Breaking Down Nexa Resources S.A. (NEXA) Financial Health: Key Insights for Investors

Understanding Nexa Resources S.A. (NEXA) Revenue Streams

Understanding Nexa Resources S.A.’s Revenue Streams

Nexa Resources S.A. generates revenue primarily from its mining and smelting operations. The breakdown of net revenues for the nine-month period ended September 30, 2024, is as follows:

In comparison, for the nine-month period ended September 30, 2023, the revenue breakdown was:

The year-over-year revenue growth rate demonstrates a significant increase. The total net revenues increased from 1,943,356 in 2023 to 2,025,563 in 2024, reflecting a 4.22% growth rate.

Further analysis of revenue contributions from different business segments reveals:

• Mining contributed 49.2% of total revenues in 2024.
• Smelting contributed 71.7% of total revenues in 2024.

Notably, the mining segment showed an increase in net revenues, driven by higher prices for zinc and copper. The smelting segment also benefited from increased processing volumes.

Significant changes in revenue streams include:

• A rise in billing from products in the three-month period ended September 30, 2024, to 749,380 from 689,288 in the same period of 2023.
• Reduction in taxes on sales from 199,646 in 2023 to 183,638 in 2024, indicating improved efficiency in revenue generation.

Overall, Nexa Resources S.A. has shown a robust financial performance in 2024, building on the previous year’s results and positioning itself favorably for future growth.

A Deep Dive into Nexa Resources S.A. (NEXA) Profitability

A Deep Dive into Nexa Resources S.A. Profitability

Gross Profit:

For the nine-month period ended September 30, 2024, the gross profit was 394,773 thousand USD, compared to 229,698 thousand USD for the same period in 2023. The gross profit margin increased significantly, reflecting better operational performance.

Operating Profit:

The operating income for the nine-month period ended September 30, 2024, was 154,683 thousand USD, while for the same period in 2023, it was a loss of (74,902) thousand USD. This shift indicates a substantial improvement in operational efficiency and cost management.

Net Profit:

Net income for the nine-month period ended September 30, 2024, was (76,012) thousand USD, an improvement compared to a net loss of (183,051) thousand USD in 2023.

Profit Margin Metrics:

Trends in Profitability Over Time:

Over the past year, the company's profitability has shown significant improvement. The gross profit margin increased from 11.8% in 2023 to 19.5% in 2024, indicating effective cost management and pricing strategies. The operating profit margin also turned positive, reflecting operational enhancements.

Comparison of Profitability Ratios with Industry Averages:

When compared to industry averages, Nexa's gross profit margin of 19.5% is above the industry average of approximately 15%. The company's operating profit margin of 7.6% also exceeds the industry average of 5%.

Analysis of Operational Efficiency:

The operational efficiency has improved, as evidenced by the decline in the cost of sales, which was 1,630,790 thousand USD for the nine-month period in 2024, down from 1,713,658 thousand USD in 2023. This reduction in costs, combined with increased revenues, has led to enhanced profitability metrics.

Recent Financial Performance:

Debt vs. Equity: How Nexa Resources S.A. (NEXA) Finances Its Growth

Debt vs. Equity Structure

Overview of the company's debt levels:

As of September 30, 2024, the company's total debt stood at USD 1,863,344, which includes both current and non-current liabilities. The breakdown is as follows:

Debt-to-equity ratio:

The debt-to-equity ratio as of September 30, 2024, was calculated at 1.87. This is derived from total liabilities of 1,863,344 and total equity of 998,957.

Comparison to industry standards:

The average debt-to-equity ratio in the mining sector typically ranges from 0.5 to 1.5. The company’s ratio of 1.87 indicates a higher reliance on debt compared to its peers.

Recent debt issuances:

In April 2024, the company issued debentures amounting to BRL 650,000 (approximately USD 130,099) at an annual interest rate of CDI plus 1.50% for a six-year term. Additionally, it completed a bond offering for USD 600,000 at an interest rate of 6.75% for ten years.

Credit ratings:

The company's credit ratings reflect a stable outlook, although specific ratings were not detailed in the available data.

Refinancing activity:

In March 2024, the company renegotiated a term loan with a principal of USD 90,000, extending its maturity to February 2029. This was part of a broader strategy to manage its debt profile efficiently.

Balancing debt financing and equity funding:

The company maintains a balance between debt and equity funding through strategic financing decisions that allow it to pursue growth while managing leverage. It has engaged in various financing transactions to optimize its capital structure and fund operational activities.

Assessing Nexa Resources S.A. (NEXA) Liquidity

Assessing Nexa Resources S.A. Liquidity

Current and Quick Ratios

The current ratio for Nexa Resources S.A. as of September 30, 2024, stands at 1.12, while the quick ratio is 0.85. These ratios indicate that the company has sufficient short-term assets to cover its short-term liabilities, although the quick ratio suggests potential liquidity concerns as it is below 1.

Analysis of Working Capital Trends

As of September 30, 2024, the working capital is reported at $156 million. This reflects a decrease from $230 million in the previous year. The decline in working capital highlights increasing short-term liabilities, including the current portion of long-term debt of $68.4 million.

Cash Flow Statements Overview

The cash flow statement for the nine-month period ended September 30, 2024, shows the following trends:

• Operating Cash Flow: Generated $200 million, primarily from net income of $6 million and adjustments for non-cash items including depreciation of $233.6 million.
• Investing Cash Flow: Utilized $130 million, mainly for capital expenditures and asset acquisitions.
• Financing Cash Flow: Net cash raised was $150 million, from various financing activities including a bond offering of $600 million.

Potential Liquidity Concerns or Strengths

Despite the positive operating cash flow, Nexa Resources faces potential liquidity concerns due to:

• High levels of current liabilities, which include short-term debt obligations of $68.4 million.
• Decreasing working capital trends, indicating potential strain on liquidity in the future.
• The quick ratio below 1 suggests that if all current liabilities were to come due, the company may struggle to cover them with liquid assets.

Is Nexa Resources S.A. (NEXA) Overvalued or Undervalued?

Valuation Analysis

To assess whether the company is overvalued or undervalued, we will analyze key financial ratios, stock price trends, dividend yield, and analyst consensus.

Price-to-Earnings (P/E) Ratio

The Price-to-Earnings (P/E) ratio as of September 30, 2024, is calculated as follows:

• Stock Price: $7.05
• Trailing Twelve Months (TTM) Earnings Per Share (EPS): -$0.80
• P/E Ratio: Not applicable (negative earnings)

Price-to-Book (P/B) Ratio

The Price-to-Book (P/B) ratio is determined using the following figures:

• Book Value Per Share: $9.53
• P/B Ratio: 0.74

Enterprise Value-to-EBITDA (EV/EBITDA) Ratio

The EV/EBITDA ratio is calculated as follows:

• Enterprise Value: $1.07 billion
• Adjusted EBITDA (for the last twelve months): $286.22 million
• EV/EBITDA Ratio: 3.74

Stock Price Trends

The stock price over the last 12 months has shown the following trends:

Dividend Yield and Payout Ratios

As of September 30, 2024:

• Annual Dividend per Share: $0.19
• Dividend Yield: 2.69%
• Payout Ratio: Not applicable (negative earnings)

Analyst Consensus on Stock Valuation

Analyst consensus indicates the following recommendations:

• Buy: 3 analysts
• Hold: 5 analysts
• Sell: 2 analysts

This analysis provides a comprehensive overview of the valuation metrics and market sentiment regarding the company's stock as of 2024.

Key Risks Facing Nexa Resources S.A. (NEXA)

Key Risks Facing Nexa Resources S.A.

Industry Competition: The mining industry is characterized by intense competition, both locally and globally. Major competitors include large multinational corporations, which can impact market share and pricing strategies. For instance, Nexa reported a decline in net revenue to USD 2,025.6 million in the nine-month period ended September 30, 2024, compared to USD 1,943.4 million in the same period of 2023.

Regulatory Changes: Changes in regulations can significantly impact operational costs and project viability. A recent law, No. 14,789/2023, introduced new tax credit mechanisms affecting investment subsidies, which may lead to increased tax liabilities for the company. The effective statutory income tax rate is currently 24.94%.

Market Conditions: Fluctuations in commodity prices, particularly for zinc and copper, directly affect revenue. The company has observed higher prices for these metals; however, this is offset by varying sales volumes. For the nine-month period, gross profit was reported at USD 394.8 million, up from USD 229.7 million in the previous year.

Operational Risks:

Operational Challenges: The company faced operational difficulties, particularly during the ramp-up of the Aripuanã mine, which has led to impairment losses. The impairment loss of long-lived assets was recorded at USD 25.4 million.

Environmental and Social Risks: The company is subject to environmental regulations that can lead to significant costs and operational delays. As of September 30, 2024, Nexa had asset retirement and environmental obligations totaling USD 231.1 million.

Financial Risks:

Debt Exposure: Nexa has a high level of indebtedness, with total liabilities amounting to USD 3.5 billion as of September 30, 2024. This includes current portions of long-term loans of USD 68.4 million and interest on loans of USD 41.5 million.

Currency Fluctuation: The company operates in multiple currencies, exposing it to exchange rate risks. The Brazilian Real has depreciated against the USD, impacting financial results. The net financial results included a loss of USD 227.9 million for the nine months ended September 30, 2024.

Strategic Risks:

Strategic Decisions: Decisions regarding expansion and investments in new projects may carry risks if market conditions change. The company has undertaken several financing activities, including a bond offering of USD 600 million at a 6.75% interest rate.

Mitigation Strategies: To address these risks, the company has implemented various strategies, such as hedging against currency fluctuations and maintaining compliance with financial covenants. As of September 30, 2024, Nexa was compliant with all its financial covenants.

Future Growth Prospects for Nexa Resources S.A. (NEXA)

Future Growth Prospects for Nexa Resources S.A.

Key Growth Drivers

Several key growth drivers position the company for future expansion:

• Product Innovations: The company has focused on enhancing its mining and smelting processes, which has led to improved efficiency and reduced costs. For instance, the adjusted EBITDA for the nine-month period ended September 30, 2024, reached USD 182,911 compared to USD 128,135 in the same period of 2023.
• Market Expansions: Nexa is expanding its operations in Brazil and Peru, targeting increased production capacity. The net revenues for the nine-month period ended September 30, 2024, were USD 2,025,563, up from USD 1,943,356 for the same period in 2023.
• Acquisitions: The company continues to evaluate acquisition opportunities to enhance its portfolio. Notably, the sale of the Morro Agudo Complex brought in approximately BRL 60,565 (USD 10,895).

Future Revenue Growth Projections and Earnings Estimates

Future projections indicate robust revenue growth driven by increased demand for zinc and copper. Analysts estimate revenue growth of 8-10% annually over the next five years, supported by rising metal prices and operational efficiencies.

Earnings estimates for the fiscal year 2024 are projected to improve significantly, with anticipated net income for the nine-month period of USD 5,983 compared to a net loss of USD 64,484 in 2023.

Strategic Initiatives and Partnerships

Nexa is pursuing several strategic initiatives:

• ESG-linked Financing: The company recently secured an ESG-linked credit line of BRL 200,000 (approximately USD 40,030) to enhance its sustainability efforts.
• Joint Ventures: Partnerships with local firms in Peru and Brazil aim to enhance operational capabilities and market reach.

Competitive Advantages

Nexa Resources holds several competitive advantages that bolster its growth potential:

• Diverse Portfolio: The company operates multiple mines and smelting facilities, providing a diversified revenue stream. As of September 30, 2024, the total assets were valued at USD 4,769,704.
• Strong Market Position: With a significant market share in the zinc and copper sectors, Nexa benefits from economies of scale and strong bargaining power with suppliers.
• Experienced Management: A seasoned management team with extensive industry knowledge enhances strategic decision-making.

These growth opportunities highlight the potential for significant gains as the company navigates the evolving mining landscape and capitalizes on market demand.

Updated on 16 Nov 2024

Resources:

1. Nexa Resources S.A. (NEXA) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Nexa Resources S.A. (NEXA)' financial performance, including balance sheets, income statements, and cash flow statements.
2. SEC Filings – View Nexa Resources S.A. (NEXA)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.