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.
The main problem is that the return is very low. Cash from operations over shareholders' equity is below 10%.
If I would consider just Current Assets + Fixed Assets - Liabilities as a measure of Invested Capital (there are some intangible and other adjustments I don't know what it is), return would be 14%, more acceptable.
And the controller group is linked to Constantino (Gol) through ASAS fund. But, as there are several groups sharing the control, I don't think this is too worrying.
4 comments:
The CFO is a bit low for this market value. With some growth, the DCF could be interesting. What about the CFI?
Investments totaled 120 mi in 2010 and 75 mi in 2011. A lot.
However they're growing capacity fast: 40% in 2012 with 2 new plants.
Hard to tell... How much is the depreciation?
The roe is too weak. The gross margin have been falling since 2009. The recent investments have been pId with debt. As the roe is low, future growth will be curtailed by excess leverage. The main weakness is the low return on investments. They also paid about 15 millions BRL in 2009/2010 for consultancy. That's too much for a company that size. The best advice the consultants could give is to stop paying so much to consultants.
The payout is not consistent with this pace of growth.
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