GRND3 - Grendene

Comments from Bogari about Grendene (translated by Google Translator):

We hope in the next year revenues will grow moderately, but the profit of the company to continue growing more intense. Additionally, we believe that there is some optionality in the investment not priced by the market. 

The first, which ended up materializing in early 2011, was the dividend increase. A peculiar point of the company is the amount of accumulated cash. Its market capitalization is approximately U.S. $ 2.7 billion, and its net cash is $ 850 million, or nearly a third of its value is cash. The problem for investors here is that while the operation of footwear has a return of over 25% pa, the box yields a little over 10% pa(Near the CDI). And with a significant cash generation and without significant new investments, the tendency was to increase this box even more. 

The origin of excess cash is part of that profit comes from Grendene tax incentives.By 2008, this result was recorded directly in equity and could not be distributed to shareholders, only reinvested in the company. With the changes stemming from the convergence to international accounting standards (IFRS), the result became available for distribution, provided that were taxed. After consultation with the IRS, concluded that the rate of taxation of such distribution would be around 15%. In its announcement of the results of 2010 it was reported that the company would distribute around 75% of profit from 2011. This should represent about 9% of current market value of the company.  

Another is the optionality Grendene follow the example of other footwear manufacturers and create a network of stores. Upon entering the retail, the company would have an excellent channel for dissemination of its wide range of products, a place to test and get feedback faster products, and to capture part of the final margin of sale, which is now in the hands of tenants. 

Finally, we believe that having a share of revenue in U.S. dollars, which today is a problem, it is also an option for the future. Although it is difficult to see today, the dollar appreciation will eventually generate higher margins on exports.