July 14, 2024

Vale (VALE3): Ebitda and earnings unsatisfactory despite achieving record profits in 2021, but analysts remain optimistic; stock turns

3 min read
Ultrapar shares jump 9% with succession plan while Vale shares fall 1% in the "ex-dividend" session;  Advance "Petrobras"
Ultrapar shares jump 9% with succession plan while Vale shares fall 1% in the "ex-dividend" session;  Advance "Petrobras"

as well as the blue Petrobras company (PETR3;PETR4) which released its figures for the fourth quarter of 2021 Wednesdaythe valley (VALE3) Submitted the day before The data disappointed the market, despite a record net profit of R$121.2 billion recorded in 2021.

Earnings before interest, tax, depreciation and amortization (Ebitda) was lower than many analysts had expected. However, most of them are still positive with the role.

Post-earnings session is volatility of an asset. At the opening, around 10:10 a.m. (Brazilian time), the shares fell 2.27% to R$85.55. The shares turned to gains late in the morning, and at 11:52 am, they were up 1.01% to R$88.42.

Itaú BBA notes that adjusted Ebitda that excludes Brumadinho and Covid-19 expenditures, at $6.9 billion, was 7% lower than its estimate, mainly due to lower iron ore prices, which offset strong commodity sales and lower cash costs.

Free cash flow generation was poor, hampered by provisions and working capital. The company posted $1.1 billion in additional damages provision for Samarco (in line with its forecast), but also $1.7 billion for de-branding the dams, which analysts viewed as a negative surprise.

XP indicates that the Ebitda data was consistent with its estimate. But the notable (negative) features were less-than-expected, negative cash generation of US$175 million due to the increase in working capital, capital investments, Brumadinho payments and others. In addition, there was a new round of rulings related to the cancellation of dam properties worth $2.1 billion.

“We view these results as somewhat negative as their recurrence was in line with our estimates, however higher provisions and poor liquidity generation were disappointing.”

Bradesco BBI, in turn, assessed that less-than-expected data also came from higher sales, general and administrative expenses) allocated company-wide ($183 million above estimate) and weaker coal Ebitda ($102 million versus the $193 million BBI estimated) .

However, the bank’s analysts pointed out that the quality of Vale’s results was really good, as the main
The divisions (iron ore and base metals) recorded steady operating numbers. The increase in general and administrative expenses at the company level was a negative but seasonal surprise and should be reflected in the coming quarters.

“We think investors may not like the weak cash flow generation in the quarter (albeit partly explained by the temporary effects of working capital and higher than normal cash outflows related to the Brumadinho deal), while provisions may have attracted some Investors are unprepared (although predicted by the BBI),” assessment of the bank’s analysts.

Dividends were generally lower than expected, mainly because the dividend base (Ebitda minus maintenance expenses) was impacted by Brumadinho related provisions. Mining company informed which will distribute $3.5 billion to its shareholders through dividends, Being $1.25 billion of these extraordinary amounts. In total, each note will entitle its holder to withdraw 0.73 USD or 3701 Brazilian Real.

Analysts said they expect a negative reaction to today’s numbers, mainly due to provisions and weak cash flow, but believe earnings momentum is likely to pick up in the coming quarters, supported by higher iron ore prices.

Thus, the analysts maintained the outperformance recommendation (performance above the market average, or the equivalent of buying) and the target price for the paper being R$108 (possibility of a 23.37% upside compared to the previous day’s close). For the ADR (actually, the company’s US-traded stock), the target price is $20, or a 17% upside potential.

“We expect iron ore prices to remain in the range of US$130 to US$150 per ton in the short term, which could lead to upward revisions to earnings,” according to BBI estimates.

XP Analysts also have a buy recommendation in their name, with a target price of R$97, with a potential increase of 10.8% in relation to the closing price of R$87.54 the previous day. Along the same lines, BBA also has an outperforming recommendation, with a target price of $19 for ADR, or an 11.3% upside potential regarding the paper’s close the day before, at $17.07.

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