CTAX4 - Contax - Review

I promised, in an older post, to take a closer look in Contax. 

The first thing I saw was a recent change in the controller group. BNDESPAR, PREVI, PETROS and FUNCEF ceased to be shareholders of CTX, increasing the domains of  Telemar. I also saw in the reference form that Oi stands for more than half Contax revenue. It's too much conflict of interest with a low safety margin.

Besides that, Atento, from Telefonica group, announced that are planning to make IPO. And Csu Card System is seriously commited in grow in contact center. So I ask, for how much time should Contax be able to maintain that beautiful return?

I'm out for now, at this current prices. I would prefer to take something at a discount, when most think is going to be wrong.

CNFB4 - Confab

CNFB4 has dropped a lot and I'll try to start to buy tomorrow.
It's one of the best ranked stock by Greenblatt criteria, in my worksheet, and has nice figures considering the last 3 years (that was not so positive to the company):

P/E (median): 8.1

ROE (median): 18.4%

Yield: 5.5%

FCF: 15% (or 12.4% if considered the median earnings of 225 millions)

TKNO4 - Tekno

Tekno published its 2010 results. Nothing fundamentally changed, but I was expecting a little more. Revenue is still down regarding 2008 (and if we adjust for inflation, even worse...). But a new plant is going to start in begining 2012. The numbers are very good if we take into account the market value (average las 3 years):

P/E: 9.4

ROE: 12%

ROIC: >25% (withou the impact of huge cash owned)

Yield: 5%

FCF: 11% (and investing in a new plant!)

Is that Truth?

Look to this company, I have never seen it before:

BMKS3 - Monark
Mkt Value: 318 mi
Cash: 320 mi
Dividends: 167 mi.

Yes, the figures seems to be right. The high earnings was due to a property sale.

What really draws my attention is that:

• the company worth less then the cash owned!
• the property sold was registered for 18 million, but yields 240 million (I wonder how many companies could have the same hidden asset)

Besides that, it has more 25 million in stocks. So we could get its operations and receive a change of more than 25 millions! The problem is that the company isn't so exciting, but worth a closer look.

CTAX4 - Contax

As CTAX4 has gone up in my watchlist and taking in account that I'm now more prone to use/analyse FCF, I have calculated FCF for Contax for the last 3 years:

Cash Flow - CTAX4	2010	2009	2008
Net Income	108.498	131.691	9.240
Depreciation	122.109	116.411	100.851
Earnings + DEP	230.607	248.102	110.091
Fixed Assets Purchase	162.533	158.901	167.930
FCF	68.074	89.201	-57.839

Mr. Market x MisterX

Again, if you can't understand that, you should better be out of stock market:

In BRL Millions
Asset	Mkt Value	Equity	Revenue	EBIT	Net Income
LLXL3	3.265	954	17	-49	-100
MMXM3	5.774	887	669	-13	-102
MPXE3	5.454	1.658	98	-244	-256
OGXP3	64.213	9.225	-	-288	-41
OSXB3	5.942	2.389	9	-172	-77
PRTX3	3.791	20	-	-0	-2
Total	88.440	15.135	794	-766	-579

Robot Trader

I, For One, Do Not Welcome Our Dumb Robot Overlords

From the FT: stock in Berkshire Hathaway, Warren Buffet’s company, jumps every time Anne Hathaway, the actress, gets a lot of media play.

Why? The claim is that it’s the fault of robotrading algorithms, which now account for most of the market, and which sometimes rely among other things on trends in news coverage.

That’s the kind of dumb mistake human traders wouldn’t make. Unfortunately, they’d make other kinds of dumb mistakes.

BEMA3 - Bematech

Bematech published 2010 results. Earnings of 35 millions, which gives a P/E >10 and ROE < 10 %. Not so exciting.
Besides that, what realy makes me keeping out this company is the fact that 15 millions was due to tax incentives (ICMS). The notes to the financial statements said nothing about when it will finish and I guess that that amount need to have specific use/investment.
So the earnings from operations would be miserables 20 million, at a moment that commerce are growing fast! And even with that tax incentive, FCF is just about 20 to 25 millions, a yield of only 6%. I'm definitely out.

CARD3 - CSU Card System

CSU has just published the 2010 results and I'm reading now.
At a first look, it was not so impacted by Nossa Caixa, since are entering to the portfolio Banrisul, Sicredi, Tribanco... And with costs reductions, it was able to maintain the EBITDA margin.
Also, the company will pay BRL 15.8 millions in dividends, a yield of 6.7%, more stock repurchase program. I estimate a free cash flow similar to the net income of about BRL 30 millions (because the need of investments equals what is deducted in depreciation/amortization). This yields a FCF of about 12.5%.
The main problem still is the contact center. But are good news in this release: new management and plans to increase 50% the P.A. until middle of the year.
So, what is your opinion?
P/E < 8
FCF > 10%
ROE > 20%

ELPL4 - Eletropaulo

Eletropaulo announced today its results of 2010. Net income, without extraordinary effects, reached almost BRL 1 billion. I'm considering in my valuation just BRL 800 millions of recurring earnings (the equivalent amount of 2009), wich gives a P/E = 7,0 and a yield bigger than 10%.
Nice figures.

Frauds are not restricted to the invested companies

As published today in Valor, CVM fined brokers for irregularities (google translated):

In the case of Umuarama, punishment refers to four groups for the purchase and salethe same day (day-trade ") made ​​in 2004 by a company, UVTC SA, an operator of thebrokerage, the son of a of members of UVTC and mother of an operator of the brokerage. In all cases, the success rate of investors was above 90% and the result was a gross profit of BRL734 million.
The gains in a short period of time at high volumes and at better prices than those obtained by other customers pointed out to the CVM, which found that business was notinitially registered principal (client) or as the brokerage house portfolio, and thenchanged to the names of those investigated. In one phase of operations, the record wasmade ​​only after they knew the outcome of the operation. The Umuarama replied thatthere were cases where the client was identified and that not all operations were positive, but the CVM decided to retain the fine.

Behavioral Finance

If you can't understand that, you should better not be in the stock market.

Fluctuation	Earnings	Price
Decrease	-21%	-81%
Increase	28%	>600%

Accounting Effects?

Analyzing FRAS4 2010 results it's easy to perceive a strange increase of BRL 63 mi in shareholders' equity. Looking for explanations in notes to the financial statements we see that that increase was due to a revaluation of assets amounting to BRL 93 mi (63 mi after taxes) demanded by IFRS.

As a result, ROE decreased from above 20% to below 15%. Also, net income decreased because depreciation has gone up. So we have a double impact on ROE: a decrease in net income and an increase in shareholders' equity.

My question: what is the right way to analyse FRAS4 figures? Before or after IFRS impact? Or, put in another words, should we consider the eficiency of a company based on what was originaly invested or for what it's worthing now?

Watchlist

Finally I got more time to analyse stocks and I made the following watchlist:

Asset	Normal P/E	Current P/E	Yield
CNFB4	7,5	19,6	3,4%
BBAS3	9,6	6,9	5,6%
BICB4	7,9	7,7	6,2%
BEMA3	8,7	10,9	5,9%
FRAS4	8,1	7,5	5,5%
WHRL3	9,8	8,7	12,1%
GRND3	9,8	8,8	7,0%
FBMC4	7,9	8,8	4,0%
PRBC4	9,5	8,9	4,5%
Average	8,7	8,5	6,0%

Normal P/E is the P/E calculated by me and Current P/E is what I directly got from Fundamentus. I had not considered CNFB4 P/E because its clearly distorted. Also, I increased GRND3 yield because the payout will increase to 75%.

So it's a nice list and comparing with my current holdings, it's even better:

Normal P/E	Current P/E	Yield
9,7	8,8	6,5%

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. 

CSMG3 - Copasa

Copasa has released 2010 results. A shame.
For the net earnings of 677 mi, 313 was due to the reversion of net actuarial liabilities, leaving a normal earnings of just BRL 364 millions.

Besides that, it altered the payout from 50% to 35%. I sold the remaining shares I had Tuesday, when I saw that release. With this figures, this piece of shit is not worthing more then 20,00.

P/E: 7.5
ROE: 10%
Yield: 5-6%

Profit Visibility

Today I learned a new (and stupid) concept that analysts use in their analysis: profit visibility.

See for yourself at this article.

My understanding of "invisible" profit: companies whose combination of valuations (by fundamental criterias) and market price offer a good discount, but the analysts say they are not good investments, because they think that the other analysts think there's not so much value.

I think the analysts are trying to predict the future availabily bias...

Well, while everbody is wondering about what everybody else is thinking, I'm receiving a juicy 20% dividend yield on Eletropaulo (ELPL4).

Who invest in stocks needs to follow the market daily?

According to Infomoney and all their analysts and experts, yes!
And, the most amazing, even for whom invest aiming the long-term!
I'm not angry or shocked, I just posted this for you to make the same I did: give a five star rating to this beatiful news!

Productivity Makes Difference

An article from Exame shows that productivity makes difference (a lot).
While the U.S. and China manufacturing output are similar (almost 2 trillion U.S. dollars), China has to employ 100 million Chinese workers whereas USA only 11.5 million!

Buffett on Gold

A brilliant excerpt highlighted by Buysiders.com about a Buffett CNBC's Interview:

"BECKY: Well, speaking of gold, though, we’re looking at gold prices and they were at another record high. They’re up another $3 today, $1,434 an ounce. And there have been some big fat hedge fund managers, like a Paulson or a David Einhorn, who have really buckled down on these bids. Why would you steer clear? And do you think what they’re doing is the wrong thing?

BUFFETT: Well, I just don’t know. I don’t know whether cotton’s going to go up.

BECKY: OK.

Would you follow Graham's advice?

In his last years Graham told investors to buy stock market index funds with low costs and just manage the stocks/bonds allocation with time.

Today there is some closed-end index-funds with costs below 1% per year.

The cheaper fund I found is PIBB11, with costs of only 0,059% per year and follows the IBrX-50 index.

Would you follow Graham's toughts or would you continue to pursue bigger returns in stock picking?

Multiplus and TAM

I think who bought Multiplus (MPLU3) shares at IPO actually borrowed money to TAM (TAMM4).

Multiplus abre mão de caixa.

Tweaking the Target Price

As you properly asserted in an older post, "the intelligent investors knows that tweaking the long term growth rate can lead to ANY value projection you want. The effect gets even stronger when the rate of growth used is close to the discount rate". The graphic below just visually shows this effect:

Slowing China

Interesting article about the most important economic subject for this century.

And how much would I pay for BBAS3

I took the last 3 years (12 quarters) of BBAS3 and I abandoned  the 2 best ones, because them are clearly diverging from the mean (over BRL 4 billion each one, probably because of CIEL3 and actuarial pension plan tricks). The annual mean for the remaining 10 quarters gives a net earnings of BRL 9 billion.


So I considered 50% of this amount as being cash generated, growthing at 5% for the next 10 years and 3% from there on. I discounted at a rate of 10.1% (real rate, considering SELIC 1% per month).
The target price resulting are 29.10, with a P/E slightly above 9. 


Taking into account that I like to be (too) conservative with the parameters (earnings, growth and discount rate) I only demand about 20% or less of safety margin, so I'll start to buy when (and if) the share comes around 25,00.

Income evolution in Lula's Government

A nice article about income evolution in Lula's Government that undermines the so exciting view about Brazil and/or Lula. In summary, during the Lula government the evolution of income in Brazil was characterized by:
1) poor performance by historical standards in Brazil (4% x 4.5% GNP growth)
2) very poor performance when compared to other presidents (11th worst president)
3) relative global fall (4.0% x 4.2% GNP growth)
4) country was hitted hard by the global crisis in 2009

A&R analysis about Natura

Ação e Reação published an analysis about NATURA (NATU3) that uses a 4 to 5 percent growth in perpetuity.

The intelligent Investors knows that tweaking the long term growth rate can lead to ANY value projection you want. The effect gets even stronger when the rate of growth used is close to the discount rate. The value estimative can even be infinite if the growth rate in perpetuity is larger than the discount rate.

For public utility or strongly regulated companies, like Eletropaulo, Comgas, ALL, etc, I use a 2% growth rate in perpetuity. For other companies like Fras-Le, Randon, Weg, Cielo, Banco do Brasil, etc, I use 3%.

Government are deferring expenses

As posted in the Mansueto's Blog, Brazil Government are deferring BRL 128 billions expenses in order to inflate "primary outcome", using what is called in the tax accounting of "outstanding commitments" (amounts to be paid).
This amount doesn't appear in the primary outcome neither in the net debt.
Besides the old tricks already known, like the operation of the capitalization of Petrobras (BRL 30 billions) and antecipating dividends receivement, there is now this big one.
So, who dare to say what are the really amount of Brazil's Debt? What are the primary outcome amount?

Contax profits plunge 18% due to labor costs

Custo com pessoal reduz em 18% lucro da Contax no ano

I hope Contax can renegociate with it's customers to revert that.

The first step to mass destruction?

Today in Valor Econômico newspaper:

Caixa começa a securitizar créditos

The most important thing about Banrisul

What I think is the most important upside of Banrisul (BRSR6) is it's low funding cost. Other major feature is the Banricompras, wich financial volumes have been growing between 20 and 25% a year.

Is asset maintenance an investment?

From ALL (ALLL11) 2010 earnings release:

Investimentos

"Os investimentos em expansão da operação brasileira cresceram 31,1% em 2010 sobre o mesmo período do ano anterior, enquanto os investimentos em manutenção aumentaram 8,7%, de R$279,7 milhões para R$303,9 milhões."

Investiment, in my humble understanding, is something that may increase the company's earnings power in the future. Money used to keep the trains rolling the same way they do today is expense.

Learning by repetition

Exagero na reação ao corte do "Minha Casa, Minha Vida" deixa imobiliárias atrativas


Sometimes repetition is the best way to learn. But it seems that Mr.Market and the analysts will never get it.

I don't like the homebuilding sector, but overreaction here is obvious.