Metalfrio Stock (FRIO3) – Investment Analysis

Common Stock:  Metalfrio (FRIO3)

Current Market Price: R$ 78.00

Market Capitalization: R$ 320.3 million

*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.

Metalfrio (FRIO3) - Stock Chart
Metalfrio (FRIO3) – Stock Chart

Metalfrio Stock – Summary of the Company

Metalfrio is a Brazilian refrigerator and freezer manufacturer with sales in over eighty countries. They have five manufacturing facilities, two in Brazil, and one in each of Turkey, Russia, and Mexico, giving them the capacity to produce around 1.5 million units per year. Metalfrio was founded in 1960 and is headquartered in Sao Paulo Brazil.

Revenue and Cost Analysis

Metalfrio has grown its sales significantly over the past three years. Sales in 2017 were R$ 987.7 million, which increased to R$ 1.2 billion in 2018, which increased further to R$ 1.4 billion in 2019. While growing revenue the company has been able to maintain its gross margin, which was around 17% in each of the last three years.

Metalfrio has a significant amount of debt and the debt service expenses cause variation in the company’s earnings. In both 2017 and 2018 the company had a net loss, however in 2019 the company was profitable with a net income of R$ 47.4 million representing a profit margin of 3.2%.

Metalfrio - Revenue by Country
Metalfrio – Revenue by Country

Balance Sheet Analysis

Metalfrio has a decent but not strong balance sheet. They have sufficient liquidity in the near term and a solid base of assets, however liability levels are high, particularly debt denominated in foreign currency.

Metalfrio – Debt Analysis

Metalfrio has a significant amount of debt outstanding. As of year-end 2019 the company has R$ 1 billion in debt outstanding, of which R$ 653.4 million is classified as current. Over half of the company’s debt is denominated in foreign currency, mainly US Dollars and Euros. R$ 551.6 million of the company’s debt is denominated in foreign currency, exposing the company to a depreciating Brazilian Real. The negative effects of this carry trade are likely to be a drag on earnings moving forward.

Metalfrio - Debt Table
Metalfrio – Debt Table

Metalfrio Stock – Share Dynamics and Capital Structure

As of year-end 2019 the company has around 4.1 million common shares outstanding. Several individuals own the majority of the company’s outstanding shares via holding companies. Only around 6% of the company’s shares are owned by smaller shareholders.

Metalfrio - Cap Table
Metalfrio – Cap Table

Metalfrio Stock – Dividends

The company did not pay a dividend in 2019.

Metalfrio Stock – 3 Metrics to Consider

Debt to Equity Ratio

Total Liabilities/Total Share Holder Equity

R$ 1.5 billion / R$ 127 million = 11.8

A debt to equity ratio of 11.8 indicates that Metalfrio is highly levered. The company relies heavily on debt in its capital structure, increasing risk to common stock holders.

Working Capital Ratio

Current Assets/Current Liabilities

R$ 1.1 billion / R$ 1.1 billion = 1

A working capital ratio of 1 indicates a sufficient, but not strong liquidity position.

Price to Book Ratio

Current Share Price/Book Value per Share.

R$ 78/ R$ 31 = 2.5

Based on total shares outstanding Metalfrio has a book value per share of R$ 31. At the current market price this implies a price to book ratio of 2.5, meaning Metalfrio stock currently trades at a premium to the book value of the company.

Metalfrio - Products
Metalfrio – Products

Metalfrio Stock – Summary and Conclusions

Metalfrio is an impressive company. They have achieved a size and international presence that is not common among Brazilian manufacturers. They have grown top line sales significantly over the past several years, particularly outside of Brazil. While growing sales they have been able to maintain their gross margins and were profitable in 2019.

Unfortunately Metalfrio is another Brazilian company that is suffering the ill effects of foreign denominated debt. A depreciating Brazilian Real is going to increase the cost of servicing this debt, negatively impacting earning moving forward. Although I like Metalfrio as a company, it is too indebted for me to invest in at this time. I will continue to monitor the company. If they continue to grow their operations and pay down their debts, I will reconsider investing. For now if I were to allocate to a Brazilian manufacturing company, I would prefer to allocate to one with a more conservative balance sheet, such as Dohler.


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