Tuesday, 6 May 2014

Toyota Caetano: an update on sales and what will determine investment success

In my post about Toyota Caetano I rambled a lot around what I think is important but I might not have stated it appropriately.

In my opinion what truly can make the investment an homerun (or not) is:

1-The evolution of the portuguese economy in the form of car sales (more specifically Toyota an Lexus car sales) and, to a lesser extent, real estate market (because the company as both directly and indirectly a significant real estate position)

2-Toyota Motor Corporation long term resiliency (basically, if they stopped manufacturing cars or if their cars lost interest this investment would have little if any upside)

So, I must monitor these factors closely. Factor number two is both unlikely and very long term, meaning that monitoring has little use. The portuguese real estate market is less meaningful for the company and less objective to monitor. However car sales are easy to monitor.

And April (provisory) car sales are out:
-In April 2014, total national car sales were up 54.2% year over year, totaling a January to April increase of 46.4% yoy.
-In April, Toyota light vehicles sales increased 68.5% yoy totaling a 49.9% yoy 4 month increase.
-In April, Lexus light vehicles sales increased 475% yoy (only 4 units sold in April 2013) totaling a 107.3% yoy 4 month increase.
-In April, Toyota heavy commercial vehicles sales increased 500% yoy (only 2 units in April 2013) totaling a 83.3% yoy 4 month increase.

These data seem great but are less meaningful than they seem at first sight. The truth is that the first 4-5 months last year were very weak and April was one of the worst months (if we adjust for seasonality). Since the economy slowly improved throughout 2013 yoy growth should also decrease through 2014. However, it is likely that the pace continues for some months and, since car sales are still very low in comparison to historical levels, that could mean that this increase might be on the worst case a new normal but likely still below normal.

More importantly, what do current numbers mean in comparison to company projections?
In 2013 Toyota sold 5876 units and Lexus sold 156 units. They propose an increase of 16% in Toyota sales and 80% increase in Lexus sales. This would imply an increase of 940 Toyota units and 125 Lexus units. Until April 2014 the increase has been of 749 Toyota units and 44 Lexus units.

As such, it seems that very little growth is required to hit the full year objective for Toyota vehicles and Lexus objective is still on track. A flat second semester would probably be enough to reach Toyota sales objectives. Second semester last year represented about 1 million in net income (which is what they usually translate into dividends). Lower leverage however would most likely add a bit to that income and, in that case, the first semester would most likely be better than the second.

Taking everything into account I would not be surprised if, conservatively speaking, 2014 net income neared 3.5 million (0.10€/share) and if the company ended the year with little or no net debt (depending on the evolution of investment cashflows).

Also interesting will be comparing 2011 to 2014. Up to now sales have been inferior but it does not seem impossible that either in June or in September unit sales will be similar. That would allow us to confirm if the company's efficiency truly increased and to quantify the increase (however, special workforce reduction costs in 2011 will have to be taken into account in the comparison). I am looking forward to that exercise and hope it is reached already in the first semester.

disclosure: read previous posts disclosures and the introduction post. I own Toyota Caetano shares


  1. Hi,
    It's great to see such a blog - thank you for publishing your insightful analysis.
    Have you seen the auto data for May for Portugal? Toyota posted a negative yoy, which I found quite surprising considering the overall market had a good month.
    Let me know your thoughts on this.

    1. Hi, thank you for your comment. I started answering your comment but it became too big and decided to do a new post. Please feel free to comment there.