VALE Target $18.50

VALE : NYSE : US$16.18
Target: US$18.50

VALE is the largest seaborne exporter of iron ore and the world’s second largest nickel producer. The company also produces copper, precious metals, manganese, ferroalloys, potash and other fertilizers, and has a large logistics business. The majority of operations are in Brazil and Canada.
All amounts in US$ unless otherwise noted.

Metals and Mining — Senior Diversifieds
Vale reported a headline Q3/13 EPS of US$0.68 and an adjusted EPS of US$0.72, slightly below our estimate of US$0.74. As a better measure of performance against expectations, adjusted EBITDA of US$5.8 billion was lower than our forecast US$6.1 billion.
Impact Our revised 2013/14E adjusted EPS forecasts of US$2.72 and US$2.30 compare to our prior estimates of US$2.73 and US$2.45. Our revised 2013/14E EBITDA forecasts of US$22.1 billion and US$19.8 billion compare to our prior estimates of US$22.0 billion and US$21.1 billion.

We are maintaining our BUY recommendation but decreasing our 12-month target price to US$18.50 (from US$20.00). Our US$18.50 price target is based on the average of : i) 6x our 2014E EV/EBITDA, which would imply a share price of US$18.59, and ii) our NPV10 estimate of US$18.56 (from US$20.16).
Next potential catalyst / Key risk
We are forecasting Q4/13 adjusted EPS of US$0.74, and adjusted EBITDA of US$6.1 billion, based on iron ore and pellet sales volumes of 78.0 million tonnes and 9.5 million tonnes, and iron ore and pellet realized prices of US$103/t and US$140/t. We note that disputes regarding tax reassessments for 2001-2008 remain unresolved. Vale’s investor day is scheduled for December 2 in New York, where we expect the release of guidance for 2014.


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