Common Stock: Unicasa (UCAS3)
Current Market Price: R$ 3.92
Market Capitalization: R$ 259 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.
Unicasa Stock – Summary of the Company
Unicasa is a Brazilian furniture manufacturer that produces and sells a wide range of furniture products. The company has a 50,000 square meter industrial park that produces around 180,000 pieces of furniture per month. They sell their products through a network of resellers throughout Brazil. In addition they have 30 showrooms outside of Brazil and opened their first international office in 2019 in The United States. Unicasa was founded in 1985. The company is headquartered in Bento Gonçalves, in the state of Rio Grande do Sul and has around 390 employees.
Revenue and Cost Analysis
Unicasa has had stable revenues for the past several years. Sales in 2019 we R$ 149.3 million, exactly equal to sales in 2018. The company’s COGS was R$ 90 million in 2019, representing a gross margin of 39%, also equal to 2018’s gross margin.
The company was profitable in each of the last two years, however net income increased significantly in 2019. Unicasa had net income of R$ 18 million in 2019 compared to R$ 3.4 million in 2018. This increase is due mostly to a decrease in the company general and administrative expenses.
Balance Sheet Analysis
Unicasa has a sound balance sheet. They have a solid liquidity position and low liability levels.
Unicasa – Debt Analysis
As of year-end 2019 the company does not have any debt outstanding.
Unicasa Stock – Share Dynamics and Capital Structure
As of year-end 2019 the company has around 66 million common shares outstanding. Several individuals and institution own the majority of the company, with around 29% of the company’s stock being owned by shareholders with a less than 5% stake.
Unicasa Stock – Dividends
Based on 2019’s results, Unicasa will pay total dividends of R$ .25 cents per share. At the current price this represents a dividend yield on the company common stock of 6.4%.
Unicasa Stock – 3 Metrics to Consider
Debt to Equity Ratio
Total Liabilities/Total Share Holder Equity
R$ 68.2 million / R$160 million = .43
A debt to equity ratio of .43 indicates that Unicasa uses a mix of debt and equity in its capital structure, but relies more heavily on equity financing to fund itself.
Working Capital Ratio
Current Assets/Current Liabilities
R$ 124.3 million / R$ 59.2 million = 2.1
A working capital ratio of 2.1 indicates a sound liquidity position. Unicasa should not have problems meeting its near term obligations.
Price to Book Ratio
Current Share Price/Book Value per Share.
R$ 3.92 / R$ 2.42 = 1.6
Based on total shares outstanding Unicasa has a book value per share of R$ 2.42. At the current market price this implies a price to book ratio of 1.6, meaning Unicasa stock trades at a slight premium to the book value of the company.
Unicasa Stock – Summary and Conclusions
Unicasa is a solid company. They are healthy financially, with a sound liquidity position and low liability levels, including no debt. Revenue has been stable, but profitably has been improving, mostly due to general and administrative cost cutting. Management returned capital to shareholders via a dividend.
Unicasa could be a solid investment over a long time horizon. A rising Brazilian middle class is sure to have demand for furniture and tax laws make imports overly expensive, creating an opportunity for domestic producers. I am just not sure this is the right entry point. The company was certainty effected by the corona virus and economic downturns are generally bearish for furniture companies. Given that the stock currently trades above book value, I will wait to see 2020’s financials and reevaluate the company then. It will be interesting to compare Unicasa stock to other Brazilian manufacturers on my watchlist, such as Battistella.
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.
