Thought of the Day

A short quiz: If you plan to eat hamburgers throughout your life and are not a cattle producer, should you wish for higher or lower prices for beef? Likewise, if you are going to buy a car from time to time but are not an auto manufacturer, should you prefer higher or lower car prices? These questions, of course, answer themselves.

But now for the final exam: If you expect to be a net saver during the next five years, should you hope for a higher or lower stock market during that period? Many investors get this one wrong. Even though they are going to be net buyers of stocks for many years to come, they are elated when stock prices rise and depressed when they fall. In effect, they rejoice because prices have risen for the "hamburgers" they will soon be buying. This reaction makes no sense. Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices. 

Warren Buffet, 1997 Letter

B2W: a Shit that was Once Sold as Gold!

B2W, an internet retailer company, originated of the merger of Submarino and Lojas Americanas in 2006. Since then, its price has dropped from an average of 80,00 to just 6,00, a stunning drop of more than 90%!

That is, B2W price has to go up more than 1.200% to go back to the level that it was traded in 2007.

Is Bovespa a Bargain?

Bovespa is reaching now 3 years low and is at the same level as it was in middle of 2007 (5 years ago).

So it seems that Bovespa is trading at very attractive prices. Is that true?

Thought of the Day

There are two kinds of businesses: The first earns 12%, and you can take it out at the end of the year. The second earns 12%, but all the excess cash must be reinvested - there's never any cash. It reminds me of the guy who looks at all of his equipment and says, 'There's all of my profit.' We hate that kind of business. 

Charlie Munger

ELPL4 - Eletropaulo

Market is indeed very crazy! It was so in love by dividends and energy companies that just now they realized that the price revision would have a great impact on earnings! If revenue drops 10%, earnings will fall a lot more!

That's my best prediction of what would be a recorrent net income for ELPL. And dont't forget the huge demand of Eletrobras, about 1 billion.

What Parisotto would say?

My shopping list

These are the prices I would pay for the stocks below:

BVMF3: 8,85
AMBV3: 45,00
ITSA4: 9,50
BBDC3: 21,00
GOAU3: 16,00
RAPT4: 9,00
POMO3: 4,50

The future's not ours to see

Orbe, an asset management, had Hering (HGTX3) in its portfolio since 2006 to the beginning of 2008. Since they sold it, Hering has been a spectacular growth, both operational and in price, as you can see below (numbers are approximated):

Revenue                 225%
EBIT                      650%
Income              >1.000%
Price                  >1.500%

Net Debt x Cash Flow

M. Dias Branco (MDIA3) cash flow for 2011 is the following:

• Net Cash generated in operating activities: 431.50
• Net Cash used in Investment Activities: -273.70
• Net Cash used in Financing Activities: -116.90

So, in 2011 the increase in cash and cash equivalents was 40.90. That is, it generated cash to pay investments, dividends and also to amortize 29,4 in debt.

However, net debt totaled 468.4 million in 4Q11, up 121.8% on 4Q10! 

How could that be? Where the trick is?

PRVI3 - Companhia Providência Indústria e Comércio

I took a look at the main numbers of 2011 results of Providência, a leader in the manufacture and sale of nonwovens in Brazil with a significant presence in the Americas, and operating globally:

• Cash from operations averaged 65 mi in the last 3 years (13.5% of mkt value)
• Company will pay 39.5 mi in dividends, 100% of adjusted 2011 earnings (yield of 8.2%)
• An increase in 40% is expected for 2012 with the entry into operation in the 2nd quarter of the production line in Pouso Alegre (MG) and in the 4th quarter the production line in Statesville (NC).
• Its products, nonwovens, used in  the  manufacturing of  hygienic  and  personal  care  products, it's a consumer good, so the demand is more stable.

FRIO3 - Metalfrio

I took a quick look at Metalfrio, one of the world’s largest manufacturers of plug-in commercial refrigeration equipment, particularly ice cold merchandiser (ICM) equipment, because its yield is currently high.

Average FCF in the last 3 years is 55.5 millions, which yields 22.2%. This may sound to good to be true. And it really is:

• 27.6 millions of FCF was due to assets/liabilities changes. This is not expected to be recurrent and/or sustainable.
• 30.0 millions was due to tax incentives on ICMS in MS, due in 2025.

Middle Banks - Bic Banco versus Daycoval

Below is a comparison table between this 2 banks. I wish to draw attention to:

• Financial operations expenses increased a lot, specially in Bic Banco, due to increase in provisions for loan losses (+98%)
• Loan Portfolio of Daycoval has been increasing a great deal: 42% in 2011 and more than doubled since the end of 2009.
• Daycoval seems to have a more diversified portfolio service: exchanges bureaus, Daypag and Asset Management (1.4 billion under management)
• Daycoval also looks more profitable: better NIM, ROE, efficiency ratio...

Comgas Cash Flow

Here, I think, it's the cash flow of Comgas either by prior accountancy and by IFRS.

In either one, dividends paid exceed free cash flow generated. That can explain why net debt grew 35% over 2010.

Banco do Brasil adjusted net income: believe it or not!

In the release of its results for 2011, Banco do Brasil publishes the recurring net income, that is the net income adjusted by one-off items, such as Additional Allowance for Loan Losses, Contingent Liabilities, Reversal of Labor Liabilities...

So far so good. But as they say, the devil is in the details. In this case, it's in the notes to the financial statements: adjustments of actuarial assets/liabilities.

So if we exclude this "earnings" under Other Operating Income, real adjusted net income would be:

BRL Millions	2010	2011	Avrg
Account Net Income	11.703	12.126	11.915
(-) One-Off Items	1.039	375	707
Recurring Net Income Published	10.664	11.751	11.208
(-) Adjustment of actuarial assets/liabilities	4.299	2.981	3.640
Real Recurring Net Income	6.365	8.770	7.568

Largest Banks x Banrisul

I put Banrisul (BRSR6) at the side of the largest banks and the comparison is just amazing!

(click to enlarge)

Banco do Brasil, Bradesco and Itau - 2011 Results Compared

I'll show a bunch of selected metrics of the largest brazilian banks in order to take a more clear picture of 2011 results. My comments are as follow:

Banco do Brasil (BBAS) 

• Has the lowest ratio Net Income/Portfolio, so to have the similar ROE as the other 2 has to be more leveraged (lowest Capital Adequacy Ratio).
• On the other hand, BBAS has the lowest Delinquency Ratio over 90 days: 2.1%

CIEL3 x RDCD3 - Final Comparison

I'm very sorry that an exceptional asset like Redecard will leave Bovespa. But while it don't go away, we have time for a final comparison. In short, 4Q2011 x 4Q2010:

• Redecard lost market share but kept MDR margin constant. Costs was under control, so EBITDA grew 29%.
• Cielo increased in volume but lost MDR margin. Costs and expenses blew up, so EBITDA grew only 16%.

I think that the Oscar goes to Redecard!

Coelce - My estimate

I'm posting my estimate because I got different numbers from yours (click to enlarge):

I considered just cost of goods sold and taxes variables. Other expenses fixed. I got a net income reduction of just 12,7%.

This is because the ratio fixed expenses to revenue is very low. Also, company will have to pay less taxes.

Am I right?

Coelce

Infomoney: Aneel reajusta tarifa de energia na PB e aprova revisão para o CE

Finally we have some numbers to work on: "A proposta prevê redução de 10,16%, em média, na conta de luz."

I cutted 10% from the last 4 quarters revenues and the net profit fell to 215.290 from 458.306. That's a reduction of 53%. The ROE would nove dive to 14,8% from 31,6%. Just as we expected!

What will be the impact on the payout? That's the most important issue now.

I hope the market drops COCE so I have an oportunity to buy for a fair price in this new environment.

Dividends are "IN"

The market participants love following Mr.Market moods, and after a bad year, the dividends are the fashionable again.

So, here's the novelty: BM&FBovespa lança dois novos ETFs de dividendos e materiais básicos

For me that's the clue I needed to sell dividend stocks and look for other opportunities.

Buffett a la Brazil

After taking notice of Parissotto, a brazilian billionaire investor, who follows Buffett and Graham philosophy, this site presents Luiz Barsi Filho, the greatest individual investor of Banco do Brasil.

By the way, do you have notice of some millionaire in the stock market that doesn't follow this philosophy*?

*You cannot cite stockbroker owners and analysts!

How to Create Money

If you thought Magnesita cash flow was a deception, take a look at Julio Simoes Logistica (JSLG3):

• They add back residual costs associated with the sales of fixed assets, "which do not represent operational cash disbursements, as they represent merely an accounting adjustment to book value at the time of  sale." 

So far so good. The problem is that if they have sold an asset below book value then they are receiving less than they had paid. It could not be a cash consumption now, but it was a cash consumption, when they bought it. If you don't account for this now, when should you do it?

Copel Free Cash Flow

Year............................2007.....2008.....2009.....2010....2011(est)

Cash earnings...............1.636...1.587.....1.503....1.390....2.018
Changes in working K....-40.....-40.......-40......-40......-40
CFO.............................1.596...1.547...1.463.....1.350.....1.978
CFI.............................-465....-565.....-866.....-947.....-2.060
FCF..............................1131.... 982.....597......403.......-82

Vale Cash Flow

I'll try to evaluate Vale cash flow. I'll not consider 2010 results, because they are clearly over the average. Also, I'll not consider previous results for 2007, because Vale bought Inco and that had a huge impact on financial statements since then.

Gerdau Free Cash Flow

On this post I had estimated Gerdau free cash flow. But I hadn't deducted investments in work capital. I'll try to do that now.

Since 2005, Gerdau work capital has been around 20% of net revenue for the period of 2005-2007 and 25% for 2008-2010. So I'll take 25% of net revenue as a measure of Gerdau needs for work capital.

My Value Investing - Supplement

I'm just complementing my previous related post.

Annualized TIR

That's my total annual return on stock market:

Annualized TIR	Portfolio	Ibov	Diff
Total Period - From 2005 to 2011	32,6%	13,0%	19,6%
Value Investing - From 2006 to 2011	34,5%	9,2%	25,3%

RAPT4 - Randon Implementos

I was looking at Randon Free Cash Flow, but it's very difficult to analyse it, because RAPT is a growth company. So I did the following:

• I adjusted shareholder's equity since 2005 by inflation (IGPM).
• Then I calculated real growth in shareholder's equity:

My Value Investing

I'm posting my results so far. I started investing in the stock market at the very end of 2004 and until beginning 2006 I was lost. So I stopped for a while to study more and I was very luck then to read Graham's Intelligent Investor.

The results are shown below. Of course, 7 years is not that much, but it's a clue that the methodology is working. The results show only the gains invested in stock, not for the whole personal equity. I usually invest 30-50% in stock market, except in the end of 2008, when peaked above 90%.