Common Stock: Tupy SA (TUPY3)
Current Market Price: R$ 18.87
Market Capitalization: R$ 2.7 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.
Tupy Stock – Summary of the Company
Tupy is an iron castings manufacturer that produces engine blocks, cylinder heads, as well as hydraulics such as steel shots and iron bars. They export their products to over 40 countries and have factories located in Brazil and Mexico. Tupy was founded in 1938 and is headquartered in the state of Santa Catarina Brazil. The company has over 11,000 employees worldwide.
Revenue and Cost Analysis
Tupy had revenue of R$ 5.1 billion in 2019, an increase from R$ 4.8 billion in 2018. Their COGS was 4.3 billion in 2019, representing a gross margin of 16%, equal to their gross margin in 2018. The company was profitable in both 2019 and 2018. Tupy had net income of R$ 279 million in 2019, representing a profit margin of 5%, equal to their profit margin in 2018.
The company has 2 key customers that account for 19.4% and 16.1% of total revenue respectively.
Balance Sheet Analysis
Tupy has a decent, but leverage balance sheet. They have a solid base of long term assets and liquidity appears sufficient in the short to medium term. However they have a significant amount of US dollar denominated debt outstanding.
Tupy – Debt Analysis
As of year-end 2019 Tupy has R$ 1.4 billion in total debt outstanding, R$ 63 million of which is classified as current. Almost all of this debt is denominated in US dollars, exposing the company to the negative effects of a depreciating Brazilian Real.
Tupy Stock – Share Dynamics and Capital Structure
As of year-end 2019 Tupy has 144.1 million common shares outstanding. Around 54% of the company’s shares are owned by two Brazilian institutional investment funds, the remaining 46% are owned by smaller shareholders with a position of less than 5%.
Tupy Stock – Dividends
The company paid total dividends of R$ .866 cents per share in 2019. At the current market price this represents a dividend yield of 4.6%.
Tupy Stock – 3 Metrics to Consider
Debt to Equity Ratio
Total Liabilities/Total Share Holder Equity
R$ 2.7 billion / R$ 2.4 billion = 1.14
A debt to equity ratio of 1.14 indicates that Tupy uses a mix of debt and equity in its capital structure, but is leveraged and relies more heavily on debt financing.
Working Capital Ratio
Current Assets/Current Liabilities
R$ 2.6 billion / R$ 1.1 billion = 2.3
A working capital ratio of 2.3 indicates a sound liquidity position. Tupy should not have problems meeting its near term obligations.
Price to Book Ratio
Current Share Price/Book Value per Share.
R$ 18.87 / R$ 16.56 = 1.1
Tupy has a book value per share of R$ 16.56. At the current market price this implies a price to book ratio of 1.1, meaning the company’s stock currently trades at a slight premium to the book value of the company.
Tupy Stock – Summary and Conclusions
Tupy is a solid company with a long history and a truly global business. The company is in an OK position financially. They are profitable and liquidity is sufficient, they regularly return capital to shareholder via a dividend. However they have a significant amount of US dollar denominated debt outstanding.
I have said this many times before on this blog, I don’t invest in Brazilian companies exposed to the US dollar carry trade. I have seen too many companies suffer the negative effects so it is not a risk I am willing to take. There are plenty of Brazilian manufacturers on my watch list with more conservative balance sheets, for example Dohler. In summary, Tupy is a good company, but not a great investment, so I prefer to allocate capital elsewhere.
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.
