Is the discount big enough?
The Brazilian government has reportedly offered to settle its tax dispute with iron ore miner Vale (VALE) for about half of the $14 billion the government has claimed the company owes in taxes on the sale of foreign subsidiaries from 1996 through 2008. And under the settlement Vale would get to pay the $8.5 billion in the settlement over 15 years.
The company has maintained that it doesn’t owe the taxes the government claims and has been fighting the case in court. The company could continue that fight or it could take the offer.
This hasn’t been a great year for mining stocks and for iron ore miners in particular as slower growth in China has cut into demand while past investments in new mines have added to supply. But shares of Vale have decidedly underperformed shares of competitors such as BHP Billiton (BHP) and Rio Tinto (RIO) because of the uncertainty of this tax case. The amount of the government claim is, after all, three times net profit from 2012. In the last 12 months shares of Vale were down 5.03% as of November 19 while shares of BHP Billiton were up 4.04% and shares of Rio Tinto were ahead 10.37%.
If Vale takes the deal, it would remove substantial uncertainty from the stock and close the valuation gap with BHP Billiton and Rio Tinto. Read more
The New York traded ADRs of Brazilian airline Gol Linhas Aereas Inteligentes (GOL) went on a tear during the first two days of this week on a jumbo jet full of good news. (Gol is a member of my Jubak Picks http://jubakpicks.com/jubak-picks-50/ long-term portfolio.)
The ADRs climbed 9.4% on October 21, and another 4.6% yesterday. Today they pulled back 0.54% along with the general market.
What was the news? Read more
Brazilian utility stocks are taking a pounding on new government policies that will end the practice of automatic extensions of 20-year, no-cost concessions to provide electric power, that will increase the price of concessions to the point where inefficient utilities might not be able to make money, and that will pay very low prices for the replacement value of assets to utilities that lose their concessions.
The goal of the new policies are to cut some of the world’s highest electricity rates in an effort to reduce inflation. The new rules are projected by the government to reduce electricity rates by as much as 28%
The changes, announced yesterday September 11, whacked 5.3% today off the share price of a utility such as CPFL Energia (CPL). CPFL is a member of my dividend income portfolio http://jubakpicks.com/jubak-dividend-income-portfolio/ )
And that’s the good news in the sector. Shares of Cia. Energetica de Minas Gerais (CIG in New York), Brazil’s largest utility by market value, are down 20.8% today. Shares of Cia. de Transmissao de Energia Electrica Paulista (TRPL3.BZ in Sao Paulo or CTPZY in New York) are down 37.1% in Sao Paulo.
What accounts for the big differences in the impact of these changes to companies in the sector? Read more
Pretty much what you’d expect in first quarter earnings from a steel exporter in the current global economy—but after a 20% gain in 2012—more than twice the 9.6% pickup in Brazil’s Bovespa index—what you’d expect wasn’t good enough. Shares of Brazil’s Gerdau (GGB) fell 2.3% on May 3 after the company reported earnings. The New York traded ADRs (American Depositary Receipts) then traded down another 4.4% on Friday May 4 as the U.S. market sold off on a disappointing April jobs report. And today, Tuesday May 8, Gerdau is down another 4.3% on the sell-off prompted by another turn of the Greek and Spanish debt crisis. (Gerdau is a member of my Jubak’s Picks portfolio http://jubakpicks.com/the-jubak-picks/ )
All this hasn’t taken Gerdau quite back to where it was on December 30 ($7.78) but at $8.275 at 2 p.m. on May 8 it isn’t all that far away.
Let me begin with the company’s first quarter earnings report as the foundation for my suggestions of what to do with this stock. (Now, now, nothing quite that impolite.)
Gerdau reported first quarter 2012 net income of $370 million reais ($192 million.) That was even with the fourth quarter of 2011 but down—5.4%–from first quarter of 2011 net income of 391 million reais. Analysts had expected that net income would climb to 436 million reais. Revenue rose 10% from the first quarter of 2011.
In the short-term the problem this quarter was the result of heavy rains in Brazil that hindered production. Exports dropped 21% in the quarter.
Longer term the problems are rising costs and weaker global demand. Read more
I’d keep Arcos Dorados (ARCO) on my watch list for just a little longer even after Friday’s big tumble
When I put Arcos Dorados (ARCO), the largest McDonald’s (MCD) franchisee in the world and the largest restaurant operator in Latin America, on my watch list back on August 16, 2011 ARCO">http://jubakpicks.com/2011/08/16/faster-growth-than-mcdonalds-but-arcos-dorados-faces-some-unusual-risk-too/#symbol-ARCO I said I loved the stock, but would sure like to buy it a bit lower.
Well, it’s down 45% from that August price—having tumbled17% on Friday, May 4, when its first quarter earnings missed estimates by 6 cents a share. The company reported earnings of 12 cents a share when analysts were expecting 18 cents. Earnings for the first quarter of 2011 were 15 cents a share.
Is it time to bite into a Latin American Big Mac? (The stock is down 0.63% today, May 7, as of 3:40 p.m. New York time.)
The huge tumble on Friday is intimately related to the reason I decided not to buy in August 2011. Read more