The board of mining company Vale (VALE3) approved last Thursday (1) a buyback program limited to 270 million common shares and their respective ADRs, the company said in a fact relevant to the market.
The volume represents up to 5.3% of the total number of shares outstanding, based on the shareholding structure of February 28, 2021. The percentage totals approximately US $ 4.6 billion taking into account the current share price. The program will run for up to 12 months.
“Our buyback program demonstrates the company’s management’s confidence in Vale’s potential to create and distribute value consistently,” said the company. “Governed by discipline in the allocation of capital, we consider the repurchase of our shares to be one of the best investments available to the company.”
The company also pointed out that the repurchase program does not compete with the company’s intention to “consistently distribute dividends above the minimum established by our dividend policy”.
According to analyzes by Bradesco BBI, Morgan Stanley and XP, the repurchase of shares is a very positive move for Vale.
Thiago Lofiego and Isabella Vasconcelos, from BBI, made some considerations. First, from the point of view of capital allocation, they assess that Vale made the right choice, considering the high double-digit internal rate of return (IRR)
expected taking into account its own equity (17% IRR assuming long-term iron ore at $ 70 a ton).
“The repurchase program (accounting for up to 5.3% of the outstanding shares) is an important step on the road to reclassification [das ações] from Vale. The company continues to negotiate about 3 times the relationship between the company’s value and the [lucro antes de juros, impostos, depreciações e amortizações] Expected EBITDA for 2021, a significant 35% discount compared to Australian pairs and well below fair multiples of 4.5 times ”, assess the analysts.
From a balance sheet point of view, analysts estimate that the company is in a strong position to conduct the repurchase program. “According to our current estimates (average iron ore price of US $ 140 a ton for 2021), even considering our estimate of dividends of US $ 10 billion for 2021 (dividend yield, or dividend in relation to the stock price of 11.4%), Vale’s expanded net debt would reach around US $ 11 billion at the end of 2021, within the company’s target levels ”, point out Lofiego and Isabella.
Analysts point out that Vale must successfully complete the repurchase before the announced 12-month period, noting that the repurchase program would represent the equivalent of 45 days of trading the company’s assets. The recommendation for Vale’s ADR is outperform (performance above the market average) with a target price of US $ 25 for the asset.
Morgan Stanley also reiterated a recommendation to buy, or overweight (exposure above the market average), with a target price of $ 21 for ADR, expecting a positive reaction to the buyback announcement.
They also point out that the announcement shows that the Board of Directors’ and Management’s view that Vale’s shares are being traded at an excessive discount compared to peers, in addition to reiterating the company’s commitment to return dividends to shareholders and disciplined capital allocation.
XP believes that the announcement is positive, as it reinforces Vale’s commitment to generating value for its shareholders. “We maintain our recommendation to buy the paper, with a target price of R $ 122 per share”, point out the analysts.
Do you want to find out how it is possible to multiply your capital in the Options market? The analyst Fernando Góes shows you how in Week 3 × 1, online event and 100% free. Click here to watch.
Get the latest news delivered to your inbox
Follow us on social media networks