Totvs (TTVSF, Financial) is the largest business software company in Latin America. The Brazilian company has shown phenomenal growth and the stock is reasonably priced. It is a holding of Oakmark Funds.
There are 165.64 million shares and the market cap is 5.15 billion real ($1.6 billion). It takes 3.22 real to buy one dollar. Earnings per share were R$1.20 and the price to earnings ratio is 26. The trailing dividend is R$1.0453 and the dividend yield is 3.37%.
Revenue growth has been phenomenal. In 2011, sales were R$1.279 billion. Sales have grown every year since and were R$1.909 billion in 2015. Earnings per share grew from R$1.07 to R$1.20 over that time frame. The balance sheet is outstanding. As of the most recent quarter, cash was R$312 million and accounts receivables were R$487 million. Accounts payables were R$66 million and debt was R$747 million.
Like most software companies, Totvs is quite profitable. Gross margins are 63% and return on equity is 16.61%. Free cash flow was R$222 million last year. Management has not diluted shareholders with new issues either. Shares outstanding were 133 million in 2006 and 164 million in 2015.
Totvs is a big player in South American software. Its software is used in: merchant services, accounting, education, supply chain in manufacturing, health care, legal, retail, logistics, agriculture and hundreds of other applications. Like most tech companies, Totvs has made a push into the cloud.
In April, Totvs sold off its payroll outsourcing services to Propay SA for $1.6 million. In January, CEO Rodrigo Keda Lima stepped down to head IBM’s (IBM, Financial) division in Brazil. Marcelo Souccar stepped up and is focused on international expansion.
The stock reached almost R$50 a share in early 2013, but has since come down to R$31. It has ranged between R$30 and R$40 over the last three years. Of course, this is in reals. In dollars, it has not been too hot. It only took 2 reals to buy one dollar in 2012. Earlier this year, it took 4. As mentioned above, it has strengthened and now takes 3.22.
The Brazilian stock market is up 30% this year. The country is having a few problems, including an impeachment of the president and the Zika virus. I do not think those last two will affect Totvs though.
The stock is reasonably priced. The price to sales ratio is only 2.2. The free cash flow yield is 4.13%. Sales were R$350 million in 2006 and grew to R$1.909 billion in 2015, which is extraordinary. These types of valuations are quite reasonable for a company with this growth.
The growth that Totvs has put up has been awesome. The valuation is pretty reasonable. My hesitation is that there is not a lot of news in English. The Annual Report is in Portuguese and I am not a fan of companies that do not print in English. It is barely known in the U.S., which is intriguing to me. I think it is a company worth knowing.
Disclosure: We do not own shares.
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