Vale

VALE.N

Target price, $:

15.5

Market capitalisation, $mn:

70,009

Last price, $:

13.5

Enterprise value, $mn:

90,243

Potential 12-month return:

22.0%

Dec-YE

2015

2016

2017

2018E

2019E

2020E

Dec-YE

2016

2017

2018E

2019E

2020E

Income statement

Balance sheet

Revenue

25,609

29,334

35,713

37,304

38,014

37,951

Net operating assets

66,066

62,915

54,806

55,592

56,234

Adjusted EBITDA

7,081

12,181

15,337

16,757

16,085

15,074

Investments

18

18

18

19

20

Adjusted EBIT

3,052

8,267

10,873

12,908

11,986

10,932

Equity

39,042

43,458

44,291

47,073

48,381

Net interest

-10,801

1,966

-3,019

-4,761

-1,898

-1,883

Minority interest

1,982

1,314

944

952

960

Taxation

5,100

-2,781

-830

-1,529

-2,612

-2,344

Net debt (target: $10bn)

25,060

18,161

9,589

7,587

6,913

Minority interest in profit

491

6

-14

-46

-40

-40

Net profit for the year

-12,129

5,277

6,935

6,580

7,796

6,992

Balance sheet ratios

Underlying earnings

-1,698

4,968

7,188

8,278

7,796

6,992

Gearing *

31.4%

22.4%

11.6%

8.5%

7.5%

Underlying EPS, $

-0.33

0.96

1.39

1.59

1.50

1.35

Net debt to EBITDA

2.1x

1.2x

0.6x

0.5x

0.5x

RoCE

13.1%

16.4%

20.9%

20.8%

18.8%

Thomson Reuters consensus EPS, $

1.44

1.70

1.59

RoIC (after tax)

12.6%

19.8%

13.4%

13.9%

12.9%

DPS declared, $

0.29

0.27

0.28

0.84

1.02

1.16

RoE

13.7%

17.4%

18.9%

17.1%

14.7%

Adjusted EBIT

Cash flow statement

Ferrous Minerals

4,230

8,747

11,497

12,311

11,031

10,110

Operating cash flow

10,030

16,819

11,969

12,845

12,084

EBIT margin

26%

43%

46%

43%

39%

36%

Capex less disposals

-5,480

-4,154

-2,406

-4,372

-4,281

Coal

-700

-244

-25

165

433

176

Other cash flows

-987

-1,825

3,226

0

0

EBIT margin

-133%

-29%

-2%

10%

17%

8%

FCF

3,563

10,840

12,790

8,473

7,803

Base metals

-453

186

501

1,037

963

1,084

Equity shareholders' cash

702

8,574

11,407

7,017

6,358

EBIT margin

-7%

3%

7%

15%

13%

14%

Dividends and share buy-backs

-500

-1,675

-2,836

-5,014

-5,684

Fertiliser nutrients

257

-138

-885

-109

0

0

Excess cash

202

6,899

8,572

2,002

674

EBIT margin

12%

-7%

-51%

-122%

n/a

n/a

Cash flow ratios

Others and logistics

-282

-284

-215

-497

-441

-439

EBIT margin

-212%

-179%

-54%

-183%

-153%

-146%

Working capital days

0

7

11

7

7

Adjusted EBIT - Group production

3,052

8,267

10,873

12,908

11,986

10,932

Capex/EBITDA

45.0%

27.1%

14.4%

27.2%

28.4%

Income statement ratios

FCF yield

6.6%

15.4%

15.9%

10.8%

10.0%

Equity shareholders' yield

2.6%

16.9%

16.3%

10.0%

9.1%

EBITDA margin

27.7%

41.5%

42.9%

44.9%

42.3%

39.7%

Cash conversion

0.1x

1.2x

1.4x

0.9x

0.9x

EBIT margin

11.9%

28.2%

30.4%

34.6%

31.5%

28.8%

Valuation

EPS growth

-138%

393%

44%

15%

-6%

-10%

Dividend payout ratio

-88%

29%

20%

52%

68%

86%

SoTP valuation and calculation of target price

$mn

$

Input assumptions

Ferrous minerals

92,054

17.7

Coal

1,409

0.3

Iron ore fines (62%Fe,CIF China), $/t

56

58

71

66

65

64

Base metals

7,527

1.4

Brazil to China freight charge, $/t

11

9

15

19

19

16

Fertiliser nutrients

1,488

0.3

Nickel, $/t

11,864

9,599

10,404

13,353

13,839

14,537

Others and logistics

-1,486

-0.3

Copper, $/t

5,512

4,867

6,170

6,565

6,500

6,576

Total enterprise value

100,991

19.4

Thermal coal, $/t

57

64

85

99

95

87

Net debt as at latest year end

-18,161

-3.5

Hard coking coal, $/t

95

144

188

200

190

167

Cash used in share buy-backs

0

0.0

$/BRL

3.33

3.49

3.19

3.70

3.77

3.41

Other investments

18

0.0

Minority interest (DCF value)

-2,072

-0.4

Required breakeven price

Equity value as at 30/11/2018

80,776

15.5

Iron ore breakeven price, $/t

39

27

31

28

32

34

Rounded to

15.5

Metallurgical coal breakeven price, $/t

198

192

152

162

148

148

Share price on 29/11/2018

13.5

Nickel breakeven price, $/t

12,198

8,160

9,137

8,406

9,096

9,652

Expected share price return

15.1%

Copper breakeven price, $/t

4,574

2,893

2,341

3,248

3,123

3,307

Plus: expected dividend yield

6.9%

Sales volumes

Total implied one-year return

22.0%

Iron ore, mnt

289

293

289

336

343

340

Share price range, $:

Iron pellets, mnt

46

48

52

54

58

60

12-month high on 3/10/2018

16.13 12-month low on 7/12/2017

10.55

Nickel, kt

291

311

294

251

260

268

Price move since high

-16.5% Price move since low

27.7%

Copper, kt

397

430

424

386

404

404

Attributable Cu eq volumes, kt

5,238

5,403

5,382

5,374

5,674

5,719

Calculation of WACC

Volume growth

3.2%

-0.4%

-0.1%

5.6%

0.8%

WACC

10.9%

Cost of debt

7.0%

Contribution to FY18E Adjusted EBITDA

Risk-free rate

4.0%

Tax rate

30%

Equity risk premium

6.2%

After-tax cost of debt

4.9%

Base metals

Beta

1.30

Debt weighting

15%

Cost of equity

12.0%

Terminal growth rate

2.0%

Coal

15%

2%

Valuation ratios

Manganese

Dec-YE

2016

2017

2018E

2019E

2020E

2%

P/E multiple

5.3x

7.1x

8.4x

9.0x

10.0x

Dividend yield

5.3%

2.9%

6.2%

7.6%

8.6%

EV/EBITDA

4.4x

4.6x

4.8x

4.9x

5.2x

P/B

0.7x

1.2x

1.6x

1.5x

1.4x

Pellets

NAV per share, $

7.6

8.4

8.5

9.1

9.3

19%

Iron ore

62%

Dividend policy: Minimum payment of 30% of EBITDA less sustaining capex.