Posts

Auren Energia debuts on B3 with eye on renewables

Auren Energia, antiga Cesp, conclui listagem no Novo Mercado da B3 | Portal Solar

Auren Energia, a power generation company created from assets of Votorantim and CPP Investments, debuted in Novo Mercado, the strictest governance segment of the Brazilian exchange B3, valued at R$16 billion. Auren plans to expand and be among the leaders of the industry and says it is ready for acquisitions of renewable assets, a segment defined as its business focus.

Among the operations is Companhia de Energia do Estado de São Paulo (CESP), which became a subsidiary of Auren and accounts for a relevant share of the company’s generation portfolio.

With pro-forma net operating income of R$6.5 billion last year – including Votorantim Energia, VTRM (wind power assets) and CESP – the power company closed its first day on the B3 up 1.91%, encouraging investors who bet on the strategy.

The portfolio has 3.3 GW of capacity, with some ongoing projects expected to start operating this year, and the company is flush of cash. There is about R$1.5 billion to be invested in new projects. The company’s goal is to reach 5.2 GW by 2026, reducing the exposure to hydro sources, which today accounts for more than 70% of the pipeline.

CEO Fabio Zanfelice told Valor he intends to grow in renewable energies and in the free energy market. He also said that the new company was created to invest in assets in the electric sector.

Besides being capitalized and net debt-to-EBITDA ratio of 1.5 times, the company says it is able to take debts for mergers and acquisitions. However, in the current context of escalating interest rates and high capital costs, the company is likely to go shopping with its own capital.

In the market there is a menu of power generation companies for sale, such as the assets of Eletrobras – and the state-owned company itself, which may be privatized – , Ibitu, Rio Energy, Renova and EDP plants. “We are prepared to make any acquisition of any size in the sector today,” said Mr. Zanfelice, without elaborating. “We are capitalized, we have financial and technical capacity to make acquisitions and we will continue to evaluate assets, besides organic growth.”

One way is through solar generation, with ongoing projects that will add 1.7 GW. According to the company’s goal, the source will account for 34% of a 5.2 GW portfolio in four years.

Auren has two solar projects to develop in Brazil, but the challenge in reaching this goal lies in the pressure from the production chains. Last year, the cost of solar panels rose about 8% driven by the cost of freight, the surge in commodity prices and exchange rate volatility, which may cause some generation companies to revise investments.

“We have time to observe the evolution of prices and we consider that the prices of solar panels were impacted by the pandemic, production factors in China, and logistics, but within our strategy we have time to acquire equipment. But if this scenario of equipment costs persists, both solar and wind, sooner or later we will see an increase in the price of power in the long term,” he said.

In wind power generation, Auren currently operates farms in Piauí that have an installed generating capacity of 600 MW. Another 400 MW are expected to start operating by the end of the year. CESP’s generation capacity, with emphasis on the Porto Primavera plant, is 1,624 MW, of a total of 2.3 GW of hydro sources in operation and 160 MW (small plants) under development. The company is also setting up a 68 MW hybrid complex (wind and solar) in Piauí, alongside its assets.

In the commercialization activity, the company’s executives believe that the current business has conditions to be much bolder. The company has 2.6 average GW of power commercialized and about 500 clients.

With the modernization of the electric sector, through bill 414/2021 (currently making its way in Congress), in which one pillar is the growth of the free market, the strategy for this segment goes from power management for new smaller clients, digitalization of commercialization, and even low power clients.

“The expectation is that we will have smaller customers with a slightly higher margin on those products they will demand. Our goal is to increase twofold the number of customers and reach 1,000 customers in a year’s time,” he said.

In the restructuring and incorporation of assets for the formation of Auren, the controlling shareholders are Votorantim S.A., with 37.7%, and CPP Investments, with 32.1%. The remainder (30.2%) are held by minority shareholders in CESP who migrated to the new company, now robust and with a diversified portfolio of assets.

Source: Valor International

https://valorinternational.globo.com

/by

Asset managers see foreign flow to B3 losing steam

Asset Management: o que é e como utilizar nos ativos

After receiving R$73 billion in foreign funds this year to March 16, more than any full year since official records began in 1994, the secondary market of B3 may see the flow slowdown in the coming months as the global landscape for stocks undergoes adjustments, asset managers told Valor.

To be sure, global investors continue to see support for commodity-linked stocks, which account for 40% of benchmark stock index Ibovespa, but a shift in focus to assets more reliant on the local economy seems increasingly less likely, as inflationary pressures intensify and the Federal Reserve has already started its monetary tightening cycle.

The Ibovespa is up 9.8% this year, while S&P 500 is down 6.3%, Nasdaq lost 11.6% and Stoxx 600 fell 6.8%. The positive performance, however, is strongly concentrated in the blue-chip companies, those with the greatest weight in the local index, and in the mining, steel, financial and oil and gas industries, the favorites of global investors because of their liquidity.

Before the beginning of the Russia-Ukraine war, in February, analysts saw a potential migration of international capital to assets more linked to the local economy, expecting a slowdown in inflation and a reversal of the Central Bank’s monetary policy after the presidential election, scheduled for October. This scenario seems distant now.

“Central banks in Latin America had been preparing for months for this monetary tightening cycle, trying to stay ahead of the curve, but the impact of the war is essentially inflationary, with high food and energy prices. It’s not catastrophic, but it makes the landscape more challenging and delays expectations of a turnaround,” said Alejo Czerwonko, chief investment officer for emerging markets and Americas at UBS, which has a neutral recommendation for Brazilian assets.

UBS BB, the arm of the Swiss bank in Brazil, believed that the Selic could reach 13.75%. But after the local policymakers’ decision on Wednesday to raise Brazil’s benchmark interest rate to 11.75% and signal another 100-basis points hike, UBS revised its projection for the final rate to 12.75%. The difference, however, is that the bank’s analysts now predict that the rate will remain at this level by March 2023.

As a result, the environment is less favorable for the recovery of assets linked to the domestic scenario, Mr. Czerwonko said. He cites the Federal Reserve’s monetary policy decision, unveiled on the same day, as a potential watershed for the stock markets.

“Fed’s statement was tough, indicating several hikes and showing concern with inflation, which is likely to mean less liquidity and funds for emerging markets. In addition, investors have left some sectors of the U.S. stock market, such as technology, to protect themselves from interest rate hikes, but now this seems to be more priced in, so we may start to see the move lose steam.”

Along these lines, Marko Kolanovic and Bram Kaplan, with J.P. Morgan, wrote in a report that they no longer believe that U.S. growth assets have much correction ahead. “Markets can anticipate turning points, so we believe it is time to start adding risk in many fields that have experienced too strong a correction,” they argued.

Mr. Czerwonko, with UBS, also points out that Brazil’s historical problems, such as the lack of a growth rate more compatible with emerging economies, help explain why the local market took a back seat in recent years and its use only as a “tactical refuge” during commodity boom cycles.

“Besides markets such as China, India and Southeast Asia presenting consistently better activity figures, the elections, which were pushed to the back burner in recent months, are likely to gain prominence throughout 2022,” he said.

Mauro Oliveira, head of Latin America equities at Credit Suisse, said that the Brazilian central bank and the Fed released tough statements, which shows discomfort with inflation that may impact assets more dependent on local activity. However, the flow will continue, even at a slower pace, with the help of commodities, he said.

“Foreign investors are likely to tap the local market at a slower pace, with profit-taking moves in some days or even leaving some stocks. In some sectors, like construction, is very hard to invest now because of poor results and labor cost inflation. But the Brazilian stock exchange is a commodities exchange, there is no way to escape this, and this segment is likely to draw money throughout the year.”

Alexandre Reitz, head of equities at Julius Baer Family Office, follows the same path. He points out that, in communication with clients, local equities have started to carry more risk than they did at the beginning of the year due to the factors added in recent weeks.

“We could already see a recovery in domestic assets at the beginning of 2022, and this has been extended a bit further ahead. But the constructive view about commodities remains. The profitability level last year had been high and was telegraphing a correction, but the war has changed this landscape,” he said, pointing out that he has started to look for positions in more resilient domestic assets, such as the clothing sector.

Credit Suisse estimates that Brent oil, the benchmark for Petrobras, is likely to remain at the level of $100 by the end of 2022 due to persistent supply problems. Iron ore is likely to stay above $120 throughout the second half, even as discussions of control in steel production remain in China.

As for the Asian powerhouse, Messrs. Oliveira and Czerwonko saw favorably recent remarks of vice premier Liu He. He said the government will stimulate the country’s economy again and work to organize its stock market. Besides commodities, the analysts say the changes can impact Chinese assets, which trade at a discount level in some sectors compared with the Brazilian market.

As for the Brazilian real, which has appreciated firmly this year, the three financial firms see resilience at current levels, given local interest rates and high commodity prices. Mr. Oliveira, with Credit Suisse, points out that there may even be a correction in case of occasional risks, to between R$5.25 and R $5.30, but that foreigners would soon return to set up positions in the local currency.

Source: Valor International

https://valorinternational.globo.com

/by

Foreigners at B3 target restricted group of companies

Vale's iron ore attract foreign investors — Foto: Agência Vale
Vale’s iron ore attract foreign investors — Foto: Agência Vale

Despite the good performance of the Brazilian stock market this year, the market gains are concentrated in a restricted group of stocks, the destination of foreign investment in recent weeks. The focus has been on consolidated, liquid companies and not always with fundamentals that justify a long-term bet.

In the year, Ibovespa, the stock exchange’s main index, rose 7.68%, while the Small Caps, which includes companies with smaller capitalization, dropped 0.43%. Of the 90 stocks that make up the Ibovespa, only 39% outperform the index.

The group comprises stocks from the financial, raw materials and energy sectors, which have been the target of global investors. But, according to Valor Data, only ten shares account for 94.4% of the gains accumulated by the Ibovespa in the year. These are securities from companies such as Vale, Petrobras, Itaú, Bradesco, B3, Banco do Brasil, Hapvida and BTG Pactual.

With the exception of Hapvida, all stocks are raw materials exporters or companies in the financial sector. Altogether, they have a total weight of 49.8% in the Ibovespa theoretical portfolio, a fact that further highlights this discrepancy – the other half of the index accounts for only 5.6% of the accumulated gains in 2022.

Also noteworthy is the fact that, of the 90 stocks that make up the Ibovespa, only 35, or 39%, outperform the index. This group also includes stocks from the financial sector and raw materials, in addition to energy shares, the destination of the global investor, who is zeroing out positions in growth stocks.In 2022, foreigners increased their long position in B3 by R$58 billion — institutional investors reduced their position by R$48 billion.

For analysts, part of the foreign flow arrives in the country because the bonds seem cheap, due to the exchange rate. Guto Leite, with Western Asset, says that foreign investors have returned, but have opted for more liquid stocks.

He explains that the external flow, at first, focuses a lot on purchases through ETFs [exchange-traded funds] and this ends up having a greater impact on more liquid companies. “As the scenario is opaque, in general, privileging this type of bonds also makes sense,” says Alexandre Cancherini, manager at Frontier Capital.

For Daniel Gewehr, portfolio co-manager with WHG asset, the Brazilian stock exchange is benefiting from the global movement to search for value stocks, and no longer for growth stocks, after the world’s central banks, especially the Federal Reserve, prepare the monetary policy normalization cycle. “Brazil is perceived as a value market, 70% of the Ibovespa is made up of this type of bonds,” he says. “Russia is also a value market, but due to geopolitical issues, part of the flow that could migrate to that market may be coming to Brazil.”

For André Lion, partner and CIO of Ibiúna Investimentos, it is also necessary to consider the global investor reduced exposure to Brazil, both on the stock exchange and exchange in 2021, and became “underweight”. This global adjustment of positions opened space, therefore, for this investor to return to Brazil, especially attracted by stocks with attractive valuations, such as commodities, banks and steel. “But not everything is cheap,” he warns.

According to Mr. Lion, the Ibovespa is currently traded at a price-to-earnings ratio of 8.5 times, below the historical average of 11 times. Stocks linked to commodities, in turn, are currently traded at 6.6 times, with Petrobras having a price-to-earnings ratio of 5.8 times. But when considering only the group of stocks that are neither of state-owned companies nor linked to commodities – companies that reflect more directly the local economy, therefore – the multiple is higher, at 13.6 times.

In any case, Mr. Lion considers that the conditions for the external flow to continue reaching Brazil is likely to remain in the coming months. He says that, in addition to the fact that the valuation remains relatively attractive, favorable conditions for the exchange rate may even increase, as the Selic policy interest rate rises and the carry trade expands. In addition, with the interest rate hike by the Fed, the movement of migration from growth positions to value stocks is expected to intensify. “The Fed has only started to reduce purchases, soon it will completely withdraw the stimulus. This will have an impact on the market,” he says.

Mr. Gewehr, with WHG, also believes that the flow of external capital is likely continue, but at a slower pace. And it will continue to focus on the so-called “blue chips” [companies with greater liquidity and capitalization]. He says that the Ibovespa’s fair price today is a little below 11 times, according to the price-to-earnings ratio metric, which means that the stock market is still attractive.

“The Ibovespa trades with a 30% discount, while the world has a 10% premium, Brazil is still cheap in relative terms,” he says. “Our global fund chose to have some exposure to Brazil because the stock exchange looks interesting today.”

The negative point, he observes, is the profits projections of the companies that make up the Ibovespa, a fall of 12% in 2022. “In the tripod that investors consider to invest in the stock market, we have a good valuation, and also low allocation. What is missing is an upward revision of profits,” he says. Another risk, he points out, is the behavior of commodity prices. “It’s an investment that makes sense, but it’s risky.”

Source: Valor International

https://valorinternational.globo.com

/by

Share buybacks grow 44% at B3 in 2021

Carlos Sequeira — Foto: Divulgação

A drop in the Ibovespa index, attractively priced shares, flush with cash and less indebted companies. The combination of these factors led to a strong growth in the opening of share buyback programs, especially in the second half of the year, when stocks fell the most.

According to Brazil’s securities market authority CVM’s database on the subject, from January to December last year there were 108 programs opened, against 75 in the previous year, an increase of 44%, and December, with 18, was the month with the most buybacks.

January seems to maintain last year’s pace, with eight announcements in the first 17 days of 2022.

“The Brazilian stock market had a very important sell-off, going to around 100,000 points from 130,000 points in a few months,” said Carlos Eduardo Sequeira, head of research and analysis for Latin America at BTG Pactual.

The Ibovespa closed 2021 down 11.93%.

He adds that the value of the stock market, as a whole, is at levels considered attractive, trading below the historical average. “Companies design their budgets for the coming year at this time in December. They must have felt comfortable making their announcements, as well as taking advantage of the fact that stocks are cheap,” he said.

Buybacks are a way for public companies to give more resources to shareholders. The repurchased stocks reduce the amount in circulation and, therefore, increase the participation of investors in the distribution of dividends. The tool is also used to show confidence to the market that prices will rise.

That was the case of logistics company Sequoia. In the announcement of the buyback program, this month, the company made it clear that it considers its stocks cheap. “In the view of the company’s management, the current value of its shares does not reflect the real value of its assets combined with the prospects of profitability and generation of future results,” it says in the document.

Bradesco, which usually is not very fond of buybacks, started to use them more actively last year, amid pressure on financial sector shares caused by the pandemic and increased competition. When the bank announced the measure in April, it said it would adopt buybacks as an instrument to manage its capital level and as a complement to shareholder remuneration.

“Large companies, like Vale and banks, regularly leave their programs active, for when needed. Other companies, on the other hand, had a strong drop in prices and repurchased the shares for a cheaper amount,” said Rodrigo Moliterno, head of equities at Veedha Investimentos.

Construction was one of the sectors that most announced buybacks in 2021, in line with the performance of the segment’s shares, which fell 31%, said Rafael Passos, a partner at Ajax Capital. However, he notes that other activities linked to the domestic economy also underperformed. “Local companies suffered a lot. The same happened with consumption. Several, including retail, announced buybacks. Consumption had a devaluation of 26% in the stock market,” he said.

Antonio Marcos Samad Júnior, CEO of the proprietary desk Axia Investing, points out that the inflation and high interest rate scenario added to the elections “punished” many companies as investor fled. “Many companies are trading below their equity value, which makes no sense if the company is in good financial health.”

In addition to the downward prices, the fact that companies are capitalized contributed to the buyback drive. In 2021, many companies went to the market and are with comfortable financial statements positions, Mr. Sequeira said. For this reason, he states that it is “not surprising” that the wave of announcements will extend into 2022. “The consolidated debt of listed companies or the size of leverage has fallen a lot in recent years.”

A survey by BTG with 200 companies listed on the B3 suggests net debt ratio at 3 times in 2015, when the country entered into recession. The bank estimates that the indicator has fallen to close to 1.2 times last year.

In addition, companies have been pricing this year’s elections, which tends to drive volatility in the stock market. “After the election, I am reasonably confident that the Ibovespa will trade at higher values than today, regardless of who wins [for president],” said Mr. Sequeira, with BTG.

Mr. Moliterno, with Veedha, also believes that buybacks will continue at strong levels, and that companies may end programs already unveiled and start new ones if stocks remain at low prices. “It is natural, since we have had a very sharp drop in the stock market. Companies are likely to keep their programs active as a way to protect themselves from sharper swings.”

Companies can buy back up to 10% of the total outstanding shares, but the programs are not always that comprehensive. Nor does the company have to buy back the entire amount announced. In general, announcements state the maximum amount that can be repurchased. “The volume rose in 2021 compared to 2020 and is likely to increase again this year,” said Mr. Sequeira, with BTG, without detailing the amount purchased.

For Enrico Cozzolino, a partner and head of analysis at Levante Ideias de Investimento, there is no one better than the company itself to know if its stock is cheap. “The company may have a lot of cash on hand and instead of allocating the capital in an investment with daily liquidity, but a bad one, it can buy shares thinking of the more attractive ROE [return on equity],” he said.

Source: Valor international

https://valorinternational.globo.com/

/by

Braskem gears up to sell shares on B3

The banks participating in the consortium chosen by Braskem to sell the shares of the Brazilian petrochemical company on the stock exchange are working to conclude the secondary offering by the end of January, three sources familiar with the matter say. The idea is to raise between R$9 billion and R$10 billion by selling the company’s preferred stocks (PNs).

The offering on the stock exchange will involve only the PN shares of Novonor (formerly Odebrecht) and Petrobras, the two shareholders that are part of the Brazilian petrochemical company’s controlling shareholders block.

The move is crucial for Novonor to pay a good part of what it owes to the creditor banks. The group’s total debts to them amount to around R$15 billion. The group went into judicial reorganization in June 2019, with debts of nearly R$100 billion.

A source familiar with the creditors is optimistic about raising around R$10 billion, but the consortium is working with a more conservative figure of R$9 billion. Participating in the syndicate of banks to make the operation on the stock exchange are Bradesco, BTG Pactual, Citi, Itaú, JP Morgan, Santander and UBS-BB, under the coordination of Morgan Stanley.

Sources familiar with the matter told Valor that the efforts of the syndicate of banks will be to make the secondary offering in Brazil and abroad — there is an expectation that institutional funds, which are already minority shareholders in the Brazilian group, will take part in the offering.

Braskem’s market capitalization closed at R$ 42.4 billion on Wednesday. The company’s preferred shares closed the day at R$53.77, down 4.8%, but up 160% in one year. Common shares closed at R$52.85, down 3.9% in the day, but up 137% in 12 months, according to Valor Data.

Novonor holds 38.4% of the company’s capital and, Petrobras, 36.15%. The plan is to start with the sale of preferred shares, with 20% of the capital. The expectation is that, after this operation, the petrochemical company will migrate to Novo Mercado, the strictest governance segment of B3.

The plans to sell shares on the stock exchange gained strength after the search for a buyer for the petrochemical company did not result in an attractive proposal. Morgan Stanley, with a mandate from Novonor, was looking for one or more buyers, but the process did not bring the expected result.

At the same time, Petrobras hired J.P. Morgan to advise it on the sale of its stake in Braskem and had already signaled that it was looking for an exit along the lines of what it did with the former BR (now Vibra Energia), with more than one operation on the stock exchange. The Brazilian state-owned company is getting rid of assets that are no longer considered strategic to its business.

Sources connected to Novonor’s creditors told Valor that the sale on the stock exchange is the best alternative, since there was no firm proposal for the purchase of Braskem as a whole, only in slices. The divestment is foreseen in Novonor’s judicial reorganization plan, whose shares in Braskem were given in guarantee to creditor banks — Bradesco, Itaú, Santander and Brazilian Development Bank (BNDES), besides Caixa Econômica Federal.

The largest producer of resins in the Americas, Braskem is likely to end 2021 with historic numbers — the company moved up to December the payment of R$6 billion in dividends for the current year. The Brazilian petrochemical company is on track to achieve all-time high annual net revenue of R$100 billion, almost double that seen in 2019 and 71% higher than in 2020.

Braskem, Novonor and Petrobras declined to comment.

Source: Valor international

https://valorinternational.globo.com/

/by