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.

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?

UGPA4 - Ultrapar

Another excellent company I always thought was over valuated is Ultrapar. But looking at cash flow you can see that in 2010 it earned "only" 765 mi, but have charged 530 in depreciation and another 135 mi in deferred taxes. So it created about 1,4 bi in cash! That is 26% over equity.

Ultrapar also invests a lot, but reading the report I believe (although I don't know how much) most of that investments are directed to growth.

That's another example of an excellent company that I had misunderstood, until I looked to its cash flow.

Now I think that I full understand this maximum: CASH IS KING!

DTEX3 - Duratex (Reviewed)

Although Duratex has being pressed by costs increase, I decided to take a closer look to its FCF (my favorite analyses now) because price has plunged.

You can promptly see that depreciation is very high, and has been growing. Investments is also high, but company is investing a lot to increase production capacity (growth). See, for example, what was the destination of total 2010 investments:

Ambev

I took a look at Ambev to determine its intrisic value (conservatively).

I projected a growth rate of 6% for 10 years and 3% from then on, with a discount rate of 7%.

My starting point was the average dividend payment from 2008 to 2010 (I took the numbers from the cash flow statements of those years).

FRAS4: Price / Book Value today = 1,01

Today in Infomoney: "Gestor traça forte cenário para Randon, mas vê questão da Fras-Le com incerteza.

A questão Fras-Le
Apesar de seu otimismo com a Randon, Salaverry reconheceu que a Fras-Le (FRAS4) ainda é uma questão não resolvida na empresa. A Fras-Le, segundo ele, “caiu no colo” da Randon na década de 1990 por dificuldades financeiras, e tem uma estrutura de negócios – e perfil de crescimento – diferente do restante da companhia.

Para o gestor, há dificuldades em visualizar qual será o futuro da Fras-Le. “Seria mais interessante fechar o capital dessa empresa, mas ela não se posiciona, e não parece inclinada a comprar participação de outros acionistas na empresa, então não vemos isso como mais provável”, explica.

ROMI3 - Romi

Just so you know: I bought some shares of ROMI3 today. It has gone down too much.
I think I'm fully acquainted of its problems (weaken dollar, raw material price level, China). But if it was not for that, how could you buy at that price?
I think it worth a small position at this price.

Forjas Taurus - FJTA4

Taurus faz reorganização societária

Now I think Taurus will start replying my emails.

Taurus will merge with Polimetal, its largest shareholder, and assume its debts (165 millions BRL).

Luiz Fernando Costa Estima, the owner of Polimetal, will give half his shares to the other shareholders and FJTA will go to governance level 2 (with 100% tag along).

Taurus will be able to use Polimetal's fiscal losses of about 220 millions BRL. It's worth about 70 millions (34%).

I don't know yet how many ON shares I will get from this deal.

DTEX3 - Duratex

Main numbers (1Q11 x 1Q10) for Duratex, a company that worth keep an eye on:

Net Revenue               8.9%
Gross Profit                1.5%
EBITDA                   -3.0%

So it's was a very poor result, when its sector is in one of the best moments of all. Costs of goods sold and operational costs grew up more then revenue.
And besides that, current valuation are very high.
The best thing to do it's just wait!

WEGE3 - Weg

Weg is a wonderful company, but sadly, it's still priced as it were growing like it was until 2008. Currently revenue and earnings are stagnated and the price level it's unreasonable. Current and 3 years median P/E are at a range of 23/25. FCF is only 2.9% and yield is miserables 2.4%.
In the 1Q11 margins dropped, mainly because of raw material increases and weaken dollar.

I wonder when the Mr. Market will get tired and crazy and will offer this beautiful asset at an attractive price.

CTSA3 - Santanense

I was revising Santanense because I'm thinking in increasing position (I already have a little bit).
In the financial notes to the statements I found these numbers (in BRL millions, rounded):

Fixed Assets at cost: 275
Fixed Assets minus Depreciation: 110
Fire Amount Insured: 370

What could be that? Why the company is paying for fire risks an amount insured of 370 mi?
Could be possibly because assets at market value are now worth this amount instead of 110 mi registered?
Or could be just a way to embezzle money?

FJTA4 - Forjas Taurus

That a look at this and tell me what you think.

Aprovação de Garantia de Aval.

Well, do you remenber the email I sent to Taurus investor relations director? They never replied. I sent it twice. I received only silence.

Now they are, for the second time, endorsing it's main stakeholder debt. For what purpose? What do the other stakeholders gain back? What is Forjas Taurus receiving for this liability?
___________________________________________________________
(Edited by Sid at April, 18)

From 4Q2010 FJTA Fact Sheet:

• The company's flagship is fire gun business, that's too risky, and has dropped 30% last year (probably because of weaken dollar)
• The Achilles' heel is the machine sector, that is indebted and can't earn a dime.

So I'm still waiting for a greater safety margin.

Grendene (GRND3)

Please correct me. There must be something wrong here.

Grendene reported it's plans for the next 5 years:

revenue growth: 8 - 12% (CAGR)
earnings growth: 12 - 15% (CAGR)

I calculated the average 2009/2010 cash flow in the following manner:

1. increase/decrease in cash holdings at the end of the period
2. plus dividends paid
3. plus debt paid
4. minus debt borrowed

I calculated the average for the 2 years period because there is significant diference caused by the increase in receivables in 2009 (111 days outstanding), wich was reduced back in 2010 to 97 days.

PTPA4 - Petropar

I'm starting to analyze Petropar, a holding company that operates through its subsidiaries in manufacture and trade in diversified portfolio of intermediate products for oriented industries to the market of consumer goods. The geographical scope of business in aluminium beverage cans is Brazil; in nonwovens, the Americas, and plastic covers the Southern Cone of South America.

Below the main facts I've already collected:

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.

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. 

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%.