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Compañia Chilena de Fósforos Stock – Investment Analysis

Common Stock: Compañia Chilena de Fósforos (FOSFOROS)

Current Market Price: $1,000 CLP

Market Capitalization: $61.5 Billion CLP

*All values in this article are expressed in Chilean Pesos (CLP) 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.

Compañia Chilena de Fósforos (FOSFOROS) - Stock Chart
Compañia Chilena de Fósforos (FOSFOROS) – Stock Chart

Compañia Chilena de Fósforos Stock – Summary of the Company

Compañia Chilena de Fósforos is a Chilean match manufacturer. They are the largest match company in Chile and also have relevant exports to The United States, Japan, Brazil, Peru, Fiji, Kenya, and Central America. Their industrial plant in Chile has the capacity to produce 31 billion matches annually. Compañia Chilena de Fósforos was founded in 1870 and is headquartered in Santiago, Chile. They employ over 1,700 people.

Revenue and Cost Analysis

Compañia Chilena de Fósforos had revenues of $28.3 billion in 2020, an increase from $25.9 billion in 2019. Their COGS was $16.5 billion in 2020, representing a gross margin of 41.4%, an improvement compared to 39.9% the previous year.

The company was profitable in each of the past two years. In 2020 Compañia Chilena de Fósforos had net income of $1.6 billion, representing a profit margin of 5.6%, a deterioration compared to 8.6% in 2019. This decrease in profitability can be attributed to increased administrative and financing expenses.

Balance Sheet Analysis

Compañia Chilena de Fósforos has a solid balance sheet. They have a good base of long term assets and a sound near term liquidity position. They are not leveraged and have reasonable liability levels.

Compañia Chilena de Fósforos – Debt Analysis

As of year-end 2020 the company has $6.7 billion in total debt outstanding, $3.2 billion of which is classified as current.

Compañia Chilena de Fósforos Stock – Share Dynamics and Capital Structure

As of year-end 2020 the company has 61.5 million common shares outstanding. They have a controlling shareholder, Inversiones San Martin, that owns 56% of the company. Their 10 largest shareholders own a combined 93% of the company.

Compañia Chilena de Fósforos (FOSFOROS) - Ownership Structure
Compañia Chilena de Fósforos (FOSFOROS) – Ownership Structure

Compañia Chilena de Fósforos Stock – Dividends

The company paid total dividends of $36 in 2020. At the current market price this implies a dividend yield of 3.6%.

Compañia Chilena de Fósforos Stock – 3 Metrics to Consider

Debt to Equity Ratio

Total Liabilities/Total Share Holder Equity

$17.4 billion / $63.7 billion = .27

A debt to equity ratio of .27 indicates that Compañia Chilena de Fósforos uses a mix of debt and equity in its capital structure, but is not leveraged, and relies mostly on equity financing for funding.

Working Capital Ratio

Current Assets/Current Liabilities

$22.7 billion / $8.7 billion = 2.6

A working capital ratio of 2.6 indicates a sound liquidity position. Compañia Chilena de Fósforos should not have problems meeting its near term obligations.

Price to Book Ratio

Current Share Price/Book Value per Share.

$1,000 / $1,035 = .97

Compañia Chilena de Fósforos has a book value per share of $1,035. At the current market price this implies a price to book ratio of .97, meaning the company’s stock currently trades at a slight discount to the book value of the company.

Compañia Chilena de Fósforos Stock – Summary and Conclusions

Compañia Chilena de Fósforos is a fascinating company due to its history. The company was founded in 1870 and during the 1920’s was owned by Swiss Match. Swiss Match was one of the largest frauds in financial history. The book “The Match King” tells the story of Swiss Match and is a very interesting read. I highly recommend it.

With this history long behind it, today Compañia Chilena de Fósforos is a decent company. They are in good financial health, with a profit and a strong liquidity position. The company returns capital to shareholder via a dividend.

I am fascinated by the company and its history, so I will certainly leave the company on my long term watchlist. But I do not find it to be a compelling investment and would prefer to allocate capital elsewhere.

Investors can compare Compañia Chilena de Fósforos stock to Brazilian paper packaging manufacturer Klabin.

Disclaimer

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

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