Common Stock: Battistella (BTTL3)
Current Market Price: R$ 10.95
Market Capitalization: R$ 158.6 million
*All values in this article are expressed in Brazilian Reis (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.
Battistella Stock – Summary of the Company
Battistella is a Brazilian conglomerate that operates in two distinct segments. One segment works with the sale of Scania trucks and accessories, as well as related services. The other segment works with the manufacture, sale, and distribution of wood products. The company operates throughout Brazil and has exported to over 50 countries. Battistella was founded in 1949 and is headquartered in Pinhais in the state of Parana, Brazil.
Revenue and Cost Analysis
In 2019 Battistella has total revenue of R$ 470 million, a 31% increase over 2018 revenue of R$359 million. Revenues from the vehicle segment were R$ 397 million in 2019, a 39% increase over 2018 revenue of R$ 285 million. The remaining revenue came from the wood products segment.
The company had a total COGS of R$402 million in 2019, representing a gross margin of 15%, the same gross margin as 2018. Battistella had net income of R$ 10 million in 2019, representing a profit margin of 2%.
Balance Sheet Analysis
Battistella has a weak, but improving balance sheet. Their liquidity position is not strong, but is also not catastrophic. Liability levels are high, but are decreasing relative to 2018.
Battistella – Debt Analysis
The company has total bank debt outstanding of R$ 20.8 million as of year-end 2019. This is a significant decrease from year end 2018 when they had R$ 24.3 million in total bank debt. R$ 6.3 million of this debt is current and all the company’s debt is denominated in Brazilian Reais.
Battistella also has a lease obligation valued at R$13 million.
Battistella Stock – Share Dynamics and Capital Structure
As of year-end 2019 Battistella has 14.4 million common shares outstanding. The company’s shares are tightly held by a holding company, which owns 87% of the shares outstanding.
Battistella Stock – Dividends
The company did not pay a dividend in 2019.
Management – Skin in the game
I did not find any relevant insider transactions.
Battistella Stock – 3 Metrics to Consider
Debt to Equity Ratio
Total Liabilities/Total Share Holder Equity
R$ 120 million/ R$ 10 million = 12
A debt to equity ratio of 12 indicates that Battistella is heavily reliant on debt. It is worth noting that Battistella had accumulated losses in previous years which caused shareholder equity to be negative for a period. 2019 was the first year the company had any significant retained earnings.
Working Capital Ratio
Current Assets/Current Liabilities
R$ 47.8 million/ R$ 49.3 million = .97
A working capital ratio of .97 indicates that Battistella has a weak liquidity position. Investors should pay close attention to the company’s near term obligations.
Price to Book Ratio
Current Share Price/Book Value per Share.
R$ 10.95/ R$.70 = 15.7
Battistella has a book value per share of R$ .70. At the current market price this implies a price to book ratio of 15.7, meaning the company’s stock trades at a significant premium to the book value of the company.
Battistella Stock – Summary and Conclusions
Battistella is an interesting company. They operate two very distinct businesses, but both businesses made significant improvements in 2019. However, the company is still not in a strong financial position. They have a relevant amount debt, which will continue to be a drag on earnings moving forward and their liquidity position is weak.
Although I am intrigued by the improvements the company made in 2019, I am not willing to invest in Battistella stock yet. At its current valuation, I can’t make the case that the stock is undervalued. I would prefer to wait for their 2020 annual report and see how the coronavirus crisis effected the company. This will allow me to confirm or disconfirm that the company is in fact improving its operating results.
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.
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