Centauro Stock (CNTO3) – Investment Analysis

Common Stock: Centauro (CNTO3)

Current Market Price: R$ 29.75

Market Capitalization: R$ 7.2 billion

*All values in this article are expressed in Brazilian Reais (BRL) unless otherwise noted.

**The bulk of this analysis is based on the company’s most recent audited financial report, which can be found by following this link.

Centauro (CNTO3) - Stock Chart
Centauro (CNTO3) – Stock Chart

Centauro Stock – Summary of the Company

Centauro is one of the largest sporting goods retailers in Brazil. They currently have 211 stores located in 104 Brazilian cities and 5 distribution centers. Centauro was founded in 1981 and is headquartered in Sao Paulo, Brazil.

Centauro - Store Locations
Centauro – Store Locations

Revenue and Cost Analysis

Centauro had revenue of R$ 2.5 billion in 2019, an increase from R$ 2.2 billion in 2018 and R$ 2 billion in 2017. Their COGS in 2019 was R$ 1.2 billion, representing a gross margin of 49%, equal to their gross margin in both 2018 and 2017.

The company has been profitable in each of the last 3 years. Centauro had net income of R$ 309.7 million in 2019, representing a profit margin of 12%, an increase from 6.5% in 2018 and equal to their 2017 profit margin.

Centauro’s same store sales increased by 8.9% year over year in 2019 and digital sales increased 27.4% year over year.

Balance Sheet Analysis

Centauro has a decent but leverage balance sheet. Their liquidity position is sufficient and they have a good base of long term assets, but their liability levels are high relative to the size of their operation.

Centauro – Debt Analysis

Centauro has a small amount of debt outstanding. As of year-end 2019 the company has total debt outstanding of R$ 34.6 million, R$ 27 million of which is classified as current. Centauro paid down a very large portion of their debt in 2019. Their total debt outstanding at year end 2018 was R$ 358.6 million.

Centauro - Debt Table
Centauro – Debt Table

Centauro Stock – Share Dynamics and Capital Structure

As of August 2020 Centauro has 241.8 million common shares outstanding. Several institutional investors own around 63% of the outstanding shares, with the remaining 37% being held by smaller shareholders with an ownership position of less than 5%.

Centauro Stock (CNTO3) - Share Structure
Centauro Stock (CNTO3) – Share Structure

Centauro Stock – Dividends

The company did not pay a dividend in 2019 or 2018.

Centauro Stock – 3 Metrics to Consider

Debt to Equity Ratio

Total Liabilities/Total Share Holder Equity

R$ 2.7 billion / R$ 1.2 billion = 2.4

A debt to equity ratio of 2.4 indicates that Centauro uses a mix of debt and equity in its capital structure, but is leveraged and relies heavily on debt financing to fund itself.

Working Capital Ratio

Current Assets/Current Liabilities

R$ 1.5 billion / R$ 1 billion = 1.5

A working capital ratio of 1.5 indicates a sufficient liquidity position. Centauro should not have a problem meeting its short term obligations.

Price to Book Ratio

Current Share Price/Book Value per Share.

R$ 29.75 / R$ 4.83 = 6.1

Centauro has a book value per share of R$ 4.83. At the current market price this implies a price to book ratio of 6.1, meaning Centauro stock currently trades at a significant premium to the book value of the company.

Centauro Stock – Summary and Conclusions

Centauro recently underwent a restructuring and is still in the process of updating and modernizing many of its stores, which requires significant capital investments. Given the coronavirus shutdowns, I think it is fair to say the company has very unfortunate timing. Although they are in a decent position financially and growing their e-commerce business, there is nothing exceptional about Centauro that would compel me to invest. Especially considering that there are much more attractive Brazilian retailers that trade publicly, such as Alpargatas and Guararapes.


This is not investment advice. Nothing in this analysis should be construed as a recommendation to buy, sell, or otherwise take action related to the security discussed. If I own a position in the security discussed, I will clearly state it.

This is not intended to be a comprehensive analysis and you should not make an investment decision based solely on the information in this analysis. I hope this serves as a useful starting point for a more comprehensive analysis, and hopefully draws attention to aspects of the company that were overlooked or merit further investigation. This is by no means intended to be a complete analysis. Again, this is not investment advice, do your own research.

Patrick Flood, CFA