Thoughts from the board...If the worst case scenario over the tax issue is priced into VALE today, what is the upside potential on the
stock price if the settlement is more favorable then what is being anticipated? How much is already factored in right now? VALE has been selling a lot of its assets ahead of Nov 29.
I do not want to be a part of this company going forward, not because of VALE the company, but because of the government of Brazil who will strip a company to appease to voters for the purposes of being elected then turn around and #$%$ on the same voters once they are elected to office. Like so many of the articles have said, they are using businesses as piggy banks to fund their campaigns and broken promises.
That government, much like our own today, is broken and corrupt.
I would like to get out even at $17.10. Just not how soon that will happen, or if the stock tanks on the Nov 29 news.
The market does not like uncertainty. Until we get a better understanding of what the eps hit will be (if any...Vale did not raise a tax provision), you will not get a price bump. This was obvious as soon as last quarter's earnings were released, the shares dipped from over 17 to today's 15.70
The 7.5B extra tax bill due over 5 years that seems to be assumed, or market priced now, works out to 600M a quarter or about 0.12 per share per quarter. Vale is making about 0.60 a quarter now, so it's like a 20% depression affect. Iron ore business is picking up in the near term.
Vale seems a little under priced now to me, but it could certainly go lower on some news. How long will we wait to see Vale rise higher? Maybe as long as next Q4 earnings assuming those earnings will be good (0.60 to 0.75).
Personally, I want to accumulate more shares, but I'm betting that the price will drop some more in the near term, so I'll wait out a little longer.
I'm no expert and all of my reported numbers are unaudited.
Here is a view from Credit Suisse about the potential tax liability:
Tax litigation on overseas subsidiaries: still no provision. As of 3Q13, total
reported amount reached R$30.7bn (adjusted for interest and fees). We expect
further news until 29Nov and we estimate total amount under dispute of
1 Brazilian Real =$.44USD or 48 billion reals = $21 billion USD
I still am not convinced that any agreed upon settlement will be near the 7.5B-US but rather much lower of less than 3B-US and this is simply based on data released from Brazil on their proposal not only to Vale but also the beer maker who the government claims owes them even more! My biggest concern is reaching an agreement on exactly how taxes on earnings outside of Brazil will be treated in the future. Also I look for any settlement to also include any claims filed by the regional government. The sooner the tax mater is resolved the better off for Vale as gives 1-less thing to talk about and change the focus to improved earnings and improved stock price.