado acionário e os motivos para a fuga de 38.000 investidores da bolsa nos últimos 12 meses - tema da reportagem de capa da edição de EXAME que está nas bancas. Seguem abaixo os principais trechos da conversa:

Parisotto Updated

Nothing has changed from june to july, as we might expect for a great value investor.

3T11 - RDCD x CIEL

I think it's the turning point, because CIEL's MDR rose and RDCD's costs/expenses decreased.
CIEL's biggest impact in operating expenses was marketing/advertising.

NATU3 - Natura

The most beautiful graph you've ever seen:

Natura has been paying steadily and growing dividends (BRL millions):

Dividends adjusted by inflation have grown at 16% annually in the last 6 years and net equity (also inflation adjusted) has increased more than 600 millions.

US Companies

I took a quick look at the major US companies. I simply went at Google Finance and calculated FCF, deducting Capital Expenditures from Cash from Operating Activities. The results are listed below.
My feeling is that US market is very attractive, considering the excellent worldwide companies we talking about, historical low rates, great country, and so on.
Or, on the other hand, we can say Brazil isn't that cheap as they usually say.
It's amazing to see that great companies, most of them with a stable and somewhat growing cash flow, being traded by a nice yield.

Parisotto's Portfolio

Here goes the consolidated Parisotto's Portfolio as of June 2011:

Why he is buying TCSA3?

Suzano's business plan for 2024

Extrated from the 2011 Reference Form:

10.10 - Plano de negócios

Even tropical fruits are more expensive here than in US

With  appreciation of the real, not only capital goods costs a lot less outside Brazil.
This article shows that even typical Brazilian tropical fruits costs more here than in New York!

Optimistcs News

As pessimistics news are rare, here goes one to help us remember how fragil things are:

http://exame.abril.com.br/seu-dinheiro/acoes/noticias/5-gurus-bem-pessimistas-com-a-bolsa

MAGG3 - Magnesita

I'll just post some notes about Magnesita I found searching on the net so far:

• I compared RHI numbers, the world market leader in the development, production and service of refractory materials, to Magnesita ones (RHI numbers were converted to BRL):

• The company announced investments of R$ 300 million in two projects for vertical integration into raw materials, aiming to reach 90% of vertically.
• It's trying to implement CCP model to price it's products. I didn't get that right.
• MAGG is charging about 100 millions in depreciation per year, so CFO is much higher than published earnings.
• FAMA has a nice share of the company.

People are so foreseeable

When the stock market goes down, the "specialists" start talking about "defensive" stocks.

Estadão: Ações defensivas para tempos de crise

Defensive stocks, according to the article above, are the stocks that pay high dividend yields.

I heard the same story in 2008/2009, just when the not so "defensive" stocks where incredibly cheap.

I think the contrarian investment strategy is more alive than ever!

KLBN4 - Klabin

I tried to estimate normal cash flow for Klabin:

But I'm not sure about 3 points. Let me know what is your opinion.

Here is a guy who drunk from the source

Quanto mais a bolsa cai, mais ele compra

Here is where this guy took those ideas from.

Large Banks Compared

They are very similar, here goes some notes:

• BBAS3 had stock issuance, so earnings growth per share is less than 40.0%
• BBAS3 has less allowance for loan losses, but it has the minor delinquency ratio and more coverage ratio, so I think it's OK.
• BBAS3 has the best efficiency ratio, while ITUB3 has the worst. What a surprise!
• BBDC3 has more than 2/3 of its loan portfolio destined to corporate and almost 30% of its earnings comes from insurance. That's good!
• Be surprised again: ITUB3 has the worst ROE, while BBAS3 has the best one.
• Considering  Loan Portfolio/Shareholders’ Equity, we can say that BBAS3 is most leveraged, while ITUB3 is the less one. That could explain the profitability difference.

UGPA4 - Ultrapar

Another excellent company I always thought was over valuated is Ultrapar. But looking at cash flow you can see that in 2010 it earned "only" 765 mi, but have charged 530 in depreciation and another 135 mi in deferred taxes. So it created about 1,4 bi in cash! That is 26% over equity.

Ultrapar also invests a lot, but reading the report I believe (although I don't know how much) most of that investments are directed to growth.

That's another example of an excellent company that I had misunderstood, until I looked to its cash flow.

Now I think that I full understand this maximum: CASH IS KING!

DTEX3 - Duratex (Reviewed)

Although Duratex has being pressed by costs increase, I decided to take a closer look to its FCF (my favorite analyses now) because price has plunged.

You can promptly see that depreciation is very high, and has been growing. Investments is also high, but company is investing a lot to increase production capacity (growth). See, for example, what was the destination of total 2010 investments:

S.&P. Downgrades Debt Rating of U.S. for the First Time

You said you're missing the time of circuit breakers.
Well, I think that time has come again.
I just need to have the necessary patience not to buy too early...
Let's cheers this new time!

What we should buy

I've sold some small companies I had in my portfolio and all FIIs, just to focus on large companies. But it's very difficult to escape, at current moment, from banks and steel (BBAS, BBDC, ITUB, CSNA, GOAU and USIM).
So I made a search on largest companies today to see what could be bought.
I put the results in a Google Spreadsheet. You can have access here.
See what you think could be a valuable buy today.

I Love Reading these News

• Empresas elétricas são a luz no fim do túnel para a bolsa, diz corretora
• Queda das Bolsas europeias por medo da crise econômica
• Ibovespa em mais um dia de cão cai 6%; nenhuma ação em alta
• Ibovespa recua mais de 2% e investidor busca setores defensivos
• Com aversão a risco, brasileiro procura poupança em julho e captação é maior do ano
• “Há bastante combustível para a queda da bolsa continuar”, diz analista
• Carteira de ações para o mês deve ter companhias que paguem bons dividendos

• Pânico domina Wall Street e Dow Jones tem maior queda diária desde o fim de 2008

Ambev

I took a look at Ambev to determine its intrisic value (conservatively).

I projected a growth rate of 6% for 10 years and 3% from then on, with a discount rate of 7%.

My starting point was the average dividend payment from 2008 to 2010 (I took the numbers from the cash flow statements of those years).

Itau versus Bradesco

I'll also post BBAS figures when available for 2Q11.
I think that BBDC is getting better than ITUB.

Lírio Parissoto

Let's see what that billionaire is investing on:

From www.cvm.gov.br, the portfolio owned by L. Par Fundo de Investimento em ações in jun / 2011 (the fund, owned by Lirio Parissoto, is worth more than 2.5 billion BRL):

Portfolio Reallocation

I'm doing some reallocations on my portfolio before pouring more money in.
Today, for example, I sold PTPA and TKNO, both with slight profits, to buy CSNA and BBDC.
I think it makes no sense now hold those positions when you can buy CSNA yielding 8% and BBDC with a P/E nearly 8.0.

Just for Fun

Take a look when you have nothing to do, just for fun, and to see who your competitors are:

http://www.guiainvest.com.br/mural/mndl4.aspx

BBAS3 - Banco do Brasil

I took all results available in Fundamentus for BBAS3. It's exactly 8 years of data.
Then I calculated quarterly return (ROE) and after that I excluded the best 8 quarters.
For the remaining 6 years of worst returns I get an average ROE of 23%.
That applied to the current net equity would generate BRL 12 billions.
So BBAS3 can be bought for just 6 times its average earnings.
Also, Banco do Brasil has been distributing average dividends since 2008 of BRL 3.5 billions per year, wich gives a yield of 6.7% (I discounted 15% of all values, because de series doesn't shows what is dividend and what is JCP).
In short: Fundamentus data for BBAS3 are not distorted in relation to historical mean.

RDCD x CIEL

I think the worst fase of the new scenario of the acquirance business is over.

Indicador CIELO RDCD
margem líquida 37,80% 36,30%
ROL (2Q11/1Q11) 3,40% 9,50%
Costs (2Q11/1Q11) 9,90% 4,80%
Expenses (2Q11/1Q11) -14,80% 10,70%
MDR credit 1,17% 1,15%
MDR debit 0,74% 0,74%
MDR credit (2Q11/1Q11) -0,05pp +0,02pp
MDR debit (2Q11/1Q11) -0,02pp +0,03pp
POS rent revenue (2Q11/1Q11) -1,20% 4,60%
Prepaiment result (2Q11/1Q11) 16,20% 11,90%
Credit volume of transacions (2Q11/1Q11)5,60% 9,80%
Debit volume of transacions (2Q11/1Q11) 7,40% 4%
Cost/transaction (BRL) 0,313 0,374

ITUB3 - Itau

From Itau site I got the following numbers:

Avrg ROE last 10 Years: 28.5%
Avrg ROE last 3 Years: 23.0%

Let's be conservative and consider that Itau can maintain 20% profitability from here now on. As net equity amounts now for BRL 63.7 billions, earnings can be expected to be around 12.7 (last year was 13.3).

So, at current market value P/E is less than 10!
Would you bother to take a share in this excelent asset?

Using the same reasoning, BBDC3 would be trading now for 8.8 its earnings.
It's a matter of taste!

And BBAS3 for less than 7.0 (and I'm using ROE of 20%, although avrg ROE is over 25% since 2005).

CGRA4 - Grazziotin

CGRA reached a nice valuation. It generated an average of 36 million in cash per year in 2009/2010 and invested just 15 millions (investment for expansion included). So FCF is about 20 millions, a yield of 7%.
Grazziotin also have nearly 100 millions in reforestation, lands, buildings and benefactories, more 70 millions in cash. And receivables.

P/E: 8.40
P/BV: 1.0
Yield: 7.0%

PETR4 - Petrobras

Some thoughts about Petrobras investment plan for 2011-2015 (all numbers are in BRL billions):

• PETR plans to invest in the next 5 years 389,00;
• It will have to pay more 37,50 in dividends (considering 25% of earnings of 30,00);
• Cash flow stood for about 50,00 in the last 3 years. So it will generate 250,00 in the next 5 years;
• So cash consumption till 2015 will be 176,50;
• Since current debt amount 65,00, net debt will be 241,50 in 2015;
• Increase in production will be 44%. If cash flows follows the same percentage, CF in 2015 will be 72,00;
• Earnings will grow to 43,20, so dividends will be 10,80;
• In 2015 FCF will be 61,20, less investments in maintenance, that is not negligible, but I don't know how much is;

Considering that the premises are to risky, associated with the risk of the high debt, I definitely will buy no shares for now.

Why I can make money

I'm not a smart guy but I'm greatly happy to be surrounded by dumb people.

Look what happened with Mundial, a piece of shit that worth nothing.

• It has been trading for 30 cents since begining this year;
• Then, some crazy optimism soared company share price to above 5, an increase of greater than 1.500% in less than 3 months;
• With that valuation, company multiples were: P/E of 130, P/BV of 15 and EV/EBIT greater than 60 (high indebted company);
• During the gold time, average volume was nearly 200 million, one of the greatest of Ibovespa;
• So unexpected pessimism dropped prices over than 85% in just 3 days!

Also worth reading this article. Following are some highliths:

CSNA3 - CSN

CSN is down 30% this year, so I decided to take a look. From the company web site I got historical dividends since 2005:

When CSN distributed JCP I provided to discount 15% IRRF. Disregarding 2005 year that is outside mean, we have an average dividend in the last 5 years of BRL 1.86 billion. This is currently yielding 7.4%, which is very attractive. So I'll take a closer look at CSN.

Cielo versus Redecard

The article confirms my thought about Cielo and Redecard: the Cielo's stakeholders, Banco do Brasil and Bradesco, are among it's biggest strenghts. The larger size also is important, because the card acquirance is a business where size matters.

Valor Econômico: Redecard quer brigar pela ponta

Valor Econômico 14/07: "Falta, porém, combinar com o concorrente. Yamaguti sabe que, para a Redecard ser líder de mercado, o setor precisa estar totalmente aberto - e isso hoje significa vencer a resistência de Bradesco e Banco do Brasil (BB), acionistas controladores da Cielo, para que Redecard também passe a aceitar em sua rede os cartões Visa Vale e Elo. "Estamos abertos, não temos ciúmes de nada", avisa Yamaguti. Com a American Express, hoje nas mãos do Bradesco, também não houve negociação até aqui."

EURO11 - Europar

I sold my EURO11 today because:

• Since 2008 it has been distributing the same amount (that is, there is no correction due to inflation, so the yield you got is not a real one);
• If you look to the 2010 financial statements, you will see strange stuffs there: other expenses of BRL 700 thousands and there was cash consumption just to pay the same 1.36 they are paying (since 2008);
• I mailed them about these issues a moth ago and no answer was offered.

So CDB it's far a better pick.

GGBR3 - Gerdau

A simple look to GGBR cash flow shows that FCF is about 8% of current market value:

What draws my attention is the huge value of depreciation/amortization that is enough to cover investments in fixed  assets. The damn is the immense net debt nearly BRL 12 billions, six time FCF.
What about?

People Never Learn

Most people never learn.
See the bullshits this moron says about Buffett here, if you have time and stomach for it.

Buffett said in its annual meeting in April that gold is useless and that people act like fools when the price is near the highs. "There is no doubt about the effect of price increases in behavior," said  Buffett.

SUZB5 - Suzano - Return on Investments

I know it's almost a futurology issue, but I'll try to shed some light about what would be the return on planned investments until 2015.

• I went to the company site and from there I got that quarterly median net margin (earnings/revenue) for the last 20 quarters is 13.3%.
• The 2 projects (Maranhão and Piauí) will add 3 million tons of hardwood pulp. As international price is now at US$ 870.00, the investments will earn US$ 2,6 billion revenue.
• That revenue, at historically net margin will yield earnings of about US$ 350 millions.
• Orbe said (I failed to confirm this number in the company site) that this investments will consume about US$ 7 billions. (I saw now in company site that the estimated total value of investments for the 2 projects is US$ 5.3 billions)
• So the expected return on new investments would be miserable 5% (with new company data it jumps to 6.6%).

Probably I misunderstood or forget something. However, if my figures are closer to what would be the expected returns, I'm certainly out of this shit.

SUZB5 - Suzano Pulp and Paper

I will be editing this post while gathering more information. For now, look at this:

• This graph shows production growth:

• This one shows EBIT:

That is: company has been investing a lot, but EBIT has not gone up. So, what will be the return of heavy investments that SUZB plan to do in the next 4 years?

Now I try to estimate FCF:

Consumer credit in Brazil

Financiamento de veículos: inadimplência aumenta

O atraso nas prestações vencidas há mais de 90 dias é de 3,6% de todos contratos, numa trajetória crescente. Era de 2,6% em janeiro, foi a 2,8% em fevereiro, a 3% em março e a 3,2% em abril.

Several blue chips selling for less than its equity

From FUNDAMENTUS

Papel P/L P/VP
PETR4 7,99 0,98
USIM5 11,55 0,81
FIBR3 9,78 0,61
CPLE6 10,7 0,99
CESP6 79,68 0,95
SUZB5 5,9 0,53
MRFG3 25,08 0,85

China's Hidden Debt

A recent article from The Economist shows that debit in China could be substantially high than published, due to the hidden debts of its local governments.

The official public debt of the central government was only 19% of GDP at the end of 2010. Adding the debts of local governments, the non-performing loans of the banks and other liabilities, such as central-bank bills, the public debt amounts to about 80% of GDP according to Andrew Batson and Janet Zhang of GaveKalDragonomics, a consultancy in Beijing. That sounds high for a developing country.

The government has never revealed how much debt the local-government vehicles took on. Despite this opacity, or perhaps because of it, these hidden liabilities have become one of the four big worries haunting China-watchers, along with the property bubble, inflation and lightly regulated trust companies. Victor Shih of Northwestern University has described the debts as a “big rock-candy mountain”. In June 2010, he projected it might reach as high as 24 trillion yuan ($3.7 trillion) by the end of 2012, or over half of China’s GDP.

Aviation is bad for your financial health

I always told you: aviation is a bad business.

Aéreas acumulam perda de R$ 5,7 bi em cinco anos.

"Esse tipo de resultado não é exclusivo do Brasil. Esse é um setor que destrói valor, com excesso de capacidade, margens de lucro pequenas e forte influência de qualquer fator externo", afirma o especialista em aviação da consultoria Bain & Company, André Castellini.

Brazil Credit Bubble

Again Financial Times argues that Brazil is exposed to a credit bubble, transitioning from a boom to bust. Main points are:

• The consumer debt service burden, which stood at 24 per cent of disposable income in 2010, is now slated to rise to 28 per cent in 2011. This compares with 16 per cent for an “overburdened” US consumer and a mid-single digit reading for other emerging markets such as China and India.
• But they calculate that the debt service burden for the so-called “middle class” in Brazil has now breached 50 per cent of disposable income, as high income earners have little need to borrow at rates which are punitive and most of the consumer credit is therefore being directed to the “middle class” for consumption.
• Meanwhile, delinquencies in Brazil (defaults in excess of 15 days) have begun to move up rapidly, from 7.8 per cent to 9.1 per cent of total loans between December 2010 and May 2011.

Important to highlight that this is very troubling as credit indicators have deteriorated even as the economy has stayed strong and the unemployment rates are at a record low. When they begin to deteriorate before any economic weakness it usually represents a structural problem relating to underlying cash flow or underwriting weakness in the quality of credit – Brazil has both problems.

What Blue Chip is?

According to Wikipedia, blue chips comes from casino, which originates in poker , where the blue chips are the most valuable. It is used in stock markets by analogy, to describe actions of well-established companies, large national and international, with proven profitability, especially in the long term, and with few obligations, resulting in positive economic and financial situation.

But this news promoted Mundial and Ecodiesel, two pieces of shits highly traded on Bovespa,  to blue chips, just because a crazy bunch of speculators are now very optimistic.

Unbelievable!

China's Hard Landing

In this 5 series on Bloomberg,  A. Gary Shilling, author of The Age of Deleveraging: Investment Strategies for a Decade of Slow Growth and Deflation, states that China is headed for a hard landing.

Part1 - Part2 - Part3 - Part4 - Part5

BICB4 - Bicbanco

I've made a simple analysis in BICB4 figures:

• Margin from financial operations income dropped (up only 36% when portfolio soared 45%);
• Financial operations expenses for deposits, money market, borrowings and others grew 53%. What worries me is that allowance for loan losses grew only 7%, even with a stunning increase in loan portfolio;
• This resulted in an increase of gross profit from financial operations of just 20%;
• On the other hand, personnel expenses, administrative expenses an others grew only 7% (1);
• Finally, operating result increased 33%.

- Dividend yield (3 years): 6.0%
- Mean P/E last 3 years: 8.0

Has the time come to start a buying?

(1) BICB had extraordinary income in 2009 related to PIS Law 2.445 e 2.449/88 and  Amnesty Law 11.941/09 of about 90 million. I'm expurgating that from 2009 operating results.

USIM5 - Usiminas

What about Usiminas? It has dropped 42% in the last 12 months and is now close to the minimum reached in 2008 crisis. Even through  a bad moment, yield is 4.4% and P/E 11. If we consider historical numbers for earnings of 2.5 billions and dividends of 1 billion, P/E would go to 5.5 and yield to 7.5%.
I prefer USIM to GGBR because its debt is lower and USIM plan to invest in ore mining, so its business could become full integrated, as CSNA is.
What do you think about?

CARD3 - CSU Card System

According to Google Finance, the ratio FCF / Market Value today is 38,36 / 208 = 18,44% (year 2010 Cash Flow Statement)

CSU announded today the repurchase of 2,8% of it's stocks in the market.

I'm thinking about buying some more stocks. It's one of the smallest positions in my portifolio and the company has shown a good cash generation capacity.

I'm also waiting to buy FJTA4 for 3,10.

FRAS4: Price / Book Value today = 1,01

Today in Infomoney: "Gestor traça forte cenário para Randon, mas vê questão da Fras-Le com incerteza.

A questão Fras-Le
Apesar de seu otimismo com a Randon, Salaverry reconheceu que a Fras-Le (FRAS4) ainda é uma questão não resolvida na empresa. A Fras-Le, segundo ele, “caiu no colo” da Randon na década de 1990 por dificuldades financeiras, e tem uma estrutura de negócios – e perfil de crescimento – diferente do restante da companhia.

Para o gestor, há dificuldades em visualizar qual será o futuro da Fras-Le. “Seria mais interessante fechar o capital dessa empresa, mas ela não se posiciona, e não parece inclinada a comprar participação de outros acionistas na empresa, então não vemos isso como mais provável”, explica.

Bovespa Laggers

Since Bovespa starts to show an interesting decline, I searched companies that have dropped more than 20%. After that, I've made some adjustments, like:

• P/E less than 15;
• Yield more than 3%;
• Excluded some companies that don't worth a penny.

The results are not yet so encouraging.

ROMI3 - Romi

Just so you know: I bought some shares of ROMI3 today. It has gone down too much.
I think I'm fully acquainted of its problems (weaken dollar, raw material price level, China). But if it was not for that, how could you buy at that price?
I think it worth a small position at this price.

Are power distribution companies the great bargains in the market?

After reading the recent COELCE analysis in Ação e Reação, I have a feeling that in the coming months we'll see the kinds of comments on the media we saw about Cielo and Redecard: "Market overreacted", "Analysts now optimistic", "Great discount caused by excessive pessimism", "Buy" Buy" Buy!".

The price metrics of Eletropaulo and Coelce are so cheap...
It means that Mr.Market is seriously afraid about the regulatory issues.
As he usually overreacts, and the metrics are so cheap, I think it's very reasonable to think that Coelce and Eletropaulo are bargains.

It's just the beginning

Valor Econômico: Grande banco dá crédito via fundo

We're watching the beginning of the use of "financial innovations" in Brazil. Those shenanigans are increasing the leverage of the financial system in a moment of great credit expansion.

Another danger (opportunity!): A very large part of the funding for the credit given in Brazil comes from abroad. If the international markets dry, something bad (great!) is going to happen here.

I hope I have suficient ammunition when the great crash arrives. I'm stuffing the barn and waiting...

GEPA3 - Geração Paranapanema

Although with a high P/E, depreciation is very huge and investments low, wich gives a FCF yield of 11%.
All the concessions are due after 2029.
May be a good option, but more study is necessary.

Paying for Growth

An interesting article published today about B2W (BTOW3) shows that it's not a good idea paying for the hope of growth and/or for acquisitions. Also, it shows how a bad management can deteriorate a company.

How things work

CARD3 Yesterday: -7%

News Today: Fator says that the decision of the Superior Labor Court (TST) to reduce the workload of telemarketers from eight to six hours per day must have a limited impact on call center companies

CARD3 Today: +2%

Major Seller of CARD3 Today:

As simple as that.

Why bubbles exists?

This news shows that Skechers (a sneakers maker) promised to a public haunted by obesity to lose weight without ever setting foot in a gym. Launched in August 2009, called Shape Ups, allowed the Skechers to became the second best selling brand of tennis in the United States in 2010 with 9% market share, behind leaders Nike and Adidas ahead, owner of the brand Reebok .

It's not directly related to investing, but it illustrates how people can be persuaded by dumb things like that. Who can dare to expect that bubbles are not recurring?

Haven't you seen that before?

LinkedIn jumps 90% in debut on NYSE

Papers had already been priced at the top of the range estimated by the coordinators of the offer. That's really very good and we can expect that some things never change! 

Always can get worse:

LinkedIn soars 150%

CIEL3 - Cielo

Cielo could get even bigger and stronger.

Caixa quer ter pelo menos 10% da Cielo

BEEF3 - Minerva

Returning to the cash point, look how this shit likes to burn cash.
It doesn't pay any dividends, so where the cash goes to?
Are they investing so much? I can't believe.
I think that's one of the best Fundamentus Graph.
As the saying goes, who's likes to burn cash is crazy!

Bons ventos para dividendos

Valor Econômico: os papéis de empresas boas pagadoras de dividendos estão adquirindo ares de estrelas da bolsa

Desde abril de 2006, quando foi lançado, o portfólio (dividend stocks) acumula ganhos de 132,97%, ante 60,08% do Ibovespa.

Cash is king

Valor Econômico: Perda de caixa preocupa a indústria da construção

Now analysts realized that those companies consume more than generate cash.

Since 2008:
Profit: 8,5B
Cash generated: -20B

Small Caps - Nonsense

Com a bolsa em queda, garimpar boas small caps ficou mais difícil

Did you understand that? Or is that just nonsense?

Steel

Is there an oportunity in Steel?

Those companies (CSN, GOAU and USIM) are among the worst performing blue chips in the last 12 months. The sector is out of favor because of bad results.

But, even delivering about half the earnings show in past years, USIM5 is trading for a P/E ratio of 12,45. It's debt to equity ratio is of only 0,45. USIM also has a significant business in iron ore mining.

Forjas Taurus - FJTA4

Taurus faz reorganização societária

Now I think Taurus will start replying my emails.

Taurus will merge with Polimetal, its largest shareholder, and assume its debts (165 millions BRL).

Luiz Fernando Costa Estima, the owner of Polimetal, will give half his shares to the other shareholders and FJTA will go to governance level 2 (with 100% tag along).

Taurus will be able to use Polimetal's fiscal losses of about 220 millions BRL. It's worth about 70 millions (34%).

I don't know yet how many ON shares I will get from this deal.

BBAS3 - Banco do Brasil

Main numbers (1Q11 x 1Q10) that hold my attention at a glance:

Loan Portfolio: 21% (almost 20% of market share)
Income (recurrent): 2.9 bi, growth of 42%
Default Rate: 2.1% (versus 3.2% market)
Payout: should be maintained at 40%

New toxic inventions

BIS alerta para teor tóxico de certos tipos de ETF


Human criativity and sound finance just don't match.

AMBV3 - Ambev

Unlike DTEX, AMBV results were very good:


Net Revenue               10.5%
Gross Profit                11.3% 
EBITDA                     13.7%
Net Earnings               21.7%


That's a Company a la Buffet, with a high cash flow, but sadly not at an adequate price at the moment.                           

DTEX3 - Duratex

Main numbers (1Q11 x 1Q10) for Duratex, a company that worth keep an eye on:

Net Revenue               8.9%
Gross Profit                1.5%
EBITDA                   -3.0%

So it's was a very poor result, when its sector is in one of the best moments of all. Costs of goods sold and operational costs grew up more then revenue.
And besides that, current valuation are very high.
The best thing to do it's just wait!

That's the end

Geração Futuro troca Randon por OGX em carteira recomendada para maio

The Upside Down of Irrationality

You can see how crazy things can get in about 100 day trades of CIEL3...

CIEL x RDCD

RDCD has increased its market share and lost less MDR, increasing revenue from commissions in 7%. However, lost 20% in POS Rental and Net Financial Income was stable leading also to a quite stable total revenue. With costs and operating expenses growing, earnings dropped 20%.

CIEL lost market share and lost even more MDR, stagnating revenues from commissions. However, lost little in POS Rental and Net Financial Income increased impressive 75%, leading to a growth of 6% in total revenue. This growth offset cost and operating expenses growth, so earnings dropped only 4%.

So I think that again CIEL was better than RDCD.

Real Estates Funds

CSHG Logística FII
New release of HGLG11 explains its main assets. Worth note that now rents earned are taxed, but the process of transfers, so that the fund obtains direct ownership of the property is underway and as soon as them end, real estate revenues will be exempt.

CSHG Recebíveis Imobiliários BC FII
What you think about this fund?
It's currently yielding more than 10%.

Dangerous Level

An interesting graph that shows current prices levels related to historical context.
You can read the whole post at dshort.com.

Should you invest in this company?

Look to the multiples of this hypothetical company:

ROE: 26%
Net Margin: 17%

The numbers are recurrent and the company has a promisor growth prospect.
It's look like a nice company, don't you think?
Now, consider these another multiples:

P/E: 34.5
Yield: 2.9%

Would you invest in this company?
I particularly won't. Despite being an excelent company, it's a bad investment because it's seems overvaluated.

COMGAS

The change in accounting standards made the comparison with past periods more difficult. The reason is the end of the regulatory asset/liabity account. The earnings presentation, fortunately (on page 12) shows the evolution of this account since december 2008.

Complete Nonsense

I can't get used to this kind of complete nonsense:

Santander tem sinergias com Real de quase 1,9 bilhão de reais
Valor ficou 87 milhões de reais acima do previsto


So what? Who's gonna know whatever they calculated?
Information completely unnecessary, to say the least.

Contax

Apesar de resultado operacional "fraco", Banif reitera compra de Contax.

Nasdaq hits 10-yr high

Also, Russell 2000 Index ends at record high of 858.31.
A new bubble?

Source: Reuters

We learn from history that we learn nothing from history

Look at what I've just read in Exame. It seems the same bullshit they're talking now. Any resemblance isn't purely coincidental. As George Bernard Shaw said "we learn from history that we learn nothing from history"

Just amazing!

The economic miracle of so blinded authorities and investors. The year was 1972 when the American daily The Wall Street Journal ran a laudatory article about the country. "Brazil, before a monumental mess, now stars in an economic miracle," the newspaper said.

The only exception was inflation, which was around 20%. But that did not take the sleeping then Finance Minister Delfim Netto. "An inflation of 19% in Brazil causes less harm than 5% in the U.S.," he said. The WSJ then predicted that within ten years, our economy would be the fifth largest in the world.

Wonderful Companies

I wonder when I'll be able to buy these wonderful companies at a fair price.
Today it's a bad investment at current valuation (maybe it doesn't apply to BBDC).

RDCD3 - Redecard

Main numbers for 1Q11 Redecard results (growths 1Q11 x 1Q10):

Transactions with debit and credit cards: 30%
Revenue: <1%
Cost of Services and Operating Expenses: >40%
Earnings: -20%

So it's clear that competition increased when market was opened. And there are new players coming.
Considering that from now then on growth will equal margins drop, RDCD would have a P/E of 15.000 / (4 x 280) = 13.
Still a nice valuation, but I'm not sure if my premise is reasonable.

WEGE3 - Weg

Weg is a wonderful company, but sadly, it's still priced as it were growing like it was until 2008. Currently revenue and earnings are stagnated and the price level it's unreasonable. Current and 3 years median P/E are at a range of 23/25. FCF is only 2.9% and yield is miserables 2.4%.
In the 1Q11 margins dropped, mainly because of raw material increases and weaken dollar.

I wonder when the Mr. Market will get tired and crazy and will offer this beautiful asset at an attractive price.

Balance of Payments

I was taking a look at Brazilian Balance of Payments and what drove my attention was a line called Foreign Stocks Investments. We can see from the graph below that it has increased a lot and is now about BRL 140 billions accumulated (since 1995). It's more than a month of Ibovespa trade!
By the way, that amount enter in the computation of brazilian's reserves?

Richest Countries Debt

The debt of a handful of rich countries increased by US$ 16 trillion (more than the U.S. GDP) since 2007 and now reaches US$ 42 trillion, or 61% of global GDP, representing one of the main threats to the recovery the world economy. This debt worries the United States today, countries in the euro zone, Britain and Japan, just the richest part of the world, which for centuries was the engine and the vanguard of the expansion of human prosperity.
A lot of money!

Source: Exame.

China's International Reserves

China's International Reserves has grown to above US$ 3 trillions, an annual increase of almost 25%!
That's more than half its GDP!

Medium Banks

Planner recomenda distância de bancos médios

Papel P/L P/VP ROE Patrim. Líq
BBAS3 7,06 1,64 23,29% 50.495.700.000,00
BICB4 8,17 1,46 17,82% 1.954.650.000,00
SFSA4 8,24 0,81 9,86% 770.870.000,00
ABCB4 9,09 1,36 15,00% 1.347.920.000,00
PRBC4 9,2 1,31 14,19% 827.660.000,00

CTSA3 - Santanense

I was revising Santanense because I'm thinking in increasing position (I already have a little bit).
In the financial notes to the statements I found these numbers (in BRL millions, rounded):

Fixed Assets at cost: 275
Fixed Assets minus Depreciation: 110
Fire Amount Insured: 370

What could be that? Why the company is paying for fire risks an amount insured of 370 mi?
Could be possibly because assets at market value are now worth this amount instead of 110 mi registered?
Or could be just a way to embezzle money?

Natural Gas / CGAS / PETR

Petrobras anuncia desconto nos contratos de gás natural brasileiro a partir de maio

Good news for Comgas. Petrobras changed its price policy to avoid destroy the competitiveness of natural gas.

ETF

Today in CNBC Website: ETFs: New Warnings of Systemic Risk

They are creating leveraged ETFs, wich offer multiple of the indexes they track. There are also options on ETF shares.

The creativity goes on, leading us to the next big opportunity to buy cheap assets.

FJTA4 - Forjas Taurus

That a look at this and tell me what you think.

Aprovação de Garantia de Aval.

Well, do you remenber the email I sent to Taurus investor relations director? They never replied. I sent it twice. I received only silence.

Now they are, for the second time, endorsing it's main stakeholder debt. For what purpose? What do the other stakeholders gain back? What is Forjas Taurus receiving for this liability?
___________________________________________________________
(Edited by Sid at April, 18)

From 4Q2010 FJTA Fact Sheet:

• The company's flagship is fire gun business, that's too risky, and has dropped 30% last year (probably because of weaken dollar)
• The Achilles' heel is the machine sector, that is indebted and can't earn a dime.

So I'm still waiting for a greater safety margin.