Wednesday, 4 June 2014

Toyota caetano update

Both the auto data for May as well as the Toyota Caetano’s interin report are out.
First of all I have no insights as to why light vehicle sales were so off base in May. I would add however that both Lexus sales and commercial vehicle sales continued growing pretty fast. Taking everything into account the volume decrease of 7 units is negligible in terms of sales. However, it still is a totally off-base month. On the other hand an off-base month on the negative side after an off-base month on the positive side makes me think that maybe both were "sample errors" and the baseline sales should be somewhere in the middle. Sitting and waiting is the most important job for an investor and as such here I wait for June's results.
Market share loss is the most preoccupying factor that is implicit on the results. On a rising sales market it could mean that mindshare might have been lost. On the positive side what I like in Toyota Caetano are both the balance sheet and I would be happy with the cashflows even if they stayed flat yoy.
First three months results are out and in line with expectations.
Last three months 2013 volume was about 1730 Toyota light vehicles, 31 heavy commercial vehicles (so 1761 Toyota vehicles) and 61 Lexus. First three months 2014:“ Toyota sales increased from 1063 to 1515 (42.5%). Lexus sales increased from 37 to 62 (67.6%).”
Since the volumes are not comparable due to seasonality, the useful comparison here is to search for profits evolution. So (on a rolling base) a 13.5% decrease in volume resulted in an EBITDA decrease to 4139k€ from 4479k€ (7.5%). Net income decreased from 954k€ to 721k€ (24.5%), which is expectable since despite lower debt depreciation is a fixed expense. For that motive, and knowing that sales are not comparable, I believe the EBITDA evolution to be the most important on the comparison and would be above expectations IF the only profit driver where Portuguese car sales, which actually is not the case. As such, I would not go as far as saying that the results were above what should expected but instead they seem to be roughly in line with expectations

Both mensal sales and interim reports are more important to value trends than results meaning nothing if not into context. For example, investment in the auto renting unit from January through March was 1177K€. At 15k€ per unit that would amount to 78 units. If we imagine that the company wanted to increased their auto renting fleet for the Summer and decided that May was too near and June too late it would be perfectly logical that the company decided to buy themselves 100 units in April and none in May, which averaged out would mean that maybe normalized sales should have risen without such effect. This example, despite plausible, comes straight from fantasy land, but shows how little this results mean in an isolated way. With that said, I would rather have seen rising sales and higher profits but it changes very little in my thesis.

Disclaimer: I own Toyota Caetano shares. I WILL buy and/or sell shares without prior notice if I believe appropriate. Always do your own research. See my other disclaimers.

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