Companhia Vale do Rio Doce ($RIO) - quarterly results analysis
By:
Andrew Monday, October 27, 2008 5:46 PM
In this post I am going to analyze Vale’s (Stock Symbol:RIO) third quarter results. They were published a little bit earlier, on 23rd of October to be more exact. The company is displaying excellent financial results despite the current crisis. To be honest, I have been monitoring this company for quite long time. It attracted me about 1 year ago (I don’t remember exactly) when I saw it as a major portfolio holding of famous Quantum Fund, founded by George Soros. The second fact which made me curious was that the company belonged to one of Emerging markets - Brazil market. These circumstances forced me to deeply analyze the company.
“What business is that company involved in?” - you will ask. In fact, it is a leading and largest producer and exporter of iron ore. However, the Vale’s business isn’t limited only with iron. The company is also a producer and exporter of nickel, copper, cobalt, potash, precious metals and others.
Quarterly results analysis:
- The most important and excellent fact with 3rd quarter of 2008 report is an extraordinary revenue growth. it’s really extraordinary for such difficult period. In 3rd quarter for 2007 the revenue was equal to 8.1 US$ billions and in the 3Q08 to 12.1 US$ billions. The overall growth during that period equals to 49.2%. Great number.
- EBIT (Earnings before Interest and Taxes) increased by 61.4% during 3Q07-3Q08 period from. Reached 5.5 billion US$ in 3Q08.
- I really like when gross, operating and net margins in the company are not only steady but also growing. The margins growth indicates business momentum and internal growth of the company’s business with the help of talented management. In Vale’s case, the EBIT margin increased from 43.4% to 47.2% during the 3Q07-3Q08 period.
- EPS (Earnings Per Share) increased by 64% from 2.9 billions of US$ to 4.8 billions of US$. While I prefer stocks with EPS growth more than 25-30% ,64% growth is very impressive.
- As far as EBITDA (Earnings before Interest,. Taxes depreciation and amortization) are concerned, the growth equals to 59.3% during the same period of time.
Bottom line:
Given the current crisis and the crowd’s fears the RIO’s stock price has decreased significantly. With current price of 10.3$ and P/E (Price to Earnings ratio) of 4.62, the company looks like it is greatly undervalued and is traded at a huge discount to its real economic value.
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