Investors say goodbye to Petrobras’s dividend era

Analysts start to review recommendation after elections

11/03/2022

Petrobras, Brazil’s largest company by revenues and market capitalization, emerged as a clear loser from presidential election — Foto: Leo Pinheiro/Valor

Petrobras, Brazil’s largest company by revenues and market capitalization, emerged as a clear loser from presidential election — Foto: Leo Pinheiro/Valor

Analysts had a thorny task in the last few months: predicting the future of Brazilian listed companies, especially state-owned ones, before the tightest presidential election ever, with two antagonistic projects for the country. Now that fate is sealed, the time has come to redo the math.

In general, the already consolidated understanding is that the retail, education, and low-income construction sectors will benefit most from the new federal administration. In particular, the correction of target prices and recommendations for winners and losers has begun. Petrobras, Brazil’s largest company by revenues and market capitalization, is clearly in the second group.

The state-owned behemoth has the power to cause seismic tremors in the economy and investments. According to the most recent data from Exchange B3, the shares with the public are divided among about 718,000 individuals, 5,900 companies, and 2,900 institutional investors.

This correction by banks and brokerages had already been happening more discreetly after the first round of voting, according to the events and the winds of the polls. With the definition on Sunday, it tends to become more explicit.

On Monday morning, after the results were known, XP cut by 25% its price target for Petrobras, although keeping a buy recommendation, and took the opportunity to reallocate its bets on its private-sector competitors Prio, which it started covering, and PetroRecôncavo, whose coverage was resumed. BTG Pactual cut its price target by 10%, keeping the previous neutral recommendation, while J.P. Morgan made the most radical move, cutting by 30% the company’s price target and downgrading its recommendation to neutral from buy.

Analysts have different views on what will happen with the oil company’s pricing policy but are unanimous about the change in investments – for example, the return of heavy allocations in refining – which means the end of the dividend bonanza.

“While we are confident that many mistakes of the past will not be repeated,” BTG says in a report, “investors cannot underestimate the new government’s ability to use Petrobras as a vehicle to drive economic growth, investment, jobs, and energy security.”

Put into numbers, the bank calculates that a 50% increase in investments would reduce the dividend yield in 2023 to 15% from 21%, which would cause shares to fall 25%. If investments double, in the worst-case scenario, the dividend yield drops to 9%, causing stocks to decline 53%.

J.P. Morgan foresees payment of 25% of free cash flow in dividends, compared to 60% today, and has a pessimistic view regarding the pricing policy. The bank has reduced the chances of the company passing on international oil prices to fuel prices to 40% from 60%. “The new administration has openly criticized Petrobras’s conduction and has already signaled changes in the company,” the bank said in a report.

Petrobras shares closed slightly higher on Tuesday, at R$33.37 (common shares) and R$29.86 (preferred shares), after a sharp drop the day after the runoff vote.

The state-owned oil company’s recent phase as a relatively safe and highly profitable investment, after a long recovery from the corruption scandals of the not-too-distant past under the Workers’ Party’s rule, has created a great expectation among analysts and investors of the continuity of the current strategy of divestment and large dividends, as well as potential privatization.

The shock of reality was enormous: since the stock peaked on October 21, the company’s market capitalization has dropped R$106 billion. And this is all about politics, considering that local and foreign peers gained ground in the same period.

In this particularly good year for the industry, Petrobras still rose 50%. Yet, it underperformed Prio (which climbed 78%), PetroRecôncavo (70%), and U.S.-based rival Exxon (80%).

For the coming months, there is nothing to expect but ups and downs caused by political news. The third-quarter earnings report, which comes out on Thursday, will have little to say.

In J.P. Morgan’s view, the shares will only come out of a volatile scenario when there is clarity about the plans for Petrobras, which is likely to take at least the first six months of the new term, it predicts.

Meanwhile, more analysts will review their price targets for 2023 and also their recommendations, as a correction seems inevitable. The company was, even with all the problems of a state-owned company, coming in at multiples closer to its peers. But this is now history.

*By Nelson Niero, Felipe Laurence — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Petrobras may put sale of stake in Braskem on hold

With Lula da Silva’s victory, oil company is expected to analyze again plan to leave industry

11/03/2022

Petrobras may or may not exercise the right of preference to acquire the partner’s stake, sell its part or remain in the business — Foto: Edilson Dantas/Agência O Globo

Petrobras may or may not exercise the right of preference to acquire the partner’s stake, sell its part or remain in the business — Foto: Edilson Dantas/Agência O Globo

The sale of Petrobras’s stake in Braskem is uncertain after Luiz Inácio Lula da Silva (Workers’ Party, PT) won the presidential race, sources involved in the talks say. The state-owned oil company hired J.P. Morgan as an adviser last year, when Novonor, the company formerly known as Odebrecht, decided to sell its share.

With the sale of Novonor’s stake, Petrobras may or may not exercise the right of preference to acquire the partner’s stake, sell its part or remain in the business. Novonor, with 38.4% of the company’s capital, and Petrobras, with 36.15%, are part of the petrochemical company’s controlling group.

Sources told Valor that the state-owned company was willing to offload its stake for the right bid. However, with the victory of Mr. Lula da Silva, who has already said he is against privatizing more companies, the oil company is expected to reanalyze the idea of leaving the Brazilian petrochemical company.

Sources close to Mr. Lula da Silva’s campaign have begun to discuss the role of Petrobras in the new administration. They told Valor that the integration of refineries and petrochemical companies is a global trend. One source understands that the petrochemical industry is an important and profitable field that should be strategic for Petrobras. However, there is no definition yet on the sale of Petrobras’s stake in Braskem.

One of the biggest critics of Petrobras’s strategy of focusing on exploring oil in deep waters, and a historical advocate of the company’s stake in the petrochemical company, former Petrobras CEO José Sergio Gabrielli is in the group that advises the Workers’ Party regarding the future of the state-owned company. Mr. Gabrielli told Valor he sees synergies between refining and the petrochemical industry, but only the future administration can speak on Petrobras’s strategy for the sector.

Sources linked to Novonor’s creditor banks say that the Odebrecht family will have to get rid of the business, and Mr. Lula da Silva’s election does not change this situation. However, it is unclear whether potential buyers will maintain a bid covering only Novonor’s stake should Petrobras decide to remain in Braskem’s capital.

The company received a new proposal from the private-equity firm Apollo, which raised the bid to R$47 per share, but there are no formal talks underway, a person familiar with the matter said. The U.S.-based firm will do due diligence before moving forward with the deal, but sources say this is no longer a determining factor.

Apollo’s main concern is the petrochemical company’s assets in Alagoas. Although Braskem has advanced a lot in the talks with authorities about soil sinking in Maceió, the firm still sees risks, including from the financial standpoint. The amount provisioned to cover expenses with the geological problem, allegedly caused by Braskem’s activity there, totals R$12.9 billion so far.

In previous talks with Novonor, Apollo had imposed as mandatory the due diligence before making a formal bid. Now, the company will do the due diligence at its own risk, a source said. The company is said to be interested in Petrobras’s stake as well.

At this moment, there are no negotiations on the table, despite Apollo’s decision to raise its bid. Unipar’s bid for Braskem’s sliced assets in São Paulo has already expired, and the company is waiting for signals from Novonor on what will happen with the petrochemical company before presenting the same bid again or a new one. J&F is also potentially interested but has not presented a new bid.

According to sources, Novonor’s creditor banks showed no interest in Unipar’s bid. They hold about R$15 billion in debts converted into Braskem shares. On the other hand, Apollo’s bid is supported by part of this group. BTG Pactual left the negotiations, according to a source linked to the creditors. The debt-buying division of André Esteves’s bank had asked for a steep discount.

Some creditors believe that Braskem shares can recover in the future, but are skeptical of trading them on the stock exchange in the short term. The banks wait for a better bid, especially from foreign investors.

Novonor and Unipar declined to comment. Apollo and Petrobras did not immediately reply to requests for comment.

*By Mônica Scaramuzzo, Stella Fontes — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Blau buys Bergamo, seeks new deals

Purchase is first since IPO, in April last year, and new mergers and acquisitions are expected

10/01/2022

Marcelo Rodolfo Hahn — Foto: Ana Paula Paiva/Valor

Marcelo Rodolfo Hahn — Foto: Ana Paula Paiva/Valor

Blau Pharmaceuticals signed a contract to purchase 100% of the capital stock of Bergamo Laboratory, a subsidiary of the American Amgen, one of the largest biotechnology companies in the world, for $28 million. The acquisition is Blau’s first since its IPO, in April last year, and new mergers and acquisitions operations are likely to take place, according to the company’s command.

“The acquisition will increase our offer of oncological products, with an important increase in production capacity”, said Marcelo Hahn, CEO of Blau, to Valor.

Bergamo Laboratory reported net revenue of approximately R$185 million in 2021, according to Blau, and produced about 2.2 million units, with a portfolio of 19 products and about 190 employees. Founded in 1946, the laboratory was acquired in 2011 by Amgen.

Payment for Bergamo does not involve shares and will be made in cash upon the closing of the deal. The acquisition still needs to be approved by regulatory authorities such as the antitrust regulator Cade, which is expected to happen between 90 and 120 days.

“For us, it is an excellent opportunity. Bergamo Laboratory has biological products and specialized in oncology,” said the head of mergers and acquisitions of Blau Pharmaceuticals, Roberto Morais. “The biggest asset is the immediate increase in production capacity and some new oncology products, chemotherapy,” Mr. Morais said.

Bergamo Laboratory has one plant in Brazil, in Taboão da Serra, in the metropolitan area of São Paulo, very close to two other Blau’s plants, in São Paulo and Cotia, close to the capital. With the acquisition, Blau adds a unit to the other five it already has, in addition to the plant that will be built in the Suape Port Complex in Pernambuco state.

According to Hahn, Bergamo Laboratory will also add to Blau a good knowledge of the industry and a go-to-market model, a differentiated approach to commercialize oncologic products inside clinics and hospitals. According to him, Amgen has differentiated knowledge and works with innovative drugs, and with the acquisition, Blau also receives expertise in the commercial area.

The CEO also says that Blau is looking for new opportunities. The company carried out an IPO in April 2021 and raised R$1.26 billion. “We have never been so active in the area of mergers and acquisitions. We have many companies in our pipeline right now,” in various stages of negotiations, Hahn says. Blau is reinforcing its mergers and acquisitions team.

“We have a well-defined strategic plan. Besides opportunities and pillars for growth in the organic part, we want to increase our industrial park to increase our production capacity. We want to grow in the market and position ourselves as one of the major manufacturers in Brazil and Latin America. For this, we will depend on acquisitions”, according to Mr. Hahn.

The idea is to maintain the operation in Brazil and be able to supply South America and other countries. “In the business plan, we have investments in Brazil, the United States, and Europe for manufacturing”, says the CEO. According to him, in Latin America, there are offices, packaging, and quality control area, necessary in some countries, but the proposal is to centralize in a place with high production capacity and low operating costs.

Besides that, the company is investing in plasma collection centers in the United States. In June last year, it began the collection of plasma in the first center and is finishing the construction of the second, which may start operating by the end of this year, says Mr. Morais. According to him, the company already has defined the location of the third plasma center and is in negotiations for the fourth location, in the Florida region. Mr. Morais says that the company is on schedule for the IPO

“The feeling is that we are just beginning, we still have enough breath to grow, next year we have a public offering, and we will have a very strong investment in the coming quarters to continue growing and bringing value to shareholders,” says the CEO.

*By Cristiana Euclydes — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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CSN will invest to replace imported steel

Steelmaker, which acquired a line to make high added value, pre-painted steel in South Korea, has a project valued at up to R$400m

11/01/2022

Luis Fernando Martinez — Foto: Silvia Zamboni/Valor

Luis Fernando Martinez — Foto: Silvia Zamboni/Valor

Brazilian steelmaker CSN wants to occupy a market seen as relevant for high-value-added steel that is currently served by imported material, almost entirely from China. This type of steel, qualified as pre-painted, is used to make white goods like refrigerators, freezers, washing machines, and others, and others, like as coating panels for home construction.

The company is preparing an investment of R$350 million to R$400 million to set up a production unit in Brazil, in a place to be defined this month or by the end of the year. The steel company has acquired in South Korea a complete sheet-painting plant, which will have an annual capacity of 160,000 tonnes, said Luis Fernando Martinez, CSN’s chief commercial officer.

According to him, the rolling mill belonged to the South Korean steelmaker Hyundai Steel and had been paralyzed since September 2020. It is being disassembled and will start being shipped to Brazil later this month.

“We have been analyzing this project for some time, aiming to add value to CSN’s galvanized steel,” the executive said. To make the pre-painted steel, the company uses its own galvanized steel coils.

Mr. Martinez said that there are a few potential sites where the plant could be assembled, including Araucária (Paraná), where it already has operations; Volta Redonda (Rio de Janeiro), next to CSN’s steel production plant; São Paulo; and the Northeast region. All these possibilities, with more or fewer chances, depend on negotiations for the concession of incentives, besides logistics and trained employees.

CSN plans to start the operation of this industrial unit in up to 18 months, seeking to speed up construction and to begin sales to the market in the first quarter of 2024. The infrastructure in Araucária and Volta Redonda is ready, which is seen as an advantage. “This speeds things up,” he said.

Brazil currently imports 165,000 tonnes per year of pre-painted steel coils, he said. “We want to occupy this space and replace imports.” Almost 95% of the material comes from China, through ports in Santa Catarina. São Francisco do Sul, Imbituba, and Itajaí account for almost 91%, according to data from importers.

CSN is already Brazil’s only producer of pre-painted steel. The company’s rolling mill facilities in Araucária have an installed capacity of 120,000 tonnes a year. “We are operating at maximum capacity,” said Mr. Martinez, stressing that it is a booming market.

The Brazilian market for this type of steel last year totaled 259,000 tonnes, according to data from the Brazil Steel Institute and the Economy Ministry. Of this volume, 156,800 tonnes were absorbed by the home construction activity, while 45,100 tonnes were used to make housewares and for commercial purposes. Capital goods, especially electronic materials, accounted for 33,200 tonnes. The automotive industry, the fourth-largest market, accounted for 11,600 tonnes.

Companies such as Whirpool, Panasonic, Metalfrio, Kingspan (panels), Metalúrgica Barra do Piraí, Marko (roof tiles), Imbera, Panatlântica, Facchini (vans), J. Paulatti, Fiat, Elevadores Atlas, and Frigelar are among the users of pre-painted material in Brazil, sources say.

Imports have had continuous growth in the last five years: they went from 73,000 tonnes in 2017 to 95,000 in 2018, 119,000 in 2020, and 165,000 last year, according to official data.

Mr. Martinez said that the applications of pre-painted sheets have been growing in several sectors, many of which it cannot serve. He cited, for example, trailers and semitrailers, van manufacturing (which uses a lot of aluminum, a competitor metal), building facades that imitate wood, and other architectural solutions.

From its Araucária unit, CSN delivers the material to the clients cut in the format ordered, painted, and packaged with plastic film, said Mr. Martinez. In other words, ready to enter the production line. “With the new line, which will further increase quality, we will be able to replace the so-called post-painted steel [painting done at the client’s site or service provider] with pre-painted steel. This is one more market,” the executive said. “A lot of imported material doesn’t meet quality standards.”

*By Ivo Ribeiro — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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EU rejects Lula’s plan to change agreement with Mercosur

Mercosur and the EU continue to work technically on the bi-regional agreement

11/01/2022

Ursula von der Leyen — Foto: Jean-Francois Badias/AP

Ursula von der Leyen — Foto: Jean-Francois Badias/A

The European Union signaled its opposition to president-elect Luiz Inácio Lula da Silva’s intention to change the Mercosur-EU agreement.

On Saturday, the day before the runoff vote, Mr. Lula da Silva published an article in the Paris-based newspaper Le Monde saying that “improving the terms of the Mercosur-European Union agreement will allow us to increase our trade, deepen the bonds of trust and strengthen the defense of our common values.”

In his first speech after his victory in the presidential race, on Sunday, Mr. Lula da Silva warned that he wants to “resume relations with the United States and the European Union on new bases.” And that he was not interested in trade agreements that condemn Brazil to be an eternal supplier of commodities.

When asked by Valor, the EU answered Monday with a clear “no” to Mr. Lula da Silva’s idea, saying that the focus should now be on working towards the implementation of the negotiated understanding.

“We believe that the agreement negotiated with Mercosur is very beneficial for both parties and will provide a framework for strengthening political and sectoral cooperation, trade and sustainable development,” said Mirian Ferrer, EU’s spokesperson for Trade and Agriculture.

“We look forward to engaging with the Brazilian authorities, as well as with the other Mercosur countries, to bring the ongoing process to a successful conclusion (of the agreement). We are notably seeking to strengthen our cooperation on sustainability and deforestation through an additional instrument,” she added.

Mr. Lula da Silva’s idea, which means eventually reopening the trade agreement, had already been cited by him during a trip to Europe before the election campaign. The president-elect suggested that Brazil should get more concessions, for example in the industrial front, and not limit itself to slight gains in agriculture, sources say.

But Brussels indicates that nothing will change. A source from the bloc reiterated that “in principle” it is unlikely to change. The Europeans are still talking about sending to Mercosur a call for an additional commitment against deforestation by the end of the year. This European document is still in the making in the European Commission, and has not yet been sent to the 27 member states, sources in Brussels say.

Reopening the Mercosur-EU agreement, after complicated negotiations over 20 years with interruptions, means continuing to delay an improvement in bilateral trade conditions for companies on both sides against a particularly tense geopolitical backdrop.

Mercosur and the EU continue to work technically on the bi-regional agreement, recently closing issues such as geographical indications. Nobody expects anything to move forward soon, not least because the president-elect’s transition team will have other priorities.

In Brussels, the president of the European Commission, Ursula von der Leyen, in a recent speech to the European Parliament, failed to mention Mercosur when talking about trade agreements. She cited new updates of agreements with Mexico and Chile, but these two are not going to come out any time soon either.

People within the Bolsonaro administration believe that Brazil’s private sector has not asked to reopen what has already been negotiated with Europe. And that Argentina’s President Alberto Fernández, aware of the fragility of its economy, is the one willing to review the understanding.

Plus, some people in Brasília feel that the Europeans made a mistake by failing to close the agreement with Mercosur as soon as possible and to accelerate Brazil’s entry into the Organization for Economic Cooperation and Development (OECD).

The prevailing assessment is that European governments, in order to satisfy some segments of the population that demanded more emphasis on the environment, have antagonized too much the relationship, especially with Brazil. As a result, European companies that want to invest more in the region do not have the advantages they could have through the bi-regional agreement, for example.

*By Assis Moreira — Geneva

Source: Valor International

https://valorinternational.globo.com/
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