Future Revenue Will Decrease By 5% Annually Despite Operational Strengths

Key Takeaways

• Record production and strategic investments enhance operational capacity, supporting future revenue and earnings growth through optimized efficiency and market demand.
  
• Strong EBITDA performance and effective cost management indicate robust net margins, bolstered by demand from China and favorable pricing.
  
• CSN Mineração demonstrated strong profitability and growth, driven by record production, efficient cost management, strategic investments, and robust international demand.

Catalysts

Engages in the iron ore mining business in Brazil.

• The company experienced record production and shipments which boosted profitability and could drive future revenue growth as they continue to optimize production efficiency and shipping capabilities.
  
• Investments and expansions such as the P15 project and port enhancements are likely to improve operational capacity and capability, potentially increasing future revenue and production scalability.
  
• The strong EBITDA performance and margin prioritization strategy indicate potential for future earnings growth alongside effective cost management, which should positively impact net margins.
  
• The company is leveraging increased demand from China and has benefited from favorable pricing, suggesting a continuation of strong revenue streams and robust demand potentially bolstering its future earnings.
  
• Strategic capital investments and infrastructure improvements, coupled with strong operational performance, position the company for future growth, likely enhancing earnings and supporting financial flexibility with improving financial metrics.

CSN Mineração Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming CSN Mineração's revenue will decrease by 3.3% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 27.4% today to 7.8% in 3 years time.
• Analysts expect earnings to reach R$1.2 billion (and earnings per share of R$0.23) by about April 2028, down from R$4.5 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting R$1.8 billion in earnings, and the most bearish expecting R$96 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 43.0x on those 2028 earnings, up from 6.9x today. This future PE is greater than the current PE for the BR Metals and Mining industry at 6.7x.
• Analysts expect the number of shares outstanding to decline by 0.97% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 19.77%, as per the Simply Wall St company report.

CSN Mineração Future Earnings Per Share Growth

Risks

• Despite challenges, CSN Mineração reported strong operational results with a significant increase in EBITDA, which reached R$2 billion with a margin higher than 50%, indicating an ability to maintain high profitability and potentially support earnings.
  
• The company achieved record own production and exceeded their growth forecasts, thereby ensuring better cost dilution and enhancing revenue potential through increased production volumes.
  
• Investment in CapEx showed an increase of 20.7%, which demonstrates a commitment to growth and operational improvements that could support future revenue improvements and maintain competitive positions.
  
• CSN Mineração showed effective cost management by reducing the cost of goods sold by 21.9%, attributed to strategic purchasing and price optimization, potentially enhancing net margins through efficient operational leverage.
  
• Strong performance in international markets, particularly with sustainable demand from China for low-grade iron ore and strategic price realization measures, suggests the potential for sustained or increased revenue through strong export volumes and favorable international pricing dynamics.

Valuation

• The analysts have a consensus price target of R$5.485 for CSN Mineração based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of R$7.5, and the most bearish reporting a price target of just R$3.6.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be R$14.9 billion, earnings will come to R$1.2 billion, and it would be trading on a PE ratio of 43.0x, assuming you use a discount rate of 19.8%.
• Given the current share price of R$5.72, the analyst price target of R$5.48 is 4.3% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.