Container port industry slow growth still means big absolute increases
Stock report of Prumo Logística Global S
1. Stock report of Prumo Logística Global S/A
SIMBOL: PRML3 – IBOVESPA - BRAZIL
www.prumologistica.com.br
Sector: Logistics Port and Infrastructure
Student: Joao Paulo Figueiredo
1- History of Prumo Logistics
The Prumo is a Brazilian private company that operates inside the infrastructure and
logistic sector in the building of Açu port, located in São Joao da Barra, North of Rio
de Janeiro, Brazil.
Facing a dynamic economics and strength potential to growth linked with lacked
investment gaps, which have had blocked Brazilian importations and exportations,
Prumo was created in March, 2007 within a propose to offers an infrastructure and
competences logistics inside the port sector in Brazil.
The enterprise have had build since 2007 that have 2 terminals ports (T1 and T2) and
with capacity to moving different kinds of load like, oil, coal, iron ore, dry bulk,
liquids and others loads.
The Açu port is strategically located in the north part of Rio de Janeiro nearly 150 km
of the main oil campus in Brazil where 85% of Brazil oil is produced.
Besides of the port hinterland is close of southeast part of Brazil that is responsible to
75% of GDP of the country and 75% of exportations.
Prumo is focused to development of their activities and compromised with value
creation to their shareholders.
2- Corporate Structure
To set a good corporate structure Prumo have with majority controller EIG Global
Energy Partners, which Since 1982, EIG has been one of the leading providers of
institutional capital to the global energy industry, providing financing solutions across
the balance sheet for companies and projects in the oil & gas, midstream,
infrastructure, power, renewables and resources sectors globally. EIG has raised
seventeen institutional funds totaling approximately $20 billion and invested more
than $21.5 billion in more than 300 portfolio investments in 35 countries.
2. As Mubadala was established to strengthen Abu Dhabi’s growth potential, and to help
the government meet its socioeconomic targets. While our investments are designed
to generate sustainable profits over the long-term, they also deliver strong social
returns to Abu Dhabi and the United Arab Emirates.
Focused on investment and development across multiple sectors, Mubadala’s
portfolio is valued at US 65.9 billion. We are an active investor in sectors and
geographies with long-term value propositions, working in partnership with world-
class organizations to establish and manage joint ventures and investment platforms.
3- Competitive Advantages
As a important infrastructure, first of all the strategic location close all developed
provinces like Sao Paulo, Minas Gerais, Goiás and Espírito Santo, within all main rail
roads and highways in Brazil, the main area of the enterprise is totally 90 square
kilometres with capacity to settle big industrials and logistics companies. Whereas the
port is a pioneer concept in Brazil that bridge a industrial complex and 2 terminals
port (Onshore and Offshore). In the onshore terminal has a is deeply sufficient, almost
15 meters that is possible to attach ships like a Panamax and Postpanamax, the
terminal is projected to receive the most advanced technology equipment’s to
movement all kinds of loads.
Costumers operating in the port: Votorantim, OilTank, Technip, Wartisila,
National Oilwell Varco, Edson Chouest, Anglo American, BP Prumo, BG Brazil,
Vallourec, Intermoon.
4- Recently Developments
Prumo has signed a contract with Oiltanking GMBH (“Oiltanking”), a company
controlled by Maquard & Bahls, for the acquisition of 20% of the Oil Terminal of
Açu Port for the amount of USD 200 million, by way of a capital increase of Açu
Petróleo. The contract also includes management by Oiltanking of the Terminal's
operations. The Açu Port Oil Terminal is licensed to handle up to 1.2 million barrels
of oil a day, with the capacity to receive VLCCs (very large crude carriers).
Terminal 1 (T1) consists of an iron ore terminal with 2 berths and the capacity to
handle more than 26 million tons, a 3-km access bridge, a tugboat pier, a breakwater
which can also be used as an oil shipment terminal licensed to handle up to 1.2
million bbl/day, an approach canal and turning basin.
Terminal 2 (T2) The last concrete block was laid in Terminal 2 at the start of June.
The breakwater has a total of 42 blocks, with 26 in the south end and 16 in the north
end. The take or pay agreement to provide iron ore handling services between Anglo
American and Ferroport (formerly LLX Minas-Rio) started on July 01, 2014 and the
first operation occurred in October 2014. More than 30 iron ore operations have
already taken place at Terminal 1.
Açu Port, Prumo subsidiary, has received a letter of final approval from the executive
board of the Brazilian National Bank for Economic and Social Development
(“BNDES”) for long-term financing. The approval establishes the terms and
conditions for the long-term project finance of R$ 2.8 billion, of which R$ 2.3 billion
will be used to repay bridge loans previously awarded by the bank. This amount will
3. be passed through by the banks Bradesco and Santander. The remaining amount of R$
500 million will be used to fund port construction and will be provided by a third on-
lending bank yet to be identified. The total tenor of the approved facility is 18 years
with 4 years of grace period and 14 years of amortization. The approval also provides
the possibility of direct financing by BNDES instead of the current on lending, of up
to 50%, with a ceiling of R$ 2.1 billion including interest and principal. BNDES entry
into the direct financing is subject to the performance of conditions precedent. The
operation will be complete when the contracts are signed.
Edison Chouest exercised early its two remaining options established in the contract
signed on April 09, 2014, which mature in October 2015, in order to expand its area.
The company also decided to expand its quay by 40 meters. This has resulted in
Edison Chouest's total area arising from 411,800 m2 to 597,400 m2 with a quay of
1,030 meters.
5- Basic information and financial metrics
R$ 2,86CA$(11/09/2015)
Market Capitalization R$2.583.051.481,00 903.164.853,50 CA$
Earning per Share -R$0,01 -0,0030 CA$
P/E -109,65
Share Price (11/9/15) R$0,93 0,33 CA$
Shares 2.777.474.711
6- Valuation
Assumptions and metrics: In this valuation was used the last revenue of 2Q15 that
keep this prevision to next 5 years with a growth in 35% per year that it consist in a
optimist view about the competitive advantage that the company has. Whereas the
cost and expenses is the same of 2Q15 as well, with a growth 2% per year, the
discount tax was 10% to come up with that all investors wait a strong return.
Cost of Sale All Expenses Revenue 88.162.000
R$20.162.000,00 R$41.580.000,00
Cost and
expenses 61.742.000
Growth Tax 35%
Cost Growth 2%
Discount Tax 10%
Year Free Cash flow Discounted CF
Number of
Shares 2.777.474.711
1 R$56.041.860,00 $50.947.145,45
2 R$54.782.323,20 $45.274.647,27
3 R$53.497.595,66 $40.193.535,44
4 R$52.187.173,58 $35.644.541,75
5 R$50.850.543,05 $31.574.186,47
Total R$267.359.495,49 $203.634.056,38
4. Intrinsic Value--- R$1,06
7- Graham formula, Margin of Safety
Margin of Safety 87,73
Price (11/09/2015)
R$0,93
Graham Formula 1974 -R$0,09
8- Key Statistics
As of Nov 09, 2015:
Total Assets = R$ 6,908B
Total Liabilities = R$4,208B
E = (-R$23,558M)
G = 9,2% Brazilian perspective of growth in Infrastructure
AV = Total Assets – Total Liabilities > 0
AV per share = R$0,000972
EPV = E/R = N/A
GV = E/(R – G) = = N/A since R is less than G
P = R$0,93
Conclusion: P > EPV → cheap
9- Risks Factors
Political Scenery: Nowadays, Brazilian government faces a strong opposition among
2 last years, and in this year, the rating of Brazil go down and it brought a insecure in
all external investors.
No future interested dealer: As a political and an economic scenery retroactive that
Brazilin have had faced is not easily to be attractive to bring a new companies to rent
or invest.
Contractual break: Facing a bad economy and losing a investment rating,
multinational companies, can lose the interest to invest in Brazil and it can affect
negative way that some companies that started operations in the port bringing a
contractual break and affecting Prumo that will lose revenue if it happen.
10- Conclusion and investments highlights
To conclude this stock report, this company is a great private investment that looks
for a strong development inside the logistic and infrastructure sector, that this is
opportunity to the main logistic lobby port in Brazil. To set a long-term view, the
company have had worked to increase the revenue and reduce costs and keep looking
forward to bring more companies to rent and invest.
The company did their homework and started growth in these 3 last years turned to
pre-operation to operation. The strength that both controllers bring to the company is
relatively high.
All reports presented by the company have shows that on the long run, the company
can be a strong potential in this sector that is really undeveloped. Some results like
Margin of safety, Intrinsic Value, can not shows a strong reliable fundaments to
invest; However the price is cheap and in the long term view the results of this
company can grow fast and bring more value to all shareholders.