Forecast is for better numbers in the coming months
07/21/2023
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Jennie Li — Foto: Divulgação
The second quarter results season is expected to maintain the tone of the first three months of 2023, without major surprises, with the market already expecting a series of weaker earning reports from listed companies, still reflecting the challenging economic scenario. The important thing, according to analysts heard by Valor, will be the signal that these companies will give for the sequence of the year.
“The general perception we have is that the improvement we have seen in stock prices in recent months, with the expectation of a reduction in interest rates and improvement in economic activity, will not be corroborated by the results,” says Fernando Ferreira, chief strategist at XP. He points out that the weak macroeconomic indicators shown in recent weeks have reduced analysts’ expectations.
Brazil’s benchmark interest rate Selic still stands at 13.75% per year, close to the level of 12 months ago, and is expected to translate into a less robust increase in companies’ financial results. The high cost of debt, however, will still have a strong impact on the bottom line of earning reports. The 2% drop-in economic activity in May, indicated by the Central Bank’s Economic Activity Index (IBC-Br) data released earlier this week, will also take its toll.
“The results of the companies should surprise the market little, the first quarter had more this role of adjusting expectations about what was happening and the numbers released in the coming weeks are expected to remain very similar to the first months of the year,” says Pedro Serra, head of research at Ativa Investimentos.
A survey by the Bank of America (BofA) shows that 65% of the managers interviewed consider that much of the scenario of weaker results is already reflected in the prices of companies, which reduces the possibilities of negative surprises and increases the potential for stock appreciation if any company exceeds expectations for the period.
For Mr. Ferreira, the recent moves made by companies, such as debt renegotiation and stock offering to strengthen the earnings reports, show the market that they themselves already expect a continuity in the current scenario. “It was still a challenging quarter in terms of fundamentals and the big question is whether the investor will overlook this in function of what comes in the second half.”
There is a widespread expectation in the market that the Central Bank will start a process of cutting interest rates in the second half of the year, with inflation cooling, which will directly help companies’ future results. The more robust economic activity, with banks revising upwards their estimates of GDP generation, also increases the prospect of more positive numbers in the coming quarters.
Although most second-quarter results are already priced in, some sectors may stand out positively. Ativa calls attention to health care companies – which register lower cost pressure – and construction – given robust operating results with increased launches and sales, as two examples that may surprise the market. High-income retail and capital goods may have strong numbers as well, in XP’s assessment.
WEG and Romi, the companies that opened the second quarter results season, showed different numbers, even though they are from the same industrial sector. The first had robust results again, with margin expansion as it saw its costs decrease. Romi, meanwhile, saw shares melt after revenues and new orders fell.
“Few sectors are expected to show the resilience that we saw in the first quarter because of the turbulent macroeconomic,” says Jennie Li, XP strategist. She recalls that commodities remained with stable prices, but there was a significant appreciation of the real that is expected to reduce earnings of companies that operate with exports, such as mining, steel, and paper companies.
Vale presented on Wednesday a sequential evolution in production in the second quarter, but the banks’ assessment is that this should not translate into large financial gains, with analysts maintaining estimates of Ebitda around $4 billion for the company, due to the appreciation of the exchange rate and lower sales pace in the period.
Retail linked to high income and shopping malls are expected to maintain robust results in the second quarter. Both managed to quickly resume pre-pandemic performance and pass on the rise in costs to products and rents. Some agribusiness sectors, such as sugar and alcohol, are expected to also perform well in the period, according to the XP strategist.
Companies in sectors with high leverage, such as airlines and car rental companies, are expected to have more pressured results. Supermarkets are expected to suffer from lower inflation, adds Ms. Li.
*Por Felipe Laurence — São Paulo
Source: Valor International