vk.com/id446425943
Vale – BUY
Renaissance Capital
3 December 2018
Steel
Figure 71: Vale, $mn (unless otherwise noted)
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Vale |
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VALE.N |
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Target price, $: |
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15.5 |
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Market capitalisation, $mn: |
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70,009 |
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Last price, $: |
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13.5 |
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Enterprise value, $mn: |
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90,243 |
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Potential 12-month return: |
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22.0% |
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Dec-YE |
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2015 |
2016 |
2017 |
2018E |
2019E |
2020E |
Dec-YE |
2016 |
2017 |
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2018E |
2019E |
2020E |
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Income statement |
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Balance sheet |
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Revenue |
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25,609 |
29,334 |
35,713 |
37,304 |
38,014 |
37,951 |
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Net operating assets |
66,066 |
62,915 |
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54,806 |
55,592 |
56,234 |
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Adjusted EBITDA |
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7,081 |
12,181 |
15,337 |
16,757 |
16,085 |
15,074 |
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Investments |
18 |
18 |
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18 |
19 |
20 |
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Adjusted EBIT |
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3,052 |
8,267 |
10,873 |
12,908 |
11,986 |
10,932 |
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Equity |
39,042 |
43,458 |
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44,291 |
47,073 |
48,381 |
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Net interest |
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-10,801 |
1,966 |
-3,019 |
-4,761 |
-1,898 |
-1,883 |
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Minority interest |
1,982 |
1,314 |
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944 |
952 |
960 |
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Taxation |
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5,100 |
-2,781 |
-830 |
-1,529 |
-2,612 |
-2,344 |
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Net debt (target: $10bn) |
25,060 |
18,161 |
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9,589 |
7,587 |
6,913 |
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Minority interest in profit |
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491 |
6 |
-14 |
-46 |
-40 |
-40 |
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Net profit for the year |
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-12,129 |
5,277 |
6,935 |
6,580 |
7,796 |
6,992 |
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Balance sheet ratios |
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Underlying earnings |
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-1,698 |
4,968 |
7,188 |
8,278 |
7,796 |
6,992 |
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Gearing * |
31.4% |
22.4% |
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11.6% |
8.5% |
7.5% |
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Underlying EPS, $ |
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-0.33 |
0.96 |
1.39 |
1.59 |
1.50 |
1.35 |
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Net debt to EBITDA |
2.1x |
1.2x |
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0.6x |
0.5x |
0.5x |
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RoCE |
13.1% |
16.4% |
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20.9% |
20.8% |
18.8% |
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Thomson Reuters consensus EPS, $ |
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1.44 |
1.70 |
1.59 |
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RoIC (after tax) |
12.6% |
19.8% |
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13.4% |
13.9% |
12.9% |
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DPS declared, $ |
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0.29 |
0.27 |
0.28 |
0.84 |
1.02 |
1.16 |
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RoE |
13.7% |
17.4% |
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18.9% |
17.1% |
14.7% |
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Adjusted EBIT |
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Cash flow statement |
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Ferrous Minerals |
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4,230 |
8,747 |
11,497 |
12,311 |
11,031 |
10,110 |
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Operating cash flow |
10,030 |
16,819 |
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11,969 |
12,845 |
12,084 |
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EBIT margin |
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26% |
43% |
46% |
43% |
39% |
36% |
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Capex less disposals |
-5,480 |
-4,154 |
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-2,406 |
-4,372 |
-4,281 |
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Coal |
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-700 |
-244 |
-25 |
165 |
433 |
176 |
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Other cash flows |
-987 |
-1,825 |
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3,226 |
0 |
0 |
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EBIT margin |
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-133% |
-29% |
-2% |
10% |
17% |
8% |
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FCF |
3,563 |
10,840 |
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12,790 |
8,473 |
7,803 |
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Base metals |
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-453 |
186 |
501 |
1,037 |
963 |
1,084 |
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Equity shareholders' cash |
702 |
8,574 |
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11,407 |
7,017 |
6,358 |
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EBIT margin |
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-7% |
3% |
7% |
15% |
13% |
14% |
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Dividends and share buy-backs |
-500 |
-1,675 |
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-2,836 |
-5,014 |
-5,684 |
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Fertiliser nutrients |
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257 |
-138 |
-885 |
-109 |
0 |
0 |
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Excess cash |
202 |
6,899 |
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8,572 |
2,002 |
674 |
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EBIT margin |
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12% |
-7% |
-51% |
-122% |
n/a |
n/a |
Cash flow ratios |
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Others and logistics |
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-282 |
-284 |
-215 |
-497 |
-441 |
-439 |
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EBIT margin |
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-212% |
-179% |
-54% |
-183% |
-153% |
-146% |
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Working capital days |
0 |
7 |
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11 |
7 |
7 |
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Adjusted EBIT - Group production |
3,052 |
8,267 |
10,873 |
12,908 |
11,986 |
10,932 |
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Capex/EBITDA |
45.0% |
27.1% |
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14.4% |
27.2% |
28.4% |
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Income statement ratios |
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FCF yield |
6.6% |
15.4% |
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15.9% |
10.8% |
10.0% |
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Equity shareholders' yield |
2.6% |
16.9% |
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16.3% |
10.0% |
9.1% |
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EBITDA margin |
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27.7% |
41.5% |
42.9% |
44.9% |
42.3% |
39.7% |
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Cash conversion |
0.1x |
1.2x |
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1.4x |
0.9x |
0.9x |
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EBIT margin |
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11.9% |
28.2% |
30.4% |
34.6% |
31.5% |
28.8% |
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Valuation |
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EPS growth |
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-138% |
393% |
44% |
15% |
-6% |
-10% |
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Dividend payout ratio |
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-88% |
29% |
20% |
52% |
68% |
86% |
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SoTP valuation and calculation of target price |
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$mn |
$ |
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Input assumptions |
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Ferrous minerals |
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92,054 |
17.7 |
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Coal |
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1,409 |
0.3 |
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Iron ore fines (62%Fe,CIF China), $/t |
56 |
58 |
71 |
66 |
65 |
64 |
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Base metals |
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7,527 |
1.4 |
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Brazil to China freight charge, $/t |
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11 |
9 |
15 |
19 |
19 |
16 |
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Fertiliser nutrients |
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1,488 |
0.3 |
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Nickel, $/t |
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11,864 |
9,599 |
10,404 |
13,353 |
13,839 |
14,537 |
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Others and logistics |
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-1,486 |
-0.3 |
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Copper, $/t |
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5,512 |
4,867 |
6,170 |
6,565 |
6,500 |
6,576 |
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Total enterprise value |
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100,991 |
19.4 |
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Thermal coal, $/t |
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57 |
64 |
85 |
99 |
95 |
87 |
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Net debt as at latest year end |
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-18,161 |
-3.5 |
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Hard coking coal, $/t |
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95 |
144 |
188 |
200 |
190 |
167 |
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Cash used in share buy-backs |
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0 |
0.0 |
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$/BRL |
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3.33 |
3.49 |
3.19 |
3.70 |
3.77 |
3.41 |
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Other investments |
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18 |
0.0 |
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Minority interest (DCF value) |
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-2,072 |
-0.4 |
Required breakeven price |
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Equity value as at 30/11/2018 |
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80,776 |
15.5 |
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Iron ore breakeven price, $/t |
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39 |
27 |
31 |
28 |
32 |
34 |
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Rounded to |
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15.5 |
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Metallurgical coal breakeven price, $/t |
198 |
192 |
152 |
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162 |
148 |
148 |
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Share price on 29/11/2018 |
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13.5 |
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Nickel breakeven price, $/t |
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12,198 |
8,160 |
9,137 |
8,406 |
9,096 |
9,652 |
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Expected share price return |
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15.1% |
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Copper breakeven price, $/t |
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4,574 |
2,893 |
2,341 |
3,248 |
3,123 |
3,307 |
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Plus: expected dividend yield |
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6.9% |
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Sales volumes |
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Total implied one-year return |
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22.0% |
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Iron ore, mnt |
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289 |
293 |
289 |
336 |
343 |
340 |
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Share price range, $: |
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Iron pellets, mnt |
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46 |
48 |
52 |
54 |
58 |
60 |
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12-month high on 3/10/2018 |
16.13 12-month low on 7/12/2017 |
10.55 |
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Nickel, kt |
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291 |
311 |
294 |
251 |
260 |
268 |
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Price move since high |
-16.5% Price move since low |
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27.7% |
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Copper, kt |
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397 |
430 |
424 |
386 |
404 |
404 |
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Attributable Cu eq volumes, kt |
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5,238 |
5,403 |
5,382 |
5,374 |
5,674 |
5,719 |
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Calculation of WACC |
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Volume growth |
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3.2% |
-0.4% |
-0.1% |
5.6% |
0.8% |
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WACC |
10.9% |
Cost of debt |
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7.0% |
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Contribution to FY18E Adjusted EBITDA |
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Risk-free rate |
4.0% |
Tax rate |
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30% |
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Equity risk premium |
6.2% |
After-tax cost of debt |
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4.9% |
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Base metals |
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Beta |
1.30 |
Debt weighting |
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15% |
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Cost of equity |
12.0% |
Terminal growth rate |
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2.0% |
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Coal |
15% |
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2% |
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Valuation ratios |
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Manganese |
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Dec-YE |
2016 |
2017 |
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2018E |
2019E |
2020E |
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2% |
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P/E multiple |
5.3x |
7.1x |
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8.4x |
9.0x |
10.0x |
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Dividend yield |
5.3% |
2.9% |
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6.2% |
7.6% |
8.6% |
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EV/EBITDA |
4.4x |
4.6x |
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4.8x |
4.9x |
5.2x |
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P/B |
0.7x |
1.2x |
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1.6x |
1.5x |
1.4x |
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Pellets |
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NAV per share, $ |
7.6 |
8.4 |
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8.5 |
9.1 |
9.3 |
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19% |
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Iron ore |
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62% |
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Dividend policy: Minimum payment of 30% of EBITDA less sustaining capex. |
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* Gearing defined as net debt/(net debt +equity)
Source: Bloomberg, Thomson Reuters, Company data, Renaissance Capital estimates
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