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.