Report Petro Itau
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(Outperform)
Petrobras PN Oil & Gas
Flash News September 17, 2009
De-risking Capitalization Ticker (local)
PETR4
Fair Value (10)
R$45.1
Ticker (ADR)
PBR/A
Estimates and Valuation Years
2008a
2009e
2010e
2011e
2012e
2013e
232,183
174,112
166,673
174,906
191,147
202,307
EBITDA (R$ mm)
56,098
55,401
52,446
58,542
71,047
86,317
EBITDAX (R$ mm)
58,872
58,922
55,239
61,399
74,102
88,900
Earnings (R$ mm)
33,914
24,080
22,887
25,270
30,167
37,196
3.87
2.74
2.61
2.88
3.44
4.24
Revenues (R$ mm) Fair Value (10)
US$53.1
EPS
Stock Data Current Price
R$
34.35
EV/EBITDA
6.2
6.7
7.4
6.9
6.0
5.1
Current Price
US$
38.35
EV/EBITDAX
5.9
6.3
7.0
6.6
5.7
4.9
Total Return (YE10)
%
33.6%
P/E
8.9
12.5
13.2
11.9
10.0
8.1
52 week high/low
R$
36.0/16.9
47,434
70,049
86,040
103,352
124,019
137,830
Shares Outstanding
m
8,774
Market Capitalization
R$m
301,390
Market Capitalization
US$
168,243
%
60.1%
R$m
529.99
Free-float 3-mth avg daily vol.
1m
12m
Absolute
6.2%
9.7%
Vs. Ibovespa
-0.2%
24.6%
Black Diamond
Performance (%)
Net Debt (R$ mm) Source: Itaú Securities
Petrobras has safeguarded the right to buy an additional five billion boe under the current concession system, which, in principle, is a good deal. However, there is no free lunch, and the company will need massive capitalization to buy those barrels! Before we can reach any conclusion on the subject, we need to know: i) the valuation of the barrels; ii) the amount of the capitalization required; iii) what the potential dilution is; iv) the proposed ratio of ONs and PNs; and v) how long it will take to obtain the capitalization. All easy questions… But do we need to have black and white answers to those five questions to be able to believe that Petrobras has room to outperform? The end of the road is not really exciting, as minorities will be diluted anyway and the final size of the capitalization remains a big question mark. Nevertheless, this report presents some interesting conclusions, which, in our view, demystify some of the market’s concerns while potentially creating a positive short-term momentum for the stock. Moreover, the end of the road might be far enough for investors to relax a bit and enjoy the trip.
Paula Kovarsky, CNPI +55-11-3073-3027 [email protected]
Diego Mendes, CNPI +55-11-3073-3029 [email protected] Giovana Araujo, CNPI +55-11-3073-3036 [email protected]
Our main conclusion is that a higher valuation for the barrels does not necessarily impose a higher dilution. Assuming the market is reasonably fair, most of the elements that can be used to increase the valuation of the barrels, such as capex or the long-term oil scenario, will likely affect the existing concessions’ valuation (embedded in Petrobras’ shares valuation), ultimately limiting the dilution effects. In the meantime, the company will possibly: i) make additional reserve announcements, pointing to the unitization requirements that will support the choice of location for the exploration rights of the five billion barrels; ii) announce good results regarding flow rates from the Tupi EWT, which will likely reduce capex estimates; and iii) talk about the viability of the pre-salt at US$45/boe; all supportive to the stock performance.
Please refer to page 8 of this report for important disclosures, analyst certifications and additional information. Itaú Corretora does and seeks to do business with Companies covered in this research report. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should not consider this report as the single factor in making their investment decision.
Itaú Corretora de Valores S.A. is the securities arm of Itaú Unibanco Group. Itaú Securities is a brand name of Itaú Corretora de Valores S.A.
Petrobras – September 17, 2009
Furthermore, the enforceable dilution imposed by the Brazilian government on minorities, assuming that none of them subscribe, will not be greater than the budget to buy the barrels. In the conference call held by the company right after the announcement on September 2, some were left with the impression that the government’s stake in the capitalization (in proportion to its 32% stake in Petrobras’ capital), excluding minorities, would have to match the budget to buy the barrels. In other words, the proposed capitalization would have to be roughly 3 times the budget to buy the barrels which, we believe, is not correct. Alternatively, even if none of the minorities decide to subscribe, the government can only subscribe up to the budget limit. Therefore, we reiterate our outperform recommendation with a YE10 fair value of R$45.1/PETR4 (US$53.1/PBR/A). We anticipate a de-risking of the capitalization process, proportional to a better understanding of the implications and increasing perceptions that the capitalization will likely take a while to happen.
PSCs are not a Short-Term Issue The industry strongly believes that choosing Petrobras as the sole-operator and granting it a 30% stake in the non-awarded pre-salt blocks is the “Achilles’ heel” of new oil bill proposal. The preference given to Petrobras violates the constitutional principles that guide the relationship between public and private companies, which require a formal auction process so as to allow for equal treatment and fair competition. In this context, we reiterate our view that implementing the PSC system in Brazil will be far more difficult than the Brazilian government seems to believe, so we would leave that issue aside for the time being.
Capitalization Likely to be the Focus Now! Petrobras has safeguarded the right to buy an additional five billion boe under the current concession system, which, in principle, is a good deal. However, there is no free lunch, and the company will need massive capitalization to buy those barrels! Hence, before we can reach any conclusion on the subject, we need to know: i) the valuation of the barrels; ii) the amount of the capitalization required; iii) what the potential dilution is; iv) the proposed ratio of ONs and PNs; and v) how long it will take to obtain the capitalization. All easy questions… But do we need to have black and white answers to those five questions to be able to believe that Petrobras has room to outperform? We discuss the five questions in detail below. The Valuation of the Barrels While we don’t know the valuation of the barrels, Petrobras’ management has stated more than once that the company intends to follow the industry’s best practices. Even taking that for granted, there are some important risks to consider in making this valuation, such as capex and the long-term oil curve, as well as the expected development risks related to the development of a new oil exploration frontier such as the pre-salt. But assuming the market is reasonably fair, all those elements are also likely to affect Petrobras’ shares valuation. In other words, there is a reasonable chance that Petrobras’ shares valuation would benefit from the same elements that could drive the valuation of the barrels up, which will likely bring some compensation for the dilutive effects of capitalization in case the valuation of the barrels does go up. Take capex as an example: if the Tupi EWT confirms the company’s optimism towards potential flow rates, valuation of existing concessions will go up, thereby helping the shares’ performance. It would be the same for oil if the market points to a higher long-term forecast supporting the industry’s best practice for valuation. In the tables below, we show the potential impacts of improved flow rates and long-term oil assumptions on the valuation of the five billion barrels. In addition, we show the same effects on our YE10 fair value for Petrobras. However, in order to compare both effects
Itaú Securities -2-
Petrobras – September 17, 2009
with regard to dilution, we need to discuss the size of the capitalization. The Size of the Capitalization The size of the capitalization is arguably a wider question. But we make two important assumptions here, based on our more recent conversations with the company: i) the Brazilian government’s funds necessary to subscribe to Petrobras shares are equivalent to the budget required to acquire the five billion boe; and ii) the Brazilian government would like to increase its stake in Petrobras’ capital. In other words, the enforceable dilution imposed by the Brazilian government on minorities, assuming that none of them subscribe, will not be greater than the budget to buy the barrels, in our opinion. In the conference call held by the company right after the announcement on September 2, some were left with the impression that the government’s stake in the capitalization (in proportion to its 32% stake in Petrobras’ capital), excluding minorities, would have to match the budget to buy the barrels. In other words, the proposed capitalization would have to be roughly 3 times the budget to buy the barrels (budget/32% government stake) which, we believe, is not correct. Alternatively, even if none of the minorities decide to subscribe, the government can only subscribe up to the budget limit. The following is a hypothetical example to help clarify this point.
Enforceable Dilution a b c =a*b d
Pre-salt NAV/bbl Volume to be bought (million bbl) Government budget to increase PBR's capital Total Capital Increase (for example)
5.0 5,000 25,000 50,000
e f g h =d*g
1st step Government exercises its current 32% stake Government's current stake Government's initial subscription in US$ mm
32.2% 16,100
i j k =d*j
Minority Shareholders' stake to be exercised... in % in US$ mm
67.8% 33,900
l =30%*k ...Let's assume only 30% of the minorites exercise (US$ mm) m =l+h
10,170
Capital increase in the 1st step (US$ mm)
26,270
n o =d-m p =c-h
2nd Step Unsubscribed shares (US$ mm) Government's remaining Budget for subscription (US$ mm)
23,730 8,900
q =m+p r =q*1.7 s t
TOTAL CAPITAL INCREASE (US$ mm) TOTAL CAPITAL INCREASE (R$ mm) Dilution Government's new stake
35,170 59,789 18.5% 38.3%
Source: Itaú Securities
The enforceable dilution imposed by the Brazilian government on minorities will be proportional to the budget to buy the five billion barrels. In other words, it will be proportional to the valuation of such barrels. The additional dilution, up to the proposed size of the capitalization, will depend upon minorities’ willingness to subscribe. Currently, the minorities’ subscription is likely to be proportional to the attractiveness of the deal, meaning the valuation of the barrels and the stock price embedded in the offer. While some may argue against this, we find it hard to believe that the Brazilian government would propose a capital increase in the largest-cap Brazilian company based on anything other than the average market price for the stock in a certain period preceding the deal. So we are left with the valuation of the barrels again, which we have already discussed.
Itaú Securities -3-
Petrobras – September 17, 2009
The Pre-Salt Valuation We have based our pre-salt valuation on a set of assumptions that seem to be reasonable, in spite of acknowledging all the uncertainties regarding: i) the effective size of the reservoirs; ii) the exact model that will be ultimately used to build the overall production system; iii) the productivity per well and consequent number of wells required to reach the aspired production levels; and iv) the overall technical difficulties related to producing oil at a depth of 7km. (for further details please refer to our report Petrobras – More Than Ever a Sector Perform, June 4, 2009) Main Assumption:
Long-Term Oil Price: US$75/bbl
Capex: US$11/bbl detailed in the table below
Lifting Costs: US$6/bbl, assuming higher operational leverage than current producing fields.
Production Curve: we expect production to reach its plateau towards the 5th year after its beginning. The reserve life is 33 years.
Taxation Assumptions: current tax regime (Royalties + SPT + Income taxes) It is worth noting that we assumed a 15 kbpd floe rate in our base–case scenario, whereas Petrobras announced a potential 50 kbpd flow rate for the Guara prospect for instance. In our view, the results of the Tupi EWT could bring additional visibility and potential upside to the flow rates.
Pre-Salt Capex Assumption Capacity
FPSO
Unit Cost
#
Total Cost
US$mm
Comment
US$mm
120
1,000
1
1,000
- Each FPSO has a capacity of 120kbpd
15
120
10
1,218
- Each production well has a capacity of 15kbpd
120
6
696
Maintenance Wells
120
16
1,914
Subsea
800
Production Wells Injection Wells
Infrastructure
800
1,000
1,000
TOTAL
- App. 30% of all wells connected to a FPSO are injection wells New wells are needed to maintain production due to depletion - 20 wells at US$40 million per well - 300Km 24'' pipe to delivery production at beach
6,629
Per bbl (US$)
11.0
- Each system can produce around 600 million boe
Source: Itaú Securities
Pre-Salt Capex/bbl Sensitivity
Pre-Salt NAV/bbl Sensitivity Flow per well (kbpd)
10
15
25
30
50
160
17.4
13.2
9.8
8.9
7.2
140
15.8
12.1
9.1
8.4
6.9
120
14.2
11.0
8.5
7.9
6.6
100
12.6
10.0
7.9
7.3
6.3
80
11.0
8.9
7.2
6.8
5.9
Source: Itaú Securities
Cost per Well (US$ mm)
Cost per Well (US$ mm)
Flow per well (kbpd) 11.05
10
15
25
30
50
160
2.9
3.3
3.9
5.0
5.5
140
3.3
3.6
4.2
5.2
5.6
120
3.7
4.0
4.5
5.3
5.6
100
4.1
4.3
4.8
5.4
5.7
80
4.5
4.7
5.0
5.6
5.8
Source: Itaú Securities
In our base-case scenario, embedded in Petrobras valuation is US$4/boe NAV on average for pre-salt projects. For Tupi and Iara, though, the NAV is higher (US$5/boe), since they are the first comers in our DCF. We are now ready to translate the valuation of the barrels into dilution effects. In each scenario we consider the size of the offering being equal, 25% and 50% higher than the valuation of the barrels. We also assumed the current ON/PN ratio for now, calculating the Brazilian government’s final stake in Petrobras in each scenario.
Itaú Securities -4-
Petrobras – September 17, 2009
Dilution and Government’s Final Stake NAV/US$ bbl
Cost per Well (US$ mm)
10.0
Flow per well (kbpd) 15.0 25.0 30.0
50.0
160
1.9
3.3
4.4
4.7
5.3
140
2.4
3.6
4.6
4.9
5.4
120
2.9
4.0
4.8
5.1
5.5
100
3.5
4.3
5.1
5.2
5.6
80
4.0
4.7
5.3
5.4
5.7
Valuation of the Barrels (VotB) (R$ mm)
Cost per Well (US$ mm)
10.0
CAPITAL INCREASE = 1 x (VotB)
Flow per well (kbpd) 15.0 25.0 30.0
50.0
160 15,821 27,899 37,561 39,977 44,808 140 20,350 30,919 39,373 41,487 45,714 120 24,880 33,938 41,185 42,997 46,620 100 29,409 36,958 42,997 44,506 47,526 80
33,938 39,977 44,808 46,016 48,432
CAPITAL INCREASE = 1.25 x (VotB)
CAPITAL INCREASE = 1.5 x (VotB)
Flow per well (kbpd) 15.0 25.0 30.0
6.1%
9.2%
11.1%
11.5%
50.0
12.2%
140
7.4%
9.8%
11.4%
11.7%
12.4%
120
8.5%
10.4%
11.7%
12.0%
12.5%
100
9.5%
11.0%
12.0%
12.2%
12.6%
80
10.4%
11.5%
12.2%
12.4%
12.8%
Flow per well (kbpd) 15.0 25.0 30.0
10.0
160
50.0
7.6%
11.2%
13.5%
14.0%
14.8%
140
9.1%
12.0%
13.8%
14.2%
15.0%
120
10.4%
12.7%
14.2%
14.5%
15.2%
100
11.6%
13.3%
14.5%
14.8%
15.3%
80
12.7%
14.0%
14.8%
15.0%
15.5%
10.0
Cost per Well (US$ mm)
160
10.0
Cost per Well (US$ mm)
Cost per Well (US$ mm)
Dilution
Flow per well (kbpd) 15.0 25.0 30.0
50.0
160
8.9%
13.2%
15.7%
16.3%
17.3%
140
10.7%
14.1%
16.2%
16.6%
17.5%
120
12.3%
14.9%
16.6%
16.9%
17.6%
100
13.6%
15.6%
16.9%
17.2%
17.8%
80
14.9%
16.3%
17.3%
17.5%
18.0%
Government's Final Stake
36.5%
38.5%
39.8%
40.1%
40.6%
140
37.3%
39.0%
40.0%
40.2%
40.7%
120
38.1%
39.4%
40.2%
40.4%
40.8%
100
38.8%
39.7%
40.4%
40.6%
40.8%
80
39.4%
40.1%
40.6%
40.7%
40.9%
Flow per well (kbpd) 15.0 25.0 30.0
10.0
160
35.9%
37.7%
38.7%
39.0%
50.0
39.4%
140
36.6%
38.0%
38.9%
39.1%
39.5%
120
37.3%
38.4%
39.1%
39.2%
39.5%
100
37.8%
38.7%
39.2%
39.4%
39.6%
80
38.4%
39.0%
39.4%
39.5%
39.7%
10.0
Cost per Well (US$ mm)
160
50.0
Cost per Well (US$ mm)
Cost per Well (US$ mm)
10.0
Flow per well (kbpd) 15.0 25.0 30.0
Flow per well (kbpd) 15.0 25.0 30.0
50.0
160
35.4%
36.8%
37.7%
37.9%
38.2%
140
36.0%
37.1%
37.9%
38.0%
38.3%
120
36.5%
37.4%
38.0%
38.1%
38.4%
100
37.0%
37.7%
38.1%
38.2%
38.4%
80
37.4%
37.9%
38.2%
38.3%
38.5%
Source: Itaú Securities Note: In all cases we assume the government capital increase will be equal to the amount required to buy the reserves, regardless of the size of the offer.
If we exclude the special participation tax from the barrels to be acquired by Petrobras, the NAV of these barrels increases by US$3/bbl on average, when compared with our base-case scenario. In other words, by increasing the NAV, the budget to buy the five billion barrels increases and, consequently, the size of the capitalization. This causes a stronger dilution for minorities and further increases the government’s stake in the company. The tables below show the sensitivity analysis excluding the SPT.
Itaú Securities -5-
Petrobras – September 17, 2009
Dilution and Government’s final stake (Excluding SPT) NAV/US$ bbl
Cost per Well (US$ mm)
10.0
Flow per well (kbpd) 15.0 25.0 30.0
50.0
160
5.0
6.4
7.5
7.8
8.4
140
5.5
6.8
7.7
8.0
8.5
120
6.0
7.1
8.0
8.2
8.6
100
6.6
7.5
8.2
8.3
8.7
80
7.1
7.8
8.4
8.5
8.8
Valuation of the Barrels (VotB) (R$ mm)
Cost per Well (US$ mm)
10.0
CAPITAL INCREASE = 1 x (VotB)
Flow per well (kbpd) 15.0 25.0 30.0
50.0
160 42,284 54,362 64,024 66,440 71,271 140 46,813 57,381 65,836 67,950 72,177 120 51,342 60,401 67,648 69,459 73,083 100 55,872 63,420 69,459 70,969 73,989 80
60,401 66,440 71,271 72,479 74,895
CAPITAL INCREASE = 1.25 x (VotB)
CAPITAL INCREASE = 1.5 x (VotB)
Dilution
14.9%
16.5%
17.5%
17.7%
50.0
18.2%
140
15.5%
16.8%
17.7%
17.9%
18.2%
120
16.1%
17.2%
17.8%
18.0%
18.3%
100
16.7%
17.5%
18.0%
18.1%
18.4%
80
17.2%
17.7%
18.2%
18.2%
18.4%
10.0
Flow per well (kbpd) 15.0 25.0 30.0
50.0
160
17.9%
19.8%
21.0%
21.2%
21.7%
140
18.7%
20.2%
21.2%
21.4%
21.8%
120
19.4%
20.6%
21.4%
21.5%
21.9%
100
20.0%
20.9%
21.5%
21.7%
22.0%
80
20.6%
21.2%
21.7%
21.8%
22.0%
10.0
Cost per Well (US$ mm)
160
Flow per well (kbpd) 15.0 25.0 30.0
Cost per Well (US$ mm)
Cost per Well (US$ mm)
10.0
Flow per well (kbpd) 15.0 25.0 30.0
50.0
160
20.8%
22.9%
24.2%
24.4%
25.0%
140
21.6%
23.3%
24.4%
24.6%
25.1%
120
22.4%
23.7%
24.6%
24.8%
25.1%
100
23.1%
24.1%
24.8%
24.9%
25.2%
80
23.7%
24.4%
25.0%
25.1%
25.3%
Government's Final Stake
42.4%
43.5%
44.2%
44.3%
50.0
44.6%
140
42.8%
43.7%
44.3%
44.4%
44.6%
120
43.2%
43.9%
44.4%
44.5%
44.7%
100
43.6%
44.1%
44.5%
44.6%
44.7%
80
43.9%
44.3%
44.6%
44.7%
44.8%
10.0
Flow per well (kbpd) 15.0 25.0 30.0
50.0
160
40.8%
41.7%
42.3%
42.4%
42.7%
140
41.2%
41.9%
42.4%
42.5%
42.7%
120
41.5%
42.1%
42.5%
42.6%
42.7%
100
41.8%
42.3%
42.6%
42.6%
42.8%
80
42.1%
42.4%
42.7%
42.7%
42.8%
10.0
Cost per Well (US$ mm)
160
Flow per well (kbpd) 15.0 25.0 30.0
Cost per Well (US$ mm)
Cost per Well (US$ mm)
10.0
Flow per well (kbpd) 15.0 25.0 30.0
50.0
160
39.4%
40.2%
40.6%
40.7%
40.9%
140
39.7%
40.3%
40.7%
40.8%
40.9%
120
40.0%
40.4%
40.7%
40.8%
40.9%
100
40.2%
40.6%
40.8%
40.9%
41.0%
80
40.4%
40.7%
40.9%
40.9%
41.0%
Source: Itaú Securities Note: In all cases we assume the government capital increase will be equal to the amount required to buy the reserves, regardless of the size of the offer.
The massive amount of number crunching behind those tables basically confirms our theory. The valuation of the five billion barrels is very sensitive to underlying technical assumptions. However, these will likely be the same technical assumptions guiding the pre-salt barrels already awarded to Petrobras. The ON/PN Dilemma The proposed ratio of ON/PN is an interesting theme and has also been causing some confusion in the market. Some believe that the government would prefer to use ONs for 100% of the capital increase for two reasons: i) it only holds ONs, so that is the only way to guarantee 100% subscription rights; and ii) the majority of the ONs’ free float is held by foreign investors, who would face problems in subscribing unless the company also decides to file the capital increase with the SEC. While Brazilian corporate law allows for a capital increase in a single class of shares, ONs are currently some 20% more expensive than PNs, meaning that the government would have to spend an extra 20% to increase its stake in Petrobras. With regard to the ADR ON holders, the company stated its intentions of listing the offer in the SEC if needed, which, by the way, translates into a longer timetable. In other words, we see no reason to bet on an ON-only capital increase. On the other hand, the argument for a PN-only deal is also questionable, as it would expose the government to a dilution, which would be undesirable. There is no legal limit for an ONonly offering, while for PNs the limit would be the 50/50 ON/PN ratio established by the new Brazilian corporate law. In our view, the company will take the easiest route with to respect the current ON/PN ratio. But most importantly, whatever the ratio chosen, both
Itaú Securities -6-
Petrobras – September 17, 2009
ON and PN holders would be diluted in proportion to their share of the company’s capital. The ON/PN ratio narrowed significantly right after the announcement, later returning to the level of 1.2. We see no reason to attribute these fluctuations to anything other than money flows. While locals were exposed to the many statements on the new bill that preceded the final announcement, foreign investors were more surprised, and had a stronger negative reaction in the first moment. This caused the ONs to under perform the PNs. Later on, with the clarifications provided by the company in its conference calls and by analysts, the level of understanding improved, consequently reducing the risk perception. In our view, the confirmation that minorities would not vote on the valuation of the barrels was not the reason behind the narrowing of the spreads, which reduced the appetite for ON shares. Voting rights in a state-owned company controlled by the government should have never added any value to ON shares. The Timing Question We are left, then, with the timing question. The approval of the 4th law project is the first bottleneck for the timetable. While the approval of this particular project seems to be less complicated than, for instance, the approval of the PSC, we see two issues that could potentially delay the approval, mainly in the Senate. The first issue relates to the exclusion of the SPT payments for the five billion barrels. We view this as another effort to concentrate the pre-salt revenues in the hands of the federal government. Without the SPT, valuation of the barrels goes up, meaning that Petrobras can buy the barrels from the federal government at a higher price in exchange for reducing the states’ and municipalities’ revenues from the SPT in the future. We expect the producing states to question that idea. The second issue relates to the sale of exploration rights without an auction, which arguably goes against Brazil’s Federal Constitution. We believe that the government will overcome that issue, but the questioning will likely delay the process. We find it hard to believe that anything will be approved within a year. From the date of the approval, the 4th law project gives Petrobras a year to reach a deal with the Brazilian government for the acquisition of the exploration rights. The company can start working on the valuation of the barrels now, which means that, in theory, one year would be more than enough for a first assessment. Two years later, the valuation can be revised and the volumes fine tuned. But possible questions related to, for example, minorities’ voting rights (since this is a transaction between related parties) could further delay the process. While Petrobras and the government seem to be pretty much aligned with regard to the four law projects, the valuation of the barrels arguably puts them on opposite sides of the negotiation table. That is actually what we should expect from an arm’s-length transaction. Each party is supposed to contract an independent valuation. Yet, most of the technical assumptions behind the valuation will likely come from Petrobras’ headquarters anyway; long-term oil prices or discount rate assumptions, for instance, could bring a significant deviation to the respective valuations. While acknowledging that it would be naïve to assume a major misalignment between the parties, we would expect some disputes, which could potentially delay the process. Another possible delay to the capitalization could be caused by the need to list the offer with the SEC to grant ADR holders the right to subscribe. The company is already looking into the legal requirements to make that listing, as the idea is to grant pre-emptive subscription rights to all minorities. In recent follow-ons by companies such as Gerdau and CVRD, the solution used to overcome the burden of listing (time and costs) was to grant ADR holders matching subscription rights as part of the book building in the local market.
Itaú Securities -7-
Petrobras – September 17, 2009
DISCLAIMER Itaú Securities is a brand name of Itaú Corretora de Valores S.A. Ratings: Definitions, Dispersion and Banking Relationships (3) Ratings
Definition
(1) (2)
Coverage
Banking Relationship
(3)
(4)
Outperform
The analyst expects the stock to perform better than the sector average.
36%
25%
Sector Perform
The analyst expects the stock to perform in line with the sector average.
48%
34%
Underperform
The analyst expects the stock to perform below the sector average.
17%
12%
1. Ratings reflect the analyst’s assessment of the stock price performance in the medium term compared with the sector average. Recommendations will be valid until the analyst changes the rating, which may happen as a result of news or simply due to a change in the stock price (there is not a defined time horizon). 2. Companies are grouped, according to their similarities, into sectors. The sectors are: (i) Banking & Financial Services, (ii) Consumer Goods & Retail + Food & Beverage, (iii) Industrials + Healthcare + Education, (iv) Steel & Mining + Pulp & Paper, (v) Oil, Gas & Petrochemicals + Agribusiness, (vi) Real Estate, (vii) Telecommunications, Media and Technology, (viii) Transportation & Logistic, (ix) Utilities (x) Equity Strategy. 3. Percentage of companies under coverage by Itaú Corretora de Valores S.A. within this rating category. The ratings used herein (Outperform, Sector Perform and Underperform) for purposes of the ratings distribution disclosure requirements of FINRA and the NYSE, correspond most closely, respectively, to Buy, Hold and Sell. 4. Percentage of companies within this rating category for which Banco Itaú S.A. or any of its affiliated companies provided investment banking services within the past 12 (twelve) months, or may provide investment banking services during the next 3 (three) months.
Third Party Disclosures Companies Mentioned Petrobras
Ticker
Recent Price
PETR4
34.35
Disclosure Items 1
2
3
4
5
X
1. Itaú Corretora de Valores S.A. and/or its affiliates have managed or co-managed a public offering for the companies analyzed in this report in the past 12 (twelve) months, for which they have received compensation. 2. Itaú Corretora de Valores S.A. and/or its affiliates have received compensation for investment banking services provided to the companies analyzed in this report in the past 12 (twelve) months, and expect to receive or intend to seek compensation for investment banking services provided to the companies analyzed in this report in the next 3 (three) months. 3. Itaú Corretora de Valores S.A. and/or its affiliates were making a market in the companies analyzed in this report at the time this report was issued. 4. Itaú Corretora de Valores S.A. and/or its affiliates have acted as an underwriter of securities issued by the companies analyzed in this report within the past 5 (five) years. 5. Itaú Corretora de Valores S.A. and/or its affiliates, funds, portfolios and securities investment clubs managed by Itaú Corretora beneficially own, directly or indirectly, 1% (one percent) or more of any class of common equity securities issued by the companies analyzed in this report as of the end of the last month.
40.0
4-Sep 11-Sep
2-Jul
30-Apr
5-Mar
45.0
5-Jan
50.0
8-Jun
Petrobras PN
35.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0 Jan-09
Feb-09 Mar-09 Underperform UR
Source: Itaú Securities
Itaú Securities -8-
Apr-09
May-09
Jun-09
Sector Perform Stock Price
Jul-09
Aug-09
Outperform Fair Value
Sep-09
Petrobras – September 17, 2009
Relevant Information 1.
This report has been produced by Itaú Corretora de Valores S.A (“Itaú Corretora”), a subsidiary of Banco Itaú S.A. and distributed by Itaú Corretora or one of its affiliates (altogether, “Itaú Unibanco Group”).
2.
This report is provided for informational purposes only and does not constitute or should not be construed as an offer to buy or sell or solicitation of an offer to buy or sell any financial instrument or to participate in any particular trading strategy in any jurisdiction. The information herein is believed to be reliable as of the date in which this report was issued and has been obtained from public sources believed to be reliable. Itaú Unibanco Group does not make any representation or warranty, express or implied, as to the completeness, reliability or accuracy of such information, nor is this report intended to be a complete statement or summary of the investment strategies, markets or developments referred to herein. Opinions, estimates, and projections expressed herein constitute the current judgment of the analyst responsible for the substance of this report as of the date on which it was issued and are therefore subject to change without notice. Prices and availability of financial instruments are indicative only and subject to change without notice. Itaú Unibanco Group has no obligation to update, modify or amend this report and inform the reader accordingly, except when terminating coverage of the issuer of the securities discussed in this report.
3.
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4.
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5.
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Itaú Securities -9-
Equities Roberto M. Nishikawa, Global Head of Equities
Research Carlos Constantini, CNPI - Head
+55-11-3073-3001
Equity Strategy Carlos Constantini, CNPI - Head Marcelo Brisac, CFA Susana Salaru, CNPI Cida Souza, CNPI Enrico Grimaldi
+55-11-3073-3001 +55-11-3073-3023 +55-11-3073-3009 +55-11-3073-3038 +55-11-3073-3012
Banking & Financial Services Alcir Freitas, CNPI - Sector Head Wesley Okada, CNPI Alexandre Spada, CNPI
+55-11-3073-3042 +55-11-3073-3043 +55-11-3073-3004
Consumer Goods & Retail + Food & Beverage Juliana Rozenbaum, CFA - Sector Head +55-11-3073-3035 Francine Martins, CNPI +55-11-3073-3039 Marcelo F. Cintra +55-11-3073-3016
[email protected] Steel & Mining + Pulp & Paper Marcos Assumpção, CFA - Sector Head +55-11-3073-3021 [email protected] Alexandre Miguel, CNPI +55-11-3073-3020 [email protected] [email protected] Rodrigo Fonseca +55-11-3073-3018 [email protected] [email protected] [email protected] Telecommunications, Media & Technology [email protected] Valder Nogueira, CNPI - Sector Head +55-11-3073-3008 [email protected] [email protected] Bruno Mendonça, CNPI +55-11-3073-3010 [email protected] Renan Compagnoli +55-11-3073-3064 [email protected] [email protected] Transportation & Logistic [email protected] Victor Mizusaki, CNPI - Sector Head [email protected] Fernando Abdalla, CNPI
+55-11-3073-3030 +55-11-3073-3019
[email protected] [email protected]
+55-11-3073-3011 +55-11-3073-3014 +55-11-3073-3024
[email protected] [email protected] [email protected]
+55-11-3708-2715 +55-11-3708-2807 +55-11-3708-2712 +55-11-3708-2713
[email protected] [email protected] [email protected] [email protected]
+55-11-3073-3066 +55-11-3073-3065
[email protected] [email protected]
+55-11-3073-3005 +55-11-3073-3006
[email protected] [email protected]
+55-11-3073-3310 +55-11-3073-3310 +55-11-3073-3310 +55-11-3073-3310 +55-11-3073-3310 +55-11-3073-3310 +55-11-3073-3310 +55-11-3073-3310
[email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected]
+44-20-7663-7845
[email protected]
+44-20-7663-7845 +44-20-7663-7845
[email protected] [email protected]
+44-20-7663-7839 +44-20-7663-7839
[email protected] [email protected]
+813-3539-3850 +813-3539-3852
[email protected] [email protected]
+852-3657-2388 +852-3657-2398 +852-3657-2379
[email protected] [email protected] [email protected]
+55-11-3073-3310 +55-11-3073-3310 +55-11-3073-3310
[email protected] [email protected] [email protected]
FX Spot Manoel Gimenez Haroldo Vasconcellos Marcio Jeronimo
+55-11-3073-3340 +55-11-3073-3340 +55-11-3073-3340
[email protected] [email protected] [email protected]
Stock Lending Douglas Jacob Marina Santos João Victor Caccese
+55-11-3073-3211 +55-11-3073-3211 +55-11-3073-3211
[email protected] [email protected] [email protected]
Utilities [email protected] Marcos Severine, CNPI - Sector Head [email protected] Eduardo Cancian, CNPI [email protected] Mariana Coelho, CNPI
Industrials + Healthcare + Education Renata Faber, CNPI - Sector Head Marcio Osako, CFA Marcos Matsutani
+55-11-3073-3017 +55-11-3073-3040 +55-11-3073-3041
Economics [email protected] Guilherme da Nóbrega, CNPI - Head [email protected] Mauricio Oreng [email protected] Luiz Gustavo Cherman Rodolfo Araujo Oliveira
Oil, Gas & Petrochemicals + Agribusiness Paula Kovarsky, CNPI - Sector Head Diego Mendes, CNPI Giovana Araújo, CNPI
+55-11-3073-3027 +55-11-3073-3029 +55-11-3073-3036
Real Estate David Lawant, CNPI - Sector Head Cecilia Viriato, CNPI Renan Compagnoli
Technical Analysis +55-11-3073-3037 [email protected] Marcio Lacerda, CNPI - Head +55-11-3073-3007 [email protected] Marcello Rossi, CNPI +55-11-3073-3064 [email protected]
[email protected] Quantitative Research [email protected] Marcus Moldes, MSc, CNPI - Head [email protected] Pedro Maia
Equity Sales & Trading Latin America Carlos Maggioli - Head
+55-11-3073-3300
Sales - Latin America Carlos Maggioli - Head Regina Jordão Rodrigo Pace Rogerio Storeli Márcia Sadzevicius Fernando Diez Notarnicola Bento Antunes Mussnich
+55-11-3073-3300 +55-11-3073-3330 +55-11-3073-3330 +55-11-3073-3330 +55-11-3073-3330 +55-11-3073-3330 +55-11-3073-3330
North America Thomas DeCoene - Head
+1-212-710-6702
Sales - North America Renato Lobo - Head Flavia Stingelin, CFA Marcello Spinelli Adam Cherry
+1-212-759-5627 +1-212-710-6768 +1-212-710-6767 +1-212-710-6766
Sales Trading - North America Andre Soares - Head Eric Krall Gustavo Rosa
+1-212-759-5927 +1-212-710-6748 +1-212-710-6747
Sales Trading - Latin America [email protected] Danuse Corradi Christian Lemos Pedro Gimenez [email protected] Eduardo Santos [email protected] Irenio I. S. Neto [email protected] Fernando Lasalvia [email protected] Lucas Gonçalves [email protected] Carlos Faria [email protected] [email protected] Europe, Middle East & Asia Mark Fenton - Head [email protected] Sales - Europe André Luiz Dreicon Simone Rosito [email protected] [email protected] Sales Trading - Europe [email protected] Fabio Faraggi [email protected] Duncan Ilsley Sales - Japan [email protected] Masayoshi Yazawa [email protected] Gerson Konishi [email protected] Sales - Hong Kong Jack Xu - Head Caio Galvão Charles Lin
Hedge Funds, Futures, Derivatives & Stock Lending Carlos Maggioli - Head Cristiano Soares Thierry Decoene
+55-11-3073-3300 +55-11-3073-3300 +55-11-3073-3300
Futures Desk Eduardo Borro - Head Gerson Panariello Alexandre Rizzo Denis Malvone Celso Azem Luciana Eugenio José Dezene Alan Eira Vinicius Cobo
+55-11-3073-3350 +55-11-3073-3350 +55-11-3073-3350 +55-11-3073-3350 +55-11-3073-3350 +55-11-3073-3350 +55-11-3073-3350 +55-11-3073-3350 +55-11-3073-3350
[email protected] Local Equity Derivatives [email protected] Fabiano V. Romano - Head [email protected] Guilherme Bockmann Rafael Americo
[email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected]
Private Banking Desk Alexandre Guedes - Head Marcos Skistymas – Business Intelligence
+55 11 3073-3110 +55 11 3073-3110
Private Banking - Sales Carina Cassab Carreira Lucas Tambellini Marcelo Ferri Pedro H. Rocha Sauma Sergio Fonseca Rosa
+55 11 3073-3110 +55 11 3073-3110 +55 11 3073-3110 +55 11 3073-3110 +55 11 3073-3110
[email protected] Private Banking - Trading Desk [email protected] Felipe Beltrami - Head Caio Felipe Zanardo Val Edgard Claussen Vilela [email protected] Luiz Ricardo C. Lobo [email protected] Luis Fernando Kanashiro [email protected] João Roberto A. de Souza [email protected] Joseana Requejo Amaral [email protected] Julio Pimentel Algodoal Neto Leonardo Mattiussi Nicolas E. Balafas Patrick Campos de Mello Ricardo Julio Costa Robinson Minetto Rogerio M. Kurussu Sandra Steffen Brianti Natália Mônaco
+55 11 3073-3273 +55 11 3073-3292 +55 11 3073-3291 +55 11 3073-5880 +55 11 3073-3210 +55 11 3073-3298 +55 11 3073-3293 +55 11 3073-3210 +55 11 3073-3290 +55 11 3073-3299 +55 11 3073-3292 +55 11 3073-3297 +55 11 3073-3290 +55 11 3073-3291 +55 11 3073-3297 +55 11 3073-3297
[email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected]
+1 212 710-6782 +1 212 710-6745 +1 212 710-6765
[email protected] [email protected] [email protected]
Sales - Europe Rodolfo Dejon Rodrigo Malizia
+44 207 663-7843 +44 207 663-7843
[email protected] [email protected]
Sales - Asia Gerson Konishi
+813-3539-3852
[email protected]
+ 971 4 381 0650 + 971 4 381 0656
[email protected] [email protected]
+852-3657-2388 +852-3657-2398 +852-3657-2379
[email protected] [email protected] [email protected]
+81-3-3539-3847 +81-3-3539-3848 +81-3-3539-3849
[email protected] [email protected] [email protected]
Fixed Income Alexandre Aoude, Global Head of Fixed Income Fixed Income Research Ciro Matuo, CNPI - Sector Head Boanerges Pereira, CNPI Sérgio Vailati, CNPI
+55-11-3073-3049 +55-11-3073-3050 +55-11-3073-3067
Sales - Latin America Luis Fernando Guido Andre Farkas Mauricio Silveira Rogério Cunha Valter Luz Felipe Almeida Vinicius Pinho
+55-11-3708-8800 +55-11-3708-8800 +55-11-3708-8800 +55-11-3708-8800 +55-11-3708-8800 +55-11-3708-8800 +55-11-3708-8610
Sales - North America [email protected] Douglas Chen [email protected] Augusto Castilho [email protected] Richard Cascais
[email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected]
Alternative Investment Products São Paulo Marcelo Fatio - Head Lizandro Arnoni Eduardo Bernardes New York Thomas DeCoene - Head Alex Mainero Roger Freitas London Mark Fenton - Head Julia Chen Raquel Franco Pedro Rafael
+55-11-3073-3505 +55-11-3073-3584 +55-11-3073-3545
+1-212-710-6702 +1-212-710-6731 +1-212-710-6778
+44-20-7663-7845 +44 207 663 7842 +44-207-663-7838 +44-207-663-7841
Dubai [email protected] Adriano Cantreva - Head [email protected] Ellie Shaw [email protected] Hong Kong Jack Xu - Head [email protected] Caio Galvão [email protected] Charles Lin [email protected] Tokyo Kenichi Noguchi - Head [email protected] Hiroyuki Shimizu [email protected] Hiroji Shimabucuro [email protected] [email protected]
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Petrobras PN Oil & Gas
Flash News September 17, 2009
De-risking Capitalization Ticker (local)
PETR4
Fair Value (10)
R$45.1
Ticker (ADR)
PBR/A
Estimates and Valuation Years
2008a
2009e
2010e
2011e
2012e
2013e
232,183
174,112
166,673
174,906
191,147
202,307
EBITDA (R$ mm)
56,098
55,401
52,446
58,542
71,047
86,317
EBITDAX (R$ mm)
58,872
58,922
55,239
61,399
74,102
88,900
Earnings (R$ mm)
33,914
24,080
22,887
25,270
30,167
37,196
3.87
2.74
2.61
2.88
3.44
4.24
Revenues (R$ mm) Fair Value (10)
US$53.1
EPS
Stock Data Current Price
R$
34.35
EV/EBITDA
6.2
6.7
7.4
6.9
6.0
5.1
Current Price
US$
38.35
EV/EBITDAX
5.9
6.3
7.0
6.6
5.7
4.9
Total Return (YE10)
%
33.6%
P/E
8.9
12.5
13.2
11.9
10.0
8.1
52 week high/low
R$
36.0/16.9
47,434
70,049
86,040
103,352
124,019
137,830
Shares Outstanding
m
8,774
Market Capitalization
R$m
301,390
Market Capitalization
US$
168,243
%
60.1%
R$m
529.99
Free-float 3-mth avg daily vol.
1m
12m
Absolute
6.2%
9.7%
Vs. Ibovespa
-0.2%
24.6%
Black Diamond
Performance (%)
Net Debt (R$ mm) Source: Itaú Securities
Petrobras has safeguarded the right to buy an additional five billion boe under the current concession system, which, in principle, is a good deal. However, there is no free lunch, and the company will need massive capitalization to buy those barrels! Before we can reach any conclusion on the subject, we need to know: i) the valuation of the barrels; ii) the amount of the capitalization required; iii) what the potential dilution is; iv) the proposed ratio of ONs and PNs; and v) how long it will take to obtain the capitalization. All easy questions… But do we need to have black and white answers to those five questions to be able to believe that Petrobras has room to outperform? The end of the road is not really exciting, as minorities will be diluted anyway and the final size of the capitalization remains a big question mark. Nevertheless, this report presents some interesting conclusions, which, in our view, demystify some of the market’s concerns while potentially creating a positive short-term momentum for the stock. Moreover, the end of the road might be far enough for investors to relax a bit and enjoy the trip.
Paula Kovarsky, CNPI +55-11-3073-3027 [email protected]
Diego Mendes, CNPI +55-11-3073-3029 [email protected] Giovana Araujo, CNPI +55-11-3073-3036 [email protected]
Our main conclusion is that a higher valuation for the barrels does not necessarily impose a higher dilution. Assuming the market is reasonably fair, most of the elements that can be used to increase the valuation of the barrels, such as capex or the long-term oil scenario, will likely affect the existing concessions’ valuation (embedded in Petrobras’ shares valuation), ultimately limiting the dilution effects. In the meantime, the company will possibly: i) make additional reserve announcements, pointing to the unitization requirements that will support the choice of location for the exploration rights of the five billion barrels; ii) announce good results regarding flow rates from the Tupi EWT, which will likely reduce capex estimates; and iii) talk about the viability of the pre-salt at US$45/boe; all supportive to the stock performance.
Please refer to page 8 of this report for important disclosures, analyst certifications and additional information. Itaú Corretora does and seeks to do business with Companies covered in this research report. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should not consider this report as the single factor in making their investment decision.
Itaú Corretora de Valores S.A. is the securities arm of Itaú Unibanco Group. Itaú Securities is a brand name of Itaú Corretora de Valores S.A.
Petrobras – September 17, 2009
Furthermore, the enforceable dilution imposed by the Brazilian government on minorities, assuming that none of them subscribe, will not be greater than the budget to buy the barrels. In the conference call held by the company right after the announcement on September 2, some were left with the impression that the government’s stake in the capitalization (in proportion to its 32% stake in Petrobras’ capital), excluding minorities, would have to match the budget to buy the barrels. In other words, the proposed capitalization would have to be roughly 3 times the budget to buy the barrels which, we believe, is not correct. Alternatively, even if none of the minorities decide to subscribe, the government can only subscribe up to the budget limit. Therefore, we reiterate our outperform recommendation with a YE10 fair value of R$45.1/PETR4 (US$53.1/PBR/A). We anticipate a de-risking of the capitalization process, proportional to a better understanding of the implications and increasing perceptions that the capitalization will likely take a while to happen.
PSCs are not a Short-Term Issue The industry strongly believes that choosing Petrobras as the sole-operator and granting it a 30% stake in the non-awarded pre-salt blocks is the “Achilles’ heel” of new oil bill proposal. The preference given to Petrobras violates the constitutional principles that guide the relationship between public and private companies, which require a formal auction process so as to allow for equal treatment and fair competition. In this context, we reiterate our view that implementing the PSC system in Brazil will be far more difficult than the Brazilian government seems to believe, so we would leave that issue aside for the time being.
Capitalization Likely to be the Focus Now! Petrobras has safeguarded the right to buy an additional five billion boe under the current concession system, which, in principle, is a good deal. However, there is no free lunch, and the company will need massive capitalization to buy those barrels! Hence, before we can reach any conclusion on the subject, we need to know: i) the valuation of the barrels; ii) the amount of the capitalization required; iii) what the potential dilution is; iv) the proposed ratio of ONs and PNs; and v) how long it will take to obtain the capitalization. All easy questions… But do we need to have black and white answers to those five questions to be able to believe that Petrobras has room to outperform? We discuss the five questions in detail below. The Valuation of the Barrels While we don’t know the valuation of the barrels, Petrobras’ management has stated more than once that the company intends to follow the industry’s best practices. Even taking that for granted, there are some important risks to consider in making this valuation, such as capex and the long-term oil curve, as well as the expected development risks related to the development of a new oil exploration frontier such as the pre-salt. But assuming the market is reasonably fair, all those elements are also likely to affect Petrobras’ shares valuation. In other words, there is a reasonable chance that Petrobras’ shares valuation would benefit from the same elements that could drive the valuation of the barrels up, which will likely bring some compensation for the dilutive effects of capitalization in case the valuation of the barrels does go up. Take capex as an example: if the Tupi EWT confirms the company’s optimism towards potential flow rates, valuation of existing concessions will go up, thereby helping the shares’ performance. It would be the same for oil if the market points to a higher long-term forecast supporting the industry’s best practice for valuation. In the tables below, we show the potential impacts of improved flow rates and long-term oil assumptions on the valuation of the five billion barrels. In addition, we show the same effects on our YE10 fair value for Petrobras. However, in order to compare both effects
Itaú Securities -2-
Petrobras – September 17, 2009
with regard to dilution, we need to discuss the size of the capitalization. The Size of the Capitalization The size of the capitalization is arguably a wider question. But we make two important assumptions here, based on our more recent conversations with the company: i) the Brazilian government’s funds necessary to subscribe to Petrobras shares are equivalent to the budget required to acquire the five billion boe; and ii) the Brazilian government would like to increase its stake in Petrobras’ capital. In other words, the enforceable dilution imposed by the Brazilian government on minorities, assuming that none of them subscribe, will not be greater than the budget to buy the barrels, in our opinion. In the conference call held by the company right after the announcement on September 2, some were left with the impression that the government’s stake in the capitalization (in proportion to its 32% stake in Petrobras’ capital), excluding minorities, would have to match the budget to buy the barrels. In other words, the proposed capitalization would have to be roughly 3 times the budget to buy the barrels (budget/32% government stake) which, we believe, is not correct. Alternatively, even if none of the minorities decide to subscribe, the government can only subscribe up to the budget limit. The following is a hypothetical example to help clarify this point.
Enforceable Dilution a b c =a*b d
Pre-salt NAV/bbl Volume to be bought (million bbl) Government budget to increase PBR's capital Total Capital Increase (for example)
5.0 5,000 25,000 50,000
e f g h =d*g
1st step Government exercises its current 32% stake Government's current stake Government's initial subscription in US$ mm
32.2% 16,100
i j k =d*j
Minority Shareholders' stake to be exercised... in % in US$ mm
67.8% 33,900
l =30%*k ...Let's assume only 30% of the minorites exercise (US$ mm) m =l+h
10,170
Capital increase in the 1st step (US$ mm)
26,270
n o =d-m p =c-h
2nd Step Unsubscribed shares (US$ mm) Government's remaining Budget for subscription (US$ mm)
23,730 8,900
q =m+p r =q*1.7 s t
TOTAL CAPITAL INCREASE (US$ mm) TOTAL CAPITAL INCREASE (R$ mm) Dilution Government's new stake
35,170 59,789 18.5% 38.3%
Source: Itaú Securities
The enforceable dilution imposed by the Brazilian government on minorities will be proportional to the budget to buy the five billion barrels. In other words, it will be proportional to the valuation of such barrels. The additional dilution, up to the proposed size of the capitalization, will depend upon minorities’ willingness to subscribe. Currently, the minorities’ subscription is likely to be proportional to the attractiveness of the deal, meaning the valuation of the barrels and the stock price embedded in the offer. While some may argue against this, we find it hard to believe that the Brazilian government would propose a capital increase in the largest-cap Brazilian company based on anything other than the average market price for the stock in a certain period preceding the deal. So we are left with the valuation of the barrels again, which we have already discussed.
Itaú Securities -3-
Petrobras – September 17, 2009
The Pre-Salt Valuation We have based our pre-salt valuation on a set of assumptions that seem to be reasonable, in spite of acknowledging all the uncertainties regarding: i) the effective size of the reservoirs; ii) the exact model that will be ultimately used to build the overall production system; iii) the productivity per well and consequent number of wells required to reach the aspired production levels; and iv) the overall technical difficulties related to producing oil at a depth of 7km. (for further details please refer to our report Petrobras – More Than Ever a Sector Perform, June 4, 2009) Main Assumption:
Long-Term Oil Price: US$75/bbl
Capex: US$11/bbl detailed in the table below
Lifting Costs: US$6/bbl, assuming higher operational leverage than current producing fields.
Production Curve: we expect production to reach its plateau towards the 5th year after its beginning. The reserve life is 33 years.
Taxation Assumptions: current tax regime (Royalties + SPT + Income taxes) It is worth noting that we assumed a 15 kbpd floe rate in our base–case scenario, whereas Petrobras announced a potential 50 kbpd flow rate for the Guara prospect for instance. In our view, the results of the Tupi EWT could bring additional visibility and potential upside to the flow rates.
Pre-Salt Capex Assumption Capacity
FPSO
Unit Cost
#
Total Cost
US$mm
Comment
US$mm
120
1,000
1
1,000
- Each FPSO has a capacity of 120kbpd
15
120
10
1,218
- Each production well has a capacity of 15kbpd
120
6
696
Maintenance Wells
120
16
1,914
Subsea
800
Production Wells Injection Wells
Infrastructure
800
1,000
1,000
TOTAL
- App. 30% of all wells connected to a FPSO are injection wells New wells are needed to maintain production due to depletion - 20 wells at US$40 million per well - 300Km 24'' pipe to delivery production at beach
6,629
Per bbl (US$)
11.0
- Each system can produce around 600 million boe
Source: Itaú Securities
Pre-Salt Capex/bbl Sensitivity
Pre-Salt NAV/bbl Sensitivity Flow per well (kbpd)
10
15
25
30
50
160
17.4
13.2
9.8
8.9
7.2
140
15.8
12.1
9.1
8.4
6.9
120
14.2
11.0
8.5
7.9
6.6
100
12.6
10.0
7.9
7.3
6.3
80
11.0
8.9
7.2
6.8
5.9
Source: Itaú Securities
Cost per Well (US$ mm)
Cost per Well (US$ mm)
Flow per well (kbpd) 11.05
10
15
25
30
50
160
2.9
3.3
3.9
5.0
5.5
140
3.3
3.6
4.2
5.2
5.6
120
3.7
4.0
4.5
5.3
5.6
100
4.1
4.3
4.8
5.4
5.7
80
4.5
4.7
5.0
5.6
5.8
Source: Itaú Securities
In our base-case scenario, embedded in Petrobras valuation is US$4/boe NAV on average for pre-salt projects. For Tupi and Iara, though, the NAV is higher (US$5/boe), since they are the first comers in our DCF. We are now ready to translate the valuation of the barrels into dilution effects. In each scenario we consider the size of the offering being equal, 25% and 50% higher than the valuation of the barrels. We also assumed the current ON/PN ratio for now, calculating the Brazilian government’s final stake in Petrobras in each scenario.
Itaú Securities -4-
Petrobras – September 17, 2009
Dilution and Government’s Final Stake NAV/US$ bbl
Cost per Well (US$ mm)
10.0
Flow per well (kbpd) 15.0 25.0 30.0
50.0
160
1.9
3.3
4.4
4.7
5.3
140
2.4
3.6
4.6
4.9
5.4
120
2.9
4.0
4.8
5.1
5.5
100
3.5
4.3
5.1
5.2
5.6
80
4.0
4.7
5.3
5.4
5.7
Valuation of the Barrels (VotB) (R$ mm)
Cost per Well (US$ mm)
10.0
CAPITAL INCREASE = 1 x (VotB)
Flow per well (kbpd) 15.0 25.0 30.0
50.0
160 15,821 27,899 37,561 39,977 44,808 140 20,350 30,919 39,373 41,487 45,714 120 24,880 33,938 41,185 42,997 46,620 100 29,409 36,958 42,997 44,506 47,526 80
33,938 39,977 44,808 46,016 48,432
CAPITAL INCREASE = 1.25 x (VotB)
CAPITAL INCREASE = 1.5 x (VotB)
Flow per well (kbpd) 15.0 25.0 30.0
6.1%
9.2%
11.1%
11.5%
50.0
12.2%
140
7.4%
9.8%
11.4%
11.7%
12.4%
120
8.5%
10.4%
11.7%
12.0%
12.5%
100
9.5%
11.0%
12.0%
12.2%
12.6%
80
10.4%
11.5%
12.2%
12.4%
12.8%
Flow per well (kbpd) 15.0 25.0 30.0
10.0
160
50.0
7.6%
11.2%
13.5%
14.0%
14.8%
140
9.1%
12.0%
13.8%
14.2%
15.0%
120
10.4%
12.7%
14.2%
14.5%
15.2%
100
11.6%
13.3%
14.5%
14.8%
15.3%
80
12.7%
14.0%
14.8%
15.0%
15.5%
10.0
Cost per Well (US$ mm)
160
10.0
Cost per Well (US$ mm)
Cost per Well (US$ mm)
Dilution
Flow per well (kbpd) 15.0 25.0 30.0
50.0
160
8.9%
13.2%
15.7%
16.3%
17.3%
140
10.7%
14.1%
16.2%
16.6%
17.5%
120
12.3%
14.9%
16.6%
16.9%
17.6%
100
13.6%
15.6%
16.9%
17.2%
17.8%
80
14.9%
16.3%
17.3%
17.5%
18.0%
Government's Final Stake
36.5%
38.5%
39.8%
40.1%
40.6%
140
37.3%
39.0%
40.0%
40.2%
40.7%
120
38.1%
39.4%
40.2%
40.4%
40.8%
100
38.8%
39.7%
40.4%
40.6%
40.8%
80
39.4%
40.1%
40.6%
40.7%
40.9%
Flow per well (kbpd) 15.0 25.0 30.0
10.0
160
35.9%
37.7%
38.7%
39.0%
50.0
39.4%
140
36.6%
38.0%
38.9%
39.1%
39.5%
120
37.3%
38.4%
39.1%
39.2%
39.5%
100
37.8%
38.7%
39.2%
39.4%
39.6%
80
38.4%
39.0%
39.4%
39.5%
39.7%
10.0
Cost per Well (US$ mm)
160
50.0
Cost per Well (US$ mm)
Cost per Well (US$ mm)
10.0
Flow per well (kbpd) 15.0 25.0 30.0
Flow per well (kbpd) 15.0 25.0 30.0
50.0
160
35.4%
36.8%
37.7%
37.9%
38.2%
140
36.0%
37.1%
37.9%
38.0%
38.3%
120
36.5%
37.4%
38.0%
38.1%
38.4%
100
37.0%
37.7%
38.1%
38.2%
38.4%
80
37.4%
37.9%
38.2%
38.3%
38.5%
Source: Itaú Securities Note: In all cases we assume the government capital increase will be equal to the amount required to buy the reserves, regardless of the size of the offer.
If we exclude the special participation tax from the barrels to be acquired by Petrobras, the NAV of these barrels increases by US$3/bbl on average, when compared with our base-case scenario. In other words, by increasing the NAV, the budget to buy the five billion barrels increases and, consequently, the size of the capitalization. This causes a stronger dilution for minorities and further increases the government’s stake in the company. The tables below show the sensitivity analysis excluding the SPT.
Itaú Securities -5-
Petrobras – September 17, 2009
Dilution and Government’s final stake (Excluding SPT) NAV/US$ bbl
Cost per Well (US$ mm)
10.0
Flow per well (kbpd) 15.0 25.0 30.0
50.0
160
5.0
6.4
7.5
7.8
8.4
140
5.5
6.8
7.7
8.0
8.5
120
6.0
7.1
8.0
8.2
8.6
100
6.6
7.5
8.2
8.3
8.7
80
7.1
7.8
8.4
8.5
8.8
Valuation of the Barrels (VotB) (R$ mm)
Cost per Well (US$ mm)
10.0
CAPITAL INCREASE = 1 x (VotB)
Flow per well (kbpd) 15.0 25.0 30.0
50.0
160 42,284 54,362 64,024 66,440 71,271 140 46,813 57,381 65,836 67,950 72,177 120 51,342 60,401 67,648 69,459 73,083 100 55,872 63,420 69,459 70,969 73,989 80
60,401 66,440 71,271 72,479 74,895
CAPITAL INCREASE = 1.25 x (VotB)
CAPITAL INCREASE = 1.5 x (VotB)
Dilution
14.9%
16.5%
17.5%
17.7%
50.0
18.2%
140
15.5%
16.8%
17.7%
17.9%
18.2%
120
16.1%
17.2%
17.8%
18.0%
18.3%
100
16.7%
17.5%
18.0%
18.1%
18.4%
80
17.2%
17.7%
18.2%
18.2%
18.4%
10.0
Flow per well (kbpd) 15.0 25.0 30.0
50.0
160
17.9%
19.8%
21.0%
21.2%
21.7%
140
18.7%
20.2%
21.2%
21.4%
21.8%
120
19.4%
20.6%
21.4%
21.5%
21.9%
100
20.0%
20.9%
21.5%
21.7%
22.0%
80
20.6%
21.2%
21.7%
21.8%
22.0%
10.0
Cost per Well (US$ mm)
160
Flow per well (kbpd) 15.0 25.0 30.0
Cost per Well (US$ mm)
Cost per Well (US$ mm)
10.0
Flow per well (kbpd) 15.0 25.0 30.0
50.0
160
20.8%
22.9%
24.2%
24.4%
25.0%
140
21.6%
23.3%
24.4%
24.6%
25.1%
120
22.4%
23.7%
24.6%
24.8%
25.1%
100
23.1%
24.1%
24.8%
24.9%
25.2%
80
23.7%
24.4%
25.0%
25.1%
25.3%
Government's Final Stake
42.4%
43.5%
44.2%
44.3%
50.0
44.6%
140
42.8%
43.7%
44.3%
44.4%
44.6%
120
43.2%
43.9%
44.4%
44.5%
44.7%
100
43.6%
44.1%
44.5%
44.6%
44.7%
80
43.9%
44.3%
44.6%
44.7%
44.8%
10.0
Flow per well (kbpd) 15.0 25.0 30.0
50.0
160
40.8%
41.7%
42.3%
42.4%
42.7%
140
41.2%
41.9%
42.4%
42.5%
42.7%
120
41.5%
42.1%
42.5%
42.6%
42.7%
100
41.8%
42.3%
42.6%
42.6%
42.8%
80
42.1%
42.4%
42.7%
42.7%
42.8%
10.0
Cost per Well (US$ mm)
160
Flow per well (kbpd) 15.0 25.0 30.0
Cost per Well (US$ mm)
Cost per Well (US$ mm)
10.0
Flow per well (kbpd) 15.0 25.0 30.0
50.0
160
39.4%
40.2%
40.6%
40.7%
40.9%
140
39.7%
40.3%
40.7%
40.8%
40.9%
120
40.0%
40.4%
40.7%
40.8%
40.9%
100
40.2%
40.6%
40.8%
40.9%
41.0%
80
40.4%
40.7%
40.9%
40.9%
41.0%
Source: Itaú Securities Note: In all cases we assume the government capital increase will be equal to the amount required to buy the reserves, regardless of the size of the offer.
The massive amount of number crunching behind those tables basically confirms our theory. The valuation of the five billion barrels is very sensitive to underlying technical assumptions. However, these will likely be the same technical assumptions guiding the pre-salt barrels already awarded to Petrobras. The ON/PN Dilemma The proposed ratio of ON/PN is an interesting theme and has also been causing some confusion in the market. Some believe that the government would prefer to use ONs for 100% of the capital increase for two reasons: i) it only holds ONs, so that is the only way to guarantee 100% subscription rights; and ii) the majority of the ONs’ free float is held by foreign investors, who would face problems in subscribing unless the company also decides to file the capital increase with the SEC. While Brazilian corporate law allows for a capital increase in a single class of shares, ONs are currently some 20% more expensive than PNs, meaning that the government would have to spend an extra 20% to increase its stake in Petrobras. With regard to the ADR ON holders, the company stated its intentions of listing the offer in the SEC if needed, which, by the way, translates into a longer timetable. In other words, we see no reason to bet on an ON-only capital increase. On the other hand, the argument for a PN-only deal is also questionable, as it would expose the government to a dilution, which would be undesirable. There is no legal limit for an ONonly offering, while for PNs the limit would be the 50/50 ON/PN ratio established by the new Brazilian corporate law. In our view, the company will take the easiest route with to respect the current ON/PN ratio. But most importantly, whatever the ratio chosen, both
Itaú Securities -6-
Petrobras – September 17, 2009
ON and PN holders would be diluted in proportion to their share of the company’s capital. The ON/PN ratio narrowed significantly right after the announcement, later returning to the level of 1.2. We see no reason to attribute these fluctuations to anything other than money flows. While locals were exposed to the many statements on the new bill that preceded the final announcement, foreign investors were more surprised, and had a stronger negative reaction in the first moment. This caused the ONs to under perform the PNs. Later on, with the clarifications provided by the company in its conference calls and by analysts, the level of understanding improved, consequently reducing the risk perception. In our view, the confirmation that minorities would not vote on the valuation of the barrels was not the reason behind the narrowing of the spreads, which reduced the appetite for ON shares. Voting rights in a state-owned company controlled by the government should have never added any value to ON shares. The Timing Question We are left, then, with the timing question. The approval of the 4th law project is the first bottleneck for the timetable. While the approval of this particular project seems to be less complicated than, for instance, the approval of the PSC, we see two issues that could potentially delay the approval, mainly in the Senate. The first issue relates to the exclusion of the SPT payments for the five billion barrels. We view this as another effort to concentrate the pre-salt revenues in the hands of the federal government. Without the SPT, valuation of the barrels goes up, meaning that Petrobras can buy the barrels from the federal government at a higher price in exchange for reducing the states’ and municipalities’ revenues from the SPT in the future. We expect the producing states to question that idea. The second issue relates to the sale of exploration rights without an auction, which arguably goes against Brazil’s Federal Constitution. We believe that the government will overcome that issue, but the questioning will likely delay the process. We find it hard to believe that anything will be approved within a year. From the date of the approval, the 4th law project gives Petrobras a year to reach a deal with the Brazilian government for the acquisition of the exploration rights. The company can start working on the valuation of the barrels now, which means that, in theory, one year would be more than enough for a first assessment. Two years later, the valuation can be revised and the volumes fine tuned. But possible questions related to, for example, minorities’ voting rights (since this is a transaction between related parties) could further delay the process. While Petrobras and the government seem to be pretty much aligned with regard to the four law projects, the valuation of the barrels arguably puts them on opposite sides of the negotiation table. That is actually what we should expect from an arm’s-length transaction. Each party is supposed to contract an independent valuation. Yet, most of the technical assumptions behind the valuation will likely come from Petrobras’ headquarters anyway; long-term oil prices or discount rate assumptions, for instance, could bring a significant deviation to the respective valuations. While acknowledging that it would be naïve to assume a major misalignment between the parties, we would expect some disputes, which could potentially delay the process. Another possible delay to the capitalization could be caused by the need to list the offer with the SEC to grant ADR holders the right to subscribe. The company is already looking into the legal requirements to make that listing, as the idea is to grant pre-emptive subscription rights to all minorities. In recent follow-ons by companies such as Gerdau and CVRD, the solution used to overcome the burden of listing (time and costs) was to grant ADR holders matching subscription rights as part of the book building in the local market.
Itaú Securities -7-
Petrobras – September 17, 2009
DISCLAIMER Itaú Securities is a brand name of Itaú Corretora de Valores S.A. Ratings: Definitions, Dispersion and Banking Relationships (3) Ratings
Definition
(1) (2)
Coverage
Banking Relationship
(3)
(4)
Outperform
The analyst expects the stock to perform better than the sector average.
36%
25%
Sector Perform
The analyst expects the stock to perform in line with the sector average.
48%
34%
Underperform
The analyst expects the stock to perform below the sector average.
17%
12%
1. Ratings reflect the analyst’s assessment of the stock price performance in the medium term compared with the sector average. Recommendations will be valid until the analyst changes the rating, which may happen as a result of news or simply due to a change in the stock price (there is not a defined time horizon). 2. Companies are grouped, according to their similarities, into sectors. The sectors are: (i) Banking & Financial Services, (ii) Consumer Goods & Retail + Food & Beverage, (iii) Industrials + Healthcare + Education, (iv) Steel & Mining + Pulp & Paper, (v) Oil, Gas & Petrochemicals + Agribusiness, (vi) Real Estate, (vii) Telecommunications, Media and Technology, (viii) Transportation & Logistic, (ix) Utilities (x) Equity Strategy. 3. Percentage of companies under coverage by Itaú Corretora de Valores S.A. within this rating category. The ratings used herein (Outperform, Sector Perform and Underperform) for purposes of the ratings distribution disclosure requirements of FINRA and the NYSE, correspond most closely, respectively, to Buy, Hold and Sell. 4. Percentage of companies within this rating category for which Banco Itaú S.A. or any of its affiliated companies provided investment banking services within the past 12 (twelve) months, or may provide investment banking services during the next 3 (three) months.
Third Party Disclosures Companies Mentioned Petrobras
Ticker
Recent Price
PETR4
34.35
Disclosure Items 1
2
3
4
5
X
1. Itaú Corretora de Valores S.A. and/or its affiliates have managed or co-managed a public offering for the companies analyzed in this report in the past 12 (twelve) months, for which they have received compensation. 2. Itaú Corretora de Valores S.A. and/or its affiliates have received compensation for investment banking services provided to the companies analyzed in this report in the past 12 (twelve) months, and expect to receive or intend to seek compensation for investment banking services provided to the companies analyzed in this report in the next 3 (three) months. 3. Itaú Corretora de Valores S.A. and/or its affiliates were making a market in the companies analyzed in this report at the time this report was issued. 4. Itaú Corretora de Valores S.A. and/or its affiliates have acted as an underwriter of securities issued by the companies analyzed in this report within the past 5 (five) years. 5. Itaú Corretora de Valores S.A. and/or its affiliates, funds, portfolios and securities investment clubs managed by Itaú Corretora beneficially own, directly or indirectly, 1% (one percent) or more of any class of common equity securities issued by the companies analyzed in this report as of the end of the last month.
40.0
4-Sep 11-Sep
2-Jul
30-Apr
5-Mar
45.0
5-Jan
50.0
8-Jun
Petrobras PN
35.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0 Jan-09
Feb-09 Mar-09 Underperform UR
Source: Itaú Securities
Itaú Securities -8-
Apr-09
May-09
Jun-09
Sector Perform Stock Price
Jul-09
Aug-09
Outperform Fair Value
Sep-09
Petrobras – September 17, 2009
Relevant Information 1.
This report has been produced by Itaú Corretora de Valores S.A (“Itaú Corretora”), a subsidiary of Banco Itaú S.A. and distributed by Itaú Corretora or one of its affiliates (altogether, “Itaú Unibanco Group”).
2.
This report is provided for informational purposes only and does not constitute or should not be construed as an offer to buy or sell or solicitation of an offer to buy or sell any financial instrument or to participate in any particular trading strategy in any jurisdiction. The information herein is believed to be reliable as of the date in which this report was issued and has been obtained from public sources believed to be reliable. Itaú Unibanco Group does not make any representation or warranty, express or implied, as to the completeness, reliability or accuracy of such information, nor is this report intended to be a complete statement or summary of the investment strategies, markets or developments referred to herein. Opinions, estimates, and projections expressed herein constitute the current judgment of the analyst responsible for the substance of this report as of the date on which it was issued and are therefore subject to change without notice. Prices and availability of financial instruments are indicative only and subject to change without notice. Itaú Unibanco Group has no obligation to update, modify or amend this report and inform the reader accordingly, except when terminating coverage of the issuer of the securities discussed in this report.
3.
The analyst responsible for the production of this report hereby certifies that the views expressed herein accurately and exclusively reflect his or her personal views and opinions about any and all of the subject issuers or securities and were prepared independently and autonomously, including from Itaú Corretora . Because personal views of analysts may differ from one another, Itaú Corretora, its subsidiaries and affiliates may have issued or may issue reports that are inconsistent with, and/or reach different conclusions from, the information presented herein. The analyst responsible for the preparation of this report is not registered and/or qualified as a research analyst with the NYSE or FINRA, and is not associated with Itaú USA Securities Inc. and, therefore, may not be subject to Rule 2711 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.
4.
An analyst’s compensation is determined based upon total revenues of Itaú Corretora, a portion of which is generated through investment banking activities. Like all employees of Itaú Corretora, its subsidiaries and affiliates, analysts receive compensation that is linked by overall profitability. For this reason, analyst’s compensation can be considered to be indirectly related to this report. However, the analyst responsible for the content of this report hereby certifies that no part of his or her compensation was, is, or will be directly or indirectly related to any specific recommendation or views contained herein or linked to the pricing of any of the securities discussed herein. The analyst declares that (s)he does not maintain any relationship with any individual who has business of any nature with the companies and does not receive any compensation for services rendered to or have any commercial relationship with the companies or any individual or entity representing the interests of the companies. According to Itaú Corretora’s compliance policy, the analyst(s) and any member of his/her household do not hold, directly or indirectly, any securities issued by the companies analyzed in this report in his/her personal investment portfolio, nor is (s)he personally involved in the acquisition, sale or trading of such securities in the market. Neither the analyst nor any member of the analyst’s household serves as an officer, director or advisory board member of the companies analyzed in this report. Itau Unibanco Group and the funds, portfolios and securities investment clubs managed by Itaú Unibanco Group may have direct or indirect stake equal to, or higher than, 1% (one percent) of the capital stock of the companies, and may have been involved in the acquisition, sale or trading of such securities in the market.
5.
The financial instruments discussed in this report may not be suitable for all investors. This report does not take into account the investment objectives, financial situation or particular needs of any particular investor. Any investors wishing to purchase or otherwise deal in the securities covered in this report should obtain relevant documents from financial instruments and exchange institutions and confirm its contents. Investors should obtain independent financial advice based on their own particular circumstances before making an investment decision based on the information contained herein. Final decision on investments must be made by you considering various risks, fees and commissions. If a financial instrument is denominated in a currency other than an investor’s currency, a change in exchange rates may adversely affect the price or value of, or the income derived from, the financial instrument, and the reader of this report assumes any currency risk. Income from financial instruments may vary, and their price or value, either directly or indirectly, may rise or fall. Past performance is not necessarily indicative of future results, and no representation or warranty, express or implied, is made herein regarding future performances. Itaú-Unibanco Group does not accept any liability whatsoever for any direct or consequential loss arising from any use of this report or its content.
6.
This report may not be reproduced or redistributed to any other person, in whole or in part, for any purpose, without the prior written consent of Itaú Corretora de Valores S.A. . Additional information on the financial instruments discussed in this report is available upon request.
Additional Note to reports distributed in: (i)U.K. and European: Banco Itaú Europa, S.A., London Branch, that is authorized by Banco de Portugal and authorized and subject to limited regulation by the Financial Services Authority (FSA), is distributing this report to investors who are Eligible Counterparties and Professional Clients, pursuant to FSA rules and regulations. If you do not, or cease to, fall within the definition of Eligible Counterparty or Professional Client, you should not rely upon the information contained herein and should notify Banco Itaú Europa S.A. London Branch immediately. The information contained herein does not apply to, and should not be relied upon by, retail customers; (ii) U.S.: Itaú USA Securities Inc., a FINRA/SIPC member firm, is distributing this report and accepts responsibility for the content of this report. Any US Person receiving this report and wishing to effect any transaction in any security discussed in this report should do so with Itaú USA Securities Inc. at 540 Madison Avenue, 23rd Floor, New York, NY; (iii) Asia: This report is distributed in Hong Kong by Itau Asia Securities Limited, which is licensed in Hong Kong by the Securities and Futures Commission for Type 1 (dealing in securities) regulated activity. Itau Asia Securities Limited accepts all regulatory responsibility for the content of this report. In Hong Kong, any investors wishing to purchase or otherwise deal in the securities covered in this report should contact Itau Asia Securities Limited at 29th Floor, Two IFC, Hong Kong, Central; (iv) Japan: This report is distributed in japan by Itau Asia Securities Limited – Tokyo Branch, Registration Number (FIEO) 2154, Director, Kanto Local Finance Bureau, Association: Japan Securities Dealers Association; (v) Middle East: This information has been distributed by Itaú Middle East Securities Limited. Related financial products or services are only available to wholesale clients with liquid assets of over $1 million, and who have sufficient financial experience and understanding, to participate in financial markets in a wholesale jurisdiction. Itaú Middle East Securities Limited is regulated by the Dubai Financial Services Authority (DFSA). In Middle East, any investors wishing to purchase or otherwise deal in the securities covered in this report should contact Itaú Middle East Securities Limited, at Park Place, 10th Floor (1005), Sheikh Zayed Road, Dubai, United Arab Emirates; (vi) Brazil: Itaú Corretora de Valores S.A., a subsidiary of Banco Itaú S.A authorized by the Central Bank of Brazil and approved by the Securities and Exchange Commission of Brazil, is distributing this report. If necessary, contact the Client Service Center: 40043131* (capital and metropolitan areas) or 0800-722-3131 (other locations) (during business hours, from 9:00 a.m. to 8:00 p.m.). If you wish to revaluate the presented solution, after utilizing these channels, talk to Itaú’s Corporate Complaints Office: 0800-570-0011 (on business days from 9:00 a.m. to 6:00 p.m.) or Caixa Postal 67.600, São PauloSP, CEP 03162-971. * Local call cost
Itaú Securities -9-
Equities Roberto M. Nishikawa, Global Head of Equities
Research Carlos Constantini, CNPI - Head
+55-11-3073-3001
Equity Strategy Carlos Constantini, CNPI - Head Marcelo Brisac, CFA Susana Salaru, CNPI Cida Souza, CNPI Enrico Grimaldi
+55-11-3073-3001 +55-11-3073-3023 +55-11-3073-3009 +55-11-3073-3038 +55-11-3073-3012
Banking & Financial Services Alcir Freitas, CNPI - Sector Head Wesley Okada, CNPI Alexandre Spada, CNPI
+55-11-3073-3042 +55-11-3073-3043 +55-11-3073-3004
Consumer Goods & Retail + Food & Beverage Juliana Rozenbaum, CFA - Sector Head +55-11-3073-3035 Francine Martins, CNPI +55-11-3073-3039 Marcelo F. Cintra +55-11-3073-3016
[email protected] Steel & Mining + Pulp & Paper Marcos Assumpção, CFA - Sector Head +55-11-3073-3021 [email protected] Alexandre Miguel, CNPI +55-11-3073-3020 [email protected] [email protected] Rodrigo Fonseca +55-11-3073-3018 [email protected] [email protected] [email protected] Telecommunications, Media & Technology [email protected] Valder Nogueira, CNPI - Sector Head +55-11-3073-3008 [email protected] [email protected] Bruno Mendonça, CNPI +55-11-3073-3010 [email protected] Renan Compagnoli +55-11-3073-3064 [email protected] [email protected] Transportation & Logistic [email protected] Victor Mizusaki, CNPI - Sector Head [email protected] Fernando Abdalla, CNPI
+55-11-3073-3030 +55-11-3073-3019
[email protected] [email protected]
+55-11-3073-3011 +55-11-3073-3014 +55-11-3073-3024
[email protected] [email protected] [email protected]
+55-11-3708-2715 +55-11-3708-2807 +55-11-3708-2712 +55-11-3708-2713
[email protected] [email protected] [email protected] [email protected]
+55-11-3073-3066 +55-11-3073-3065
[email protected] [email protected]
+55-11-3073-3005 +55-11-3073-3006
[email protected] [email protected]
+55-11-3073-3310 +55-11-3073-3310 +55-11-3073-3310 +55-11-3073-3310 +55-11-3073-3310 +55-11-3073-3310 +55-11-3073-3310 +55-11-3073-3310
[email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected]
+44-20-7663-7845
[email protected]
+44-20-7663-7845 +44-20-7663-7845
[email protected] [email protected]
+44-20-7663-7839 +44-20-7663-7839
[email protected] [email protected]
+813-3539-3850 +813-3539-3852
[email protected] [email protected]
+852-3657-2388 +852-3657-2398 +852-3657-2379
[email protected] [email protected] [email protected]
+55-11-3073-3310 +55-11-3073-3310 +55-11-3073-3310
[email protected] [email protected] [email protected]
FX Spot Manoel Gimenez Haroldo Vasconcellos Marcio Jeronimo
+55-11-3073-3340 +55-11-3073-3340 +55-11-3073-3340
[email protected] [email protected] [email protected]
Stock Lending Douglas Jacob Marina Santos João Victor Caccese
+55-11-3073-3211 +55-11-3073-3211 +55-11-3073-3211
[email protected] [email protected] [email protected]
Utilities [email protected] Marcos Severine, CNPI - Sector Head [email protected] Eduardo Cancian, CNPI [email protected] Mariana Coelho, CNPI
Industrials + Healthcare + Education Renata Faber, CNPI - Sector Head Marcio Osako, CFA Marcos Matsutani
+55-11-3073-3017 +55-11-3073-3040 +55-11-3073-3041
Economics [email protected] Guilherme da Nóbrega, CNPI - Head [email protected] Mauricio Oreng [email protected] Luiz Gustavo Cherman Rodolfo Araujo Oliveira
Oil, Gas & Petrochemicals + Agribusiness Paula Kovarsky, CNPI - Sector Head Diego Mendes, CNPI Giovana Araújo, CNPI
+55-11-3073-3027 +55-11-3073-3029 +55-11-3073-3036
Real Estate David Lawant, CNPI - Sector Head Cecilia Viriato, CNPI Renan Compagnoli
Technical Analysis +55-11-3073-3037 [email protected] Marcio Lacerda, CNPI - Head +55-11-3073-3007 [email protected] Marcello Rossi, CNPI +55-11-3073-3064 [email protected]
[email protected] Quantitative Research [email protected] Marcus Moldes, MSc, CNPI - Head [email protected] Pedro Maia
Equity Sales & Trading Latin America Carlos Maggioli - Head
+55-11-3073-3300
Sales - Latin America Carlos Maggioli - Head Regina Jordão Rodrigo Pace Rogerio Storeli Márcia Sadzevicius Fernando Diez Notarnicola Bento Antunes Mussnich
+55-11-3073-3300 +55-11-3073-3330 +55-11-3073-3330 +55-11-3073-3330 +55-11-3073-3330 +55-11-3073-3330 +55-11-3073-3330
North America Thomas DeCoene - Head
+1-212-710-6702
Sales - North America Renato Lobo - Head Flavia Stingelin, CFA Marcello Spinelli Adam Cherry
+1-212-759-5627 +1-212-710-6768 +1-212-710-6767 +1-212-710-6766
Sales Trading - North America Andre Soares - Head Eric Krall Gustavo Rosa
+1-212-759-5927 +1-212-710-6748 +1-212-710-6747
Sales Trading - Latin America [email protected] Danuse Corradi Christian Lemos Pedro Gimenez [email protected] Eduardo Santos [email protected] Irenio I. S. Neto [email protected] Fernando Lasalvia [email protected] Lucas Gonçalves [email protected] Carlos Faria [email protected] [email protected] Europe, Middle East & Asia Mark Fenton - Head [email protected] Sales - Europe André Luiz Dreicon Simone Rosito [email protected] [email protected] Sales Trading - Europe [email protected] Fabio Faraggi [email protected] Duncan Ilsley Sales - Japan [email protected] Masayoshi Yazawa [email protected] Gerson Konishi [email protected] Sales - Hong Kong Jack Xu - Head Caio Galvão Charles Lin
Hedge Funds, Futures, Derivatives & Stock Lending Carlos Maggioli - Head Cristiano Soares Thierry Decoene
+55-11-3073-3300 +55-11-3073-3300 +55-11-3073-3300
Futures Desk Eduardo Borro - Head Gerson Panariello Alexandre Rizzo Denis Malvone Celso Azem Luciana Eugenio José Dezene Alan Eira Vinicius Cobo
+55-11-3073-3350 +55-11-3073-3350 +55-11-3073-3350 +55-11-3073-3350 +55-11-3073-3350 +55-11-3073-3350 +55-11-3073-3350 +55-11-3073-3350 +55-11-3073-3350
[email protected] Local Equity Derivatives [email protected] Fabiano V. Romano - Head [email protected] Guilherme Bockmann Rafael Americo
[email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected]
Private Banking Desk Alexandre Guedes - Head Marcos Skistymas – Business Intelligence
+55 11 3073-3110 +55 11 3073-3110
Private Banking - Sales Carina Cassab Carreira Lucas Tambellini Marcelo Ferri Pedro H. Rocha Sauma Sergio Fonseca Rosa
+55 11 3073-3110 +55 11 3073-3110 +55 11 3073-3110 +55 11 3073-3110 +55 11 3073-3110
[email protected] Private Banking - Trading Desk [email protected] Felipe Beltrami - Head Caio Felipe Zanardo Val Edgard Claussen Vilela [email protected] Luiz Ricardo C. Lobo [email protected] Luis Fernando Kanashiro [email protected] João Roberto A. de Souza [email protected] Joseana Requejo Amaral [email protected] Julio Pimentel Algodoal Neto Leonardo Mattiussi Nicolas E. Balafas Patrick Campos de Mello Ricardo Julio Costa Robinson Minetto Rogerio M. Kurussu Sandra Steffen Brianti Natália Mônaco
+55 11 3073-3273 +55 11 3073-3292 +55 11 3073-3291 +55 11 3073-5880 +55 11 3073-3210 +55 11 3073-3298 +55 11 3073-3293 +55 11 3073-3210 +55 11 3073-3290 +55 11 3073-3299 +55 11 3073-3292 +55 11 3073-3297 +55 11 3073-3290 +55 11 3073-3291 +55 11 3073-3297 +55 11 3073-3297
[email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected]
+1 212 710-6782 +1 212 710-6745 +1 212 710-6765
[email protected] [email protected] [email protected]
Sales - Europe Rodolfo Dejon Rodrigo Malizia
+44 207 663-7843 +44 207 663-7843
[email protected] [email protected]
Sales - Asia Gerson Konishi
+813-3539-3852
[email protected]
+ 971 4 381 0650 + 971 4 381 0656
[email protected] [email protected]
+852-3657-2388 +852-3657-2398 +852-3657-2379
[email protected] [email protected] [email protected]
+81-3-3539-3847 +81-3-3539-3848 +81-3-3539-3849
[email protected] [email protected] [email protected]
Fixed Income Alexandre Aoude, Global Head of Fixed Income Fixed Income Research Ciro Matuo, CNPI - Sector Head Boanerges Pereira, CNPI Sérgio Vailati, CNPI
+55-11-3073-3049 +55-11-3073-3050 +55-11-3073-3067
Sales - Latin America Luis Fernando Guido Andre Farkas Mauricio Silveira Rogério Cunha Valter Luz Felipe Almeida Vinicius Pinho
+55-11-3708-8800 +55-11-3708-8800 +55-11-3708-8800 +55-11-3708-8800 +55-11-3708-8800 +55-11-3708-8800 +55-11-3708-8610
Sales - North America [email protected] Douglas Chen [email protected] Augusto Castilho [email protected] Richard Cascais
[email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected]
Alternative Investment Products São Paulo Marcelo Fatio - Head Lizandro Arnoni Eduardo Bernardes New York Thomas DeCoene - Head Alex Mainero Roger Freitas London Mark Fenton - Head Julia Chen Raquel Franco Pedro Rafael
+55-11-3073-3505 +55-11-3073-3584 +55-11-3073-3545
+1-212-710-6702 +1-212-710-6731 +1-212-710-6778
+44-20-7663-7845 +44 207 663 7842 +44-207-663-7838 +44-207-663-7841
Dubai [email protected] Adriano Cantreva - Head [email protected] Ellie Shaw [email protected] Hong Kong Jack Xu - Head [email protected] Caio Galvão [email protected] Charles Lin [email protected] Tokyo Kenichi Noguchi - Head [email protected] Hiroyuki Shimizu [email protected] Hiroji Shimabucuro [email protected] [email protected]
Itaú Securities' Global Offices SÃO PAULO Itaú Corretora de Valores S.A Av. Brigadeiro Faria Lima, 3400 - 9º Andar São Paulo, SP, Brazil, 04538-132
NEW YORK Itaú USA Securities Inc. 540 Madison Avenue, 23rd floor New York - NY 10022
LONDON Banco Itaú Europe London Branch 6th Floor - 17 Dominion Street London EC2M 2EF
HONG KONG Itaú Asia Securities
TOKYO Itau Asia Securities Tokyo Branch Yamato Life Bldg. 5F 1-1-7 Uchisaiwai-cho, Chiyoda-ku Tokyo, 100-0011, Japan
DUBAI Itaú Middle-East Securities Sheikh Zayed Road, Park Place Building,10th floor P.O.Box 65073 Dubai U.A.E
Regulated by the Securities and Futures Commission in Hong Kong
29/F, Two International Finance Centre 8 Finance Street - Central, Hong Kong
Itaú´s Complaints Officer (Ouvidoria Corporativa Itaú) may be contacted at 0800 570 0011 (calls from Brazil), on business days, from 9a.m to 6p.m (São Paulo, Brazil time) or P.O. BOX 67.600, Zip Code 03162-971
The information herein is believed to be reliable but Itaú Corretora de Valores S.A. does not warrant its completeness or accuracy. Opinions and estimates constitute our judgment and are subject to change without notice. Banco Itaú S.A. may have a position from time to time. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for purchase or sale of any financial instrument. This report is prepared by Itaú Corretora de Valores S.A. and distributed Itaú Securities, accepts responsibility for its contents accordingly. Any US persons receiving this research and wishing to effect transactions in any security discussed herein should do so only with Analysts who are not CNPI only provide the team with technical support not issuing personal opinions.
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