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2019 Brazil Strategy Outlook
2019 Brazil Equity Strategy Outlook Promising prospects December 2018 Carlos E. Sequeira, CFA [email protected] +1 646 924-2479 Bernardo Teixeira [email protected] +55 11 3383-3315 LEGAL DISCLAIMERS & DISCLOSURES: www.btgpactual.com/research/Disclaimers/Overview.aspx
Claudio Ferraz, BTG’s Brazil Chief Economist [email protected] +55 21 3262-9758
We are bullish Brazilian equities We see a combination of factors that could drive Brazilian equities up in 2019 ✓ The Ibovespa is relatively cheap – Trading below its historical average (at 11.7x 12-month forward P/E), there is clear upside potential for the Ibovespa.
✓ Earnings should continue to grow strongly in 2019 − Earnings of companies that sell basically domestically are expected to grow 23% in 2018 and 17% in 2019.
✓ Brazilians stocks are under-owned by locals and foreigners − Allocations to Brazilian equities, both by foreign and local investors, are at quite reduced levels.
✓ We expect the economic recovery to accelerate in 2019 – After a massive recession in 2015/2016 and a couple of years of mediocre growth, our economic team expects Brazil’s GDP to grow 2.8% in 2019. Privatizations, concessions and a more pro-business stance by the new government should help fuel Brazil’s economic growth.
✓ Fiscal gap needs to be addressed sooner, rather than later − The new administration must submit to congress a thorough pension reform in its early days in power and press hard to get it approved. .
3
The new administration Team & initial moves to drive markets ✓ This year’s presidential campaign was unique in the sense that the leading candidate and now president elect did not participate in most of the campaign debates and did not have to discuss its main economic proposals in details. – Bolsonaro’s strong, market friendly economic team indicates that the direction is right. A firm commitment to a deep pension reform is a necessary step to create the basis for a more sustained recovery. The initials signs are encouraging.
✓ As the new president’s economic policies are implemented, investors should feel more comfortable to invest in the country − Increased investors’ confidence in the government´s ability to deal with its fiscal problems should drive long-term real interest rates down, making stocks more attractive.
✓ Initial signs are encouraging; main question mark is on PSL’s support in congress – Bolsonaro’s PSL will have the second largest base in the lower house, with 52 congressmen (vs. 8 before). Maybe more importantly, we estimate Bolsonaro’s support base to reach some 168 congressmen, or close to 52% of the house — to reach constitutional quorum (308 votes) he would need the support of “independent” parties PSDB and MDB. – On the other hand, Bolsonaro should expect a fierce opposition from the PT party, which elected the largest base in the lower house and the most number of state governors.
4
Valuations are relatively attractive ✓ The Ibovespa is now trading at 11.7x 12-month forward P/E, below its historical average. − Trading below average (11.7x 12-month forward P/E), there is clear upside potential for the Ibovespa. We would expect it to quickly move back to its historical trading average, implying an Ibovespa close to 97,000 points and an upside of close to 10%. − The beginning of the new government and concrete moves towards privatization and the approval of a pension reform could cause the Ibovespa to trade at one-standard deviation above average, implying an Ibovespa trading close to 112,000 points and an upside close to 27%.
Brazil’s 12-month forward P/E
Brazil’s premium to hold equities
19x
10%
17x
8% 6%
15x
5.5%
4% 13x
2% 11.7
11x
1.9%
0% -2%
9x
-4% -6%
Average
+1 Std Dev
-1 Std Dev
P/E 12MF (ex-Petro & Vale)
-8% Sep-06 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 Jan-18 May-18 Sep-18
Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 Jan-18 May-18 Sep-18
7x
Real Earnings Yield (Ex-Petro & Vale)
AVERAGE
+1 Std Dev
-1 Std Dev
Source: Economática, BTG Pactual estimates
5
Earnings should continue to grow strongly in 2019 ✓ We are modeling for 2018 & 2019 domestic earnings to growth of 23% y/y and 17% y/y, respectively. Domestic earnings and revenue growth
Net revenues Growth Net income Growth
2014 595,933 111,532
2015 674,071 13.1% 114,921 3.0%
2016 698,859 3.7% 106,548 -7.3%
2017 713,524 2.1% 114,921 7.9%
2018E 795,552 11.5% 141,529 23.2%
2019E 873,411 9.8% 164,885 16.5%
Source: BTG Pactual estimates
✓ Consolidated earnings expected to grow 27% y/y and 31% in 2019 – When we include commodity exporters, we see consolidated earnings growing 27% in 2018 and 31% in 2019. A good part of the jump can be ascribed to the impact of a stronger USD on these companies’ revenues. Consolidated earnings and revenue growth
Net revenues Growth Net income Growth
2014 872,149 120,174
2015 2016 2017 2018E 2019E 966,665 1,006,512 1,037,637 1,196,040 1,301,590 10.8% 4.1% 3.1% 15.3% 8.8% 96,586 139,722 140,328 178,642 233,723 -19.6% 44.7% 0.4% 27.3% 30.8%
Source: BTG Pactual estimates
6
Brazilian equities are under-owned ✓ In September, Global and GEM funds were close to historical lows. Exposure levels rose slightly in October, but allocations are still way off levels seen in the recent past.
✓ Local investors’ equities allocations aren’t expiring either. GEM & Global funds allocations to Brazil
Locals allocations to equities
Global
16.7%
2.40%
15.9%
1.97%
16.4%
2.24%
11.9%
1.31%
11.0%
1.07%
9.1%
1.07%
6.0% 8.6%
0.52% 0.93%
7.2%
0.60%
7.6%
0.69%
7.5%
0.62%
6.0%
0.42%
6.4%
0.37%
8.0%
0.51%
4,122 22.0%
4000
18.0% 18.3% 14.8%
2500 15.5% 11.3% 9.9% 1000
854
10.6%
717 893 11.1% 940
11.6%11.4% 1,420 981
1,651
1,500
2,246
2,362
2,557
1,950 1,858
1,167
2,104
17%
14.3% 14.0%
13%
8.7%
11.9% 9.1%
500 362
0
19%
2,803
15%
14.9%
2000 1500
21%
3,269
3000
25% 23%
3,776
3500
AuM (R$bn)
Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Jan-18 Mar-18 Jun-18 Sep-18 Oct-18
G.E.M.
9.8%
8.5%
11% 9% 7%
Equity Share of Mutual Funds, Selic Rate (% )
4500
Allocation into Brazilian equities
224 334 356 311 321 331 303 255 278 330 405
97 88 80 99 113 133 221 5% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Oct-18 Fixed Income AuM (R$bn)
Equity AuM (R$bn)
Equity Share
End of Period Selic Rate
Source: EPFR and Anbima
7
Economic recovery to accelerate in 2019 ✓ All conditions are in place for the economy to accelerate in 2019 − A combination of significant idle capacity in industries, abundant human resources and improving business and consumer confidence can drive the economic recovery. − Privatizations, concessions and a more pro-business stance by the new government should help fuel Brazil’s economic growth Unemployment rate
Capacity Utilization in Industry (%)
14 13
12.1
12 11.7
11 10 9 8 7
s.a.
Jun-18
Oct-18
Feb-18
Jun-17
Oct-17
Feb-17
Jun-16
Oct-16
Feb-16
Jun-15
Oct-15
Feb-15
Jun-14
Oct-14
Feb-14
Jun-13
Oct-13
Feb-13
Jun-12
Oct-12
6
n.s.a.
Source: IBGE
Source: FGV
Real earnings (s.a.)
12-month accumulated inflation (%) 2.25
202
2.15
192
R$ thousands
R$ billions
2.20 197
2.10
187
Source: IBGE and BTG Pactual estimates
Jul-18
Nov-17
Mar-18
Jul-17
Mar-17
Jul-16
Nov-16
Mar-16
Jul-15
Wage bill
Nov-15
Nov-14
Mar-15
Jul-14
Mar-14
Nov-13
Jul-13
Mar-13
2.05
Nov-12
182
8
Average wages (rhs)
Source: Central Bank of Brazil and BTG Pactual
Households deleveraging process continues ✓ Leverage has fallen over the past years
Household debt (% of annual income)
Household debt service (% monthly income)
Source: IBGE
Source: IBGE
9
Bolsonaro’s election boosted confidence levels ✓ Both consumer and business confidence levels moved up after Bolsonaro’s election − Consumer confidence grew 7.3 points m/m in November (after +4.1 points m/m in October), standing at its highest level since the start of its recovery at the beginning of 2016. The increase was mostly driven by the expectations component of the index, which grew 10.5 points, while the component that measures the current perception grew 2.6 points. − Business confidence didn’t grow as much as the consumer confidence index, but it was the first month since the truck drivers’ strike that it moved up. The improvement was driven by the current situation component of the index (+1.3 points m/m).
Business confidence
Consumer confidence 120
120
110 110
100
100
90
90
Business confidence
Source: FGV
Expectation
Consumer confidence
Current Situation
Expectation
Source: FGV
10
Nov-18
Nov-17
May-18
Nov-16
May-17
Nov-15
May-16
May-15
Nov-14
Nov-13
May-14
Nov-12
May-13
Nov-11
May-12
Nov-10
May-11
May-10
Nov-09
Nov-08
May-09
Nov-07
May-07
Nov-18
Nov-17
May-18
May-17
Nov-16
Nov-15
May-16
Nov-14
Current Situation
May-15
Nov-13
May-14
Nov-12
May-13
Nov-11
May-12
Nov-10
May-11
Nov-09
May-10
Nov-08
May-09
60 May-08
70
Nov-07
70
May-07
80
May-08
80
A confidence boost improves the outlook for GDP growth ✓ More confidence, improved growth prospects
Business confidence trajectories
GDP growth (y/y) vs. business confidence scenarios
120
10 8
110
6 3.2% in 2019 2.8% in 2019
4
100
2
90
0 -2
80
-4
70
-6
2006
Average 2002-2006
Feb-19
Mar-18
Apr-17
May-16
Jun-15
Jul-14
Aug-13
Sep-12
Oct-11
Nov-10
Dec-09
Jan-09
Feb-08
Jul-19
Sep-18
Nov-17
Jan-17
Mar-16
May-15
Jul-14
Sep-13
Nov-12
Jan-12
Mar-11
May-10
Jul-09
Sep-08
Nov-07
Jan-07
Average 2002-2006
Mar-07
-8
60
2006
Source: IBGE, FGV and BTG Pactual
11
Top Picks, by sector ✓ Retail ￚ ￚ ￚ ￚ
B2W Lojas Renner Magazine Luiza CVC
✓ Financials, ex-banks ￚ B3
✓ Agribusiness ￚ São Martinho
✓ Banks
ￚ Banco do Brasil ￚ Bradesco
✓ Utilities
ￚ Cemig ￚ Equatorial ￚ Light
✓ Telecom, Media, Technology ￚ Linx ￚ Oi
✓ Oil & Gas ￚ Cosan
✓ Basic Materials ￚ Gerdau ￚ Suzano ￚ Vale
✓ Transportation, Infra, Capital Goods ￚ ￚ ￚ ￚ
Rumo Embraer Localiza Santos Brasil
✓ Food & Beverage ￚ JBS ￚ Marfrig
✓ Healthcare & Education ￚ Hapvida
✓ Homebuilders ￚ Even ￚ MRV
✓ Malls
ￚ Multiplan
12
BTG Pactual’s December 10SIM
Company
Ticker
Weight (%) ADTV (R$m) Mkt Cap (R$m)
Upside (%)
PE 2019E
Petrobras
PETR4
15%
2,230.6
348,276
-
-
Banco do Brasil
BBAS3
10%
615.1
126,017
15%
6.6x
B3
B3SA3
10%
293.9
58,560
12%
17.2x
BR Distribuidora
BRDT3
10%
126.6
28,496
-6%
18.6x
Lojas Renner
LREN3
10%
150.9
28,234
-11%
24.1x
Rumo
RAIL3
10%
139.5
27,439
19%
36.1x
Gerdau
GGBR4
10%
248.7
24,009
52%
7.5x
Localiza
RENT3
10%
141.8
18,414
8%
19.9x
Embraer
EMBR3
10%
68.2
15,972
15%
12.8x
Oi
OIBR3
5%
29.8
3,658
-
na.
13
BTG Pactual’s December Small Caps portfolio
Company
Ticker
Weight (%)
ADTV (R$m) Mkt Cap (R$m)
Upside (%)
PE 2019E
CVC
CVCB3
20%
64.9
8,784
-1%
23.0x
Marfrig
MRFG3
20%
23.0
3,848
37%
8.6x
Santos Brasil
STBP3
20%
5.3
2,584
18%
29.4x
Tegma
TGMA3
20%
8.6
1,627
18%
12.0x
Even
EVEN3
20%
6.7
1,128
35%
17.6x
14
Why we selected these stocks ✓ B3 ￚ With lower disbursements and banks more restrictive in corporate lending, we expect capital markets to continue to gain relevance going forward, and B3 is one of the most interesting stories to play in this environment. With a presence on all fronts – from cash equities trading to fixed income custody – the company is perfectly positioned to benefit from additional volumes in many different ways. October may be an “appetizer” of how high volumes could reach in a bull market – ADTV for cash equities was of R$17bn. Valuation is not demanding at this point, with the stock trading at ~18x P/E19. ✓ BR Distribuidora
ￚ We believe the combination of (i) improving macro outlook and sentiment, with obvious and direct impacts to the fuel market in the form of stronger volumes growth, and (ii) growing odds that BRDT could become part of a broader privatization program could easily tackle corporate governance concerns as well as lead the way for investors to be on improvements in SG&A front, which is by far the main reason BRDT margins are historically far lower than its peers. ✓ Gerdau ￚ We believe Gerdau is set to continue focusing on higher return assets, deleveraging and simplification of the business. Improving prospects for margin recovery in its US division, stronger pricing power and demand recovery in Brazil should drive the company’s EBITDA and profitability sustainably higher. We expect very strong results in the 3Q18, with the company delivering around R$2bn in EBITDA. We see leverage moving down below 1.5x by 2018YE and the stock trading at near 5.5x for 2018. However, we see fast multiple compression ahead, with numbers trending below ~5.0x EBITDA 2019. Overall, we see a very compelling case for the next 2-3 years. Reiterate our longheld Buy rating. Gerdau is our Top pick in the sector. ✓ Oi ￚ With the restructuring moving ahead as planned, Oi’s restructured debt will collapse, leaving hefty upside for equity holders. Even under our more conservative estimates for the NPV of its restructured net debt, we still see a huge upside for the stock. Our target price is based on a fair EV/EBITDA multiple of 5.5x (LatAm sector average). ✓ Embraer ￚ Following Bolsonaro’s election, we expect the Embraer-Boeing deal to be approved. We don’t believe Embraer shares are pricing-in upside from the deal. In our calculations, monetization of the Commercial Aviation stake + Embraer’s put option on the remaining 20% of Commercial Aviation would alone be worth, net of taxes, ~US$4bn, or US$22/ADR. There is also significant value from synergies. 15
Why we selected these stocks ✓ Petrobras ￚ We are adding Petrobras to the portfolio on the back of what we see as a strong top down call. In many ways, PBR risk is perceived as a Brazil sovereign risk, and we see the post-election macro environment, with an improving sentiment, as driving a Brazil de-risking as well as a PBR de-risking. ✓ Rumo ￚ Remains our Top Pick in Transportation. We see RAIL3 trading at 8x EV/EBITDA 2019, with strong earnings momentum (Q3 should be a positive catalyst), balance sheet derisking and the potential to become a strong FCF generator. The outlook remains bright, and we believe the company is well positioned to renegotiate long term contracts with clients and have its Malha Paulista concession renewed. We also believe there are relevant upside risks such as (1) the Sorriso project; (2) a strategic investment at Malha Sul and related Araucaria project; (3) improvements at Brado. ✓ Banco do Brasil ￚ Although we’ve been consistently (and positively) surprised by CEO Paulo Caffarelli's administration, which has accomplished a lot more than we initially expected, we were still cautious on BB’s ability to grow/recover ROE at a fast pace. At the end of the day, BB was deleveraging. But after Q2, with much better earnings power, we became more constructive on BB’s ability, on a fundamental basis, to keep improving profitability. ✓ Localiza ￚ The growth rates in car rental industry have been nothing short of stellar (especially Localiza, whose rent-a-car volumes grew at a 32% CAGR since 2015, accelerating year after year since then) despite a sluggish GDP scenario. ￚ With the corporate demand recovery, still low rental penetration in Brazil and potential for further market share gains, we expect strong growth rates to persist for longer. Also, given its capital intensiveness and strong growth, Localiza is one of the stocks we cover with the longest cash flow duration, which means it should outperform in a declining cost of capital scenario. ✓ Renner ￚ LREN consistent track record over a long period shows management’s execution discipline, leaving us more comfortable with the challenges ahead (push-and-pull for core and fashion items + e-commerce’s greater share of sales).
16
Why we selected these stocks ✓ CVC ￚ CVC combines a hybrid business model (franchise, own stores, independent agencies, student travel and online) with flawless execution, as well as diligent acquisitions, delivering solid numbers in recent quarters. Meanwhile, the company’s brand equity, coupled with the synergies from recent acquired assets (Trend and Visual), and a more positive economic outlook should enable CVC to cement its leadership in the coming years, while keeping ROIC at ~30%, well above the retail sector’s average. CVC currently trades at 21x PE 2018 (and 17x P/E 2019), being the cheapest premium retailer among our coverage universe. ✓ Tegma ￚ The company is highly exposed to the recovery trend of light vehicles sales in Brazil (which is still sub-normal levels). We view Tegma’s valuation as especially attractive, at only 12x P/E 2019 and a dividend yield above 5%, with improving earnings momentum: following costsaving initiatives and revenue growth, we expect profitability to reach historical highs in the near term. ✓ Santos Brasil ￚ Supply-demand has been consistently improving at the so-called Santos Cluster, with volumes improving and no (major) container capacity expansion at Port of Santos (Brazil´s #1 port). Our bullishness on this thesis is enhanced by (i) better growth prospects thanks to stronger economic activity; (ii) a better profitability outlook due to BRL appreciation (likely attracting more long-haul imported volumes, which are more valuable for terminals); (iii) stronger (longer-term) container flows on the back of potential new trade agreements and a more open economy; and (iv) more potential (international) interest in the company’s divestment process, plus better earnings momentum following the strong EBITDA recovery expected for Q3. ✓ Even ￚ In a scenario of lower long-term interest rates and rising consumer confidence, mid/high-income homebuilder Even benefits from stronger housing demand – selling its finished units in inventory faster and accelerating the pace of project launches. Even’s earnings outlook is admittedly weak, as the top line is shrinking (on less construction works) and margins are under pressure (cancellations remain high), leading us to forecast a loss in 2018. But as Even trades at a big discount to peers at 0.6x P/TBV, has comfortable leverage (39% ND/equity) and generates cash (22% FCF yield ‘19E), we see room for a re-rating, which is why the stock is joining our Small Caps 10SIM.
✓ Marfrig ￚ While we acknowledge Marfrig is far from an obvious macro call at a time investors are more likely to focus on domestic, discretionary consumer names, we believe there’s a strong argument here for investors looking for solid bottom-up names. Marfrig comes from a decadelong period of poor results, with high leverage pretty much consuming all of its cash flows, leaving little to equity holders. We believe the 17 company could e entering a new phase, underscored by the recently announced sale of Keystone, and the focus on the beef segment. The result is that Marfrig should now be the least leverage company in the sector, with pro-forma leverage ratio approaching a comfortable 2x.
BTG Pactual’s 10SIM Historical Performance 300
281.8
10SIM portfolio Ibovespa
250
IBX-50
200 172.3
150 145.5
100 50
Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18
0
Jan 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
-5.5% -2.2% 3.2% 6.1% -6.1% -6.3% -5.5% 11.2% 10.2%
Feb 0.3% 2.7% 10.3% -1.9% -0.7% 6.2% 3.2% 3.9% -0.4%
Mar 0.1% 1.6% -0.2% 1.4% 4.0% 3.6% 4.4% -5.6% 1.6%
Apr -1.1% 0.6% -0.8% 1.9% 1.5% 3.5% 7.2% 1.7% 1.5%
May -2.8% -1.4% -8.7% -2.1% 0.2% -3.1% -6.0% -4.2% -6.7%
Jun -2.4% -2.2% -0.1% -6.1% 5.6% -0.1% 6.8% -2.1% 0.1%
Jul 12.3% -4.6% 2.3% -0.5% 1.9% -5.5% 12.9% 5.7% 1.9%
Aug -1.4% -1.0% 5.1% 5.1% 6.4% -6.8% 0.9% 4.3% -2.7%
Sep
Oct
Nov
Dec
Year
Ibov.
8.6% -10.8% 6.9% 2.8% -10.8% 2.4% -0.2% 2.9% 2.5%
0.2% 4.8% 9.5% 3.0% 5.3% 6.8% 1.5% 10.9% -0.9% 5.0%
13.3% -2.4% 0.2% 2.1% -0.6% 0.8% 3.6% -6.5% -4.6% -0.7%
4.8% 2.3% 2.1% 8.1% -3.5% -8.6% -0.4% -2.5% 2.9%
19.1% 12.0% -6.5% 34.4% 7.3% -0.9% -2.4% 26.0% 14.7% 12.1%
11.5% 1.0% -18.1% 7.4% -15.5% -2.9% -13.3% 38.9% 26.9% 17.1%
Accum. Ibov Accum. 19.1% 33.4% 24.7% 67.6% 79.9% 78.3% 73.9% 119.1% 151.4% 181.8%
11.5% 12.7% -7.7% -0.9% -16.3% -18.7% -29.5% -2.1% 24.2% 45.5%
18
How high can the Ibovespa go?
Just how high can the Ibovespa go? ✓ Top-down approach to Ibovespa target price – We performed an exercise to gauge the Ibovespa’s theoretical upside potential using a top-down approach. Using a little algebra (more details below), Gordon’s Growth model and the sustainable growth rate formula, we can relate a given P/E to its Return on Equity (ROE), cost of equity (Ke) and expected growth rate
– We ran a few simulations (more details on the coming slides). In a scenario assuming key constitutional reforms are passed and the economy starts growing again, the upside could be big. Discussing real interest rates of ~3% may be a bit premature, but if the pension reform passes, the debate on how low real rates can go will take center stage.
𝑷 𝑬
=
𝑹𝑶𝑬𝒍𝒕 −𝒈𝒍𝒕 𝑹𝑶𝑬𝒍𝒕 𝑲𝒆,𝒍𝒕 −𝒈𝒍𝒕
20
One-stage model… ✓ Scenario 1 – current situation – For this scenario we are assuming a ROE of 13%, growth rate in nominal BRL of 6.5% and a Ke of 12.0%. – Under this scenario we would arrive at a target Ibov. of 66,836 points (22% of downside).
✓ Scenario 3 – slightly more positive – In this scenario we used slightly more optimistic assumptions: ROE of 15%, growth rate of 6.5% and Ke of 10%. – The implied upside potential now would be 38.4%, which would drive the Ibov. to trade at a P/E of 16.2x.
✓ Scenario 4 – if things move in the right direction the upside would be big – Assuming key constitutional reforms are passed and the economy starts growing again, the upside could be big. Discussing real interest rates of ~3% may be a bit premature, but if the pension reform passes, the debate on how low real rates can go will take center stage! – Our assumptions in this scenario: ROE of 15%, growth of 6.5% and a Ke of 9.5%, we would reach a P/E of 18.9x, implying a Ibov. trading at 138,870 points! Scenario 1
Scenario 2
Scenario 3
Scenario 4
Scenario 5
ROE
13.0%
15.0%
15.0%
15.0%
16.0%
Ke Inflation Real rates Interest Rates Premium
12.0% 4.0% 4.0% 8.0% 4.0%
11.0% 4.0% 3.5% 7.5% 3.5%
10.0% 3.5% 3.5% 7.0% 3.0%
9.5% 3.5% 3.0% 6.5% 3.0%
9.0% 3.0% 3.0% 6.0% 3.0%
Growth Inflation Real growth
6.5% 4.0% 2.5%
7.0% 4.0% 3.0%
6.5% 3.5% 3.0%
6.5% 3.5% 3.0%
6.0% 3.0% 3.0%
Target P/E Current P/E IBOV
9.1x 11.7x 86,018
13.3x 11.7x 86,018
16.2x 11.7x 86,018
18.9x 11.7x 86,018
20.8x 11.7x 86,018
IBOV Target
66,836
98,026
119,032
138,870
153,166
-22.3%
14.0%
38.4%
61.4%
78.1%
Upside
21
Two-stage model… ✓ Adding some complexity: using a two-stage model – For those willing to add some complexity to the analysis, we could move to a two-stage model. In the first stage we would use parameters closer to the current situation and in the second stage longer-term assumptions for the main variables. 𝑷 𝑹𝑶𝑬𝒔𝒕 − 𝒈𝒔𝒕 (𝟏 + 𝒈𝒔𝒕 )𝒏 𝑹𝑶𝑬𝒍𝒕 − 𝒈𝒍𝒕 (𝟏 + 𝒈𝒔𝒕 )𝒏 = 𝟏− + 𝑬 𝑹𝑶𝑬𝒔𝒕 (𝒌𝒆,𝒔𝒕 − 𝒈𝒔𝒕 ) (𝟏 + 𝒌𝒆,𝒔𝒕 )𝒏 𝑹𝑶𝑬𝒍𝒕 (𝑲𝒆,𝒍𝒕 − 𝒈𝒍𝒕 ) (𝟏 + 𝒌𝒆,𝒔𝒕 )𝒏
✓ Scenario 1 – 1st stage: current parameters & 2nd stage: key reforms approved scenario – 1st stage: ROE of 13%, growth rate in nominal BRL of 6.5%, and a Ke of 9.5% – 2nd stage: ROE of 15%, growth of 6.5% (3% real growth) and a Ke of 9.5% – Under these assumptions, the target P/E would be 18.0x, indicating a Ibovespa target of 131,969 points and an upside potential of 53.3%
✓ Scenario 2 – super bullish scenario in the second stage! – ROE of 16%, growth of 6% (3% real growth) and a Ke of 9% (real interest rates of 3%), the target P/E would reach 19.7x, indicating a target IBOV of 144,895, and an upside potential of 68.4%!
Scenario 1
Scenario 2
ROEst
13.0%
13.0%
Ke,st Inflation Real Interest Rates Premium
12.0% 4.0% 4.0% 8.0% 4.0%
12.0% 4.0% 4.0% 8.0% 4.0%
6.5% 4.0% 2.5%
6.5% 4.0% 2.5%
15.0%
16.0%
Ke,lt Inflation Real Interest Rates Premium
9.5% 3.5% 3.0% 6.5% 3.0%
9.0% 3.0% 3.0% 6.0% 3.0%
Growthlt Inflation Real
6.5% 3.5% 3.0%
6.0% 3.0% 3.0%
18.0x 11.7x 86,018
19.7x 11.7x 86,018
131,969
22 144,895
53.4%
68.4%
Growthst Inflation Real ROElt
Target P/E Current P/E IBOV IBOV Target Upside
Earnings have been growing fast; Trend to continue in 2019
Domestic-related companies’ earnings set to grow 16.5% in 2019 ✓ BTG Pactual´s equity research team is modeling for 2019 domestic earnings growth of 16.5% y/y, while revenues are forecasted to climb 9.8% in the same period Domestic earnings and revenue growth
Net revenues Growth Net income Growth
2014 595,933 111,532
2015 674,071 13.1% 114,921 3.0%
2016 698,859 3.7% 106,548 -7.3%
2017 713,524 2.1% 114,921 7.9%
2018E 795,552 11.5% 141,529 23.2%
2019E 873,411 9.8% 164,885 16.5%
Source: BTG Pactual estimates
✓ Consolidated earnings expected to grow 31% in 2019 – When we include commodity exporters, our team sees consolidated earnings growing 27.3% in 2018 and 30.8% in 2019, while revenues are forecasted to grow 15.3% and 8.8% in 2018 and 2019, respectively. – The reason behind the difference between 2019 consolidated and domestic earnings growth is the incredible growth that our team models for commodity exporters in 2019 – clearly a factor of the impact of a stronger USD vs. the BRL over these companies’ revenues. In an analysis excluding Vale, earnings would jump 23% in 2019. Consolidated earnings and revenue growth
Net revenues Growth Net income Growth
2014 872,149 120,174
2015 2016 2017 2018E 2019E 966,665 1,006,512 1,037,637 1,196,040 1,301,590 10.8% 4.1% 3.1% 15.3% 8.8% 96,586 139,722 140,328 178,642 233,723 -19.6% 44.7% 0.4% 27.3% 30.8%
Source: BTG Pactual estimates
24
Domestic-related companies’ earnings set to grow 16.5% in 2019 ✓ Net income is outgrowing revenues at a remarkable pace – We expect this trend to continue, as better operating margins, faster sales growth and better financial results (boosted by lower interest rates and deleveraging) continue to fuel earnings. – Leverage is falling fast. After net debt/EBITDA peaks at 1.7x in 2015, it fell to 1.5x in 2017 and we expect it to fall further to 1.4x in 2018 and 1.25x in 2019.
Domestic sales growth and margin
Leverage of domestic companies
14.0% 12.0%
17.8% 17.0%
15.2%
18.9%
18.0%
16.1%
16.0%
10.0%
14.0% 12.0%
8.0% 6.0%
20.0%
10.0%
13.1% 11.5% 9.8%
4.0%
8.0%
1.71 x
6.0%
1.57 x
4.0%
2.0%
3.7%
2.1%
0.0%
0.0% 2015
2016
2017 Sales growth
Source: BTG Pactual estimates
1.50 x
1.43 x
2.0% 2018E Net margin
1.32 x 1.25 x
2019E 2014
2015
2016
2017
2018E
2019E
Source: BTG Pactual estimates
25
Reduced Selic rates have a big impact on earnings ✓ Impact on earnings of lower Selic and reduced spread is big – The impact of a lower Selic rate and reduced spreads on companies’ earnings can be sizable. We ran a back-of-the-envelope calculation to show, in theory, what the impact it could have. – We considered three scenarios in our calculation, which correspond to situations from previous years (2015, 2017 and 2018E), and then simulated each scenario assuming a company with 3x Net Debt/EBITDA, a tax rate of 34%, Selic and spreads varying in line with previous years, and keeping all figures above the EBIT line constant. Lower interest rates and spreads = a potent combo!
Net Revenues COGS Gross profit SG&A EBITDA EBITDA mg.
D&A EBIT Financial result Taxes (34%) Net income Net mg.
Scenario 1 Selic - 14.25% (2015 levels) Spread - 2.3% (double A 2015) Net Debt/EBITDA - 3x 100 (40) 60 (30) 30
Scenario 2 Selic - 10% (2017 levels) Spread - 1.4% (double A 2017) Net Debt/EBITDA - 3x 100 (40) 60 (30) 30
Scenario 3 Selic - 6.75% (2018E level) Spread - 1.2% (double A 2012) Net Debt/EBITDA - 3x 100 (40) 60 (30) 30
30%
30%
30%
(10) 20 (14.9) (1.7) 3.4
(10) 20 (10.3) (3.3) 6.4
(10) 20 (7.2) (4.4) 8.5
3.4%
6.4%
8.5%
Source: BTG Pactual
26
Earnings/GDP growth multiplier consistently above average ✓ Earnings/nominal GDP growth multiplier to peak in 2018 – We estimate the domestic earnings/nominal GDP growth multiplier to peak in 2018, at 4.5x. For 2019, we expect the multiplier to drop to 2.4x, which would be in line with 2017 (at 2.0x) and still higher than the last 10-year average of 1.5x.
Domestic companies’ earnings growth / nominal GDP growth 4.5x
2.8x 2.0x 2.4x 0.7x
average: 1.5x
0.6x 0.9x
1.1x
0.3x
-0.7x 2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Source: Company reports and BTG Pactual estimates. 2015/2016 numbers adjusted for gains/losses with derivatives booked by JBS.
27
Double-digit growth expected for several sectors in 2019 ✓ Double-digit growth for a bunch of sectors in 2019 – Many sectors are expected to grow at double-digit levels in 2019. Excluding commodity exporters, we estimate relevant earnings growth for Capital Goods (+87% y/y in 2019), Car Rental & Logistics (+38%), Food & Beverage (+35%), Retail (+32%) and Agribusiness (+27%). – The banking sector, which is the main contributor to total consolidated earnings (42%) and earnings of domestic-related companies (53%), is expected to grow earnings 15% in 2019. Earnings growth by sector
Pulp & paper Capital Goods Metals & Mining Car Rental & Logistics Food & Beverage Retail Oil & Gas Agribusiness Education Commercial Properties Banks Infrastructure Utilities Financials ex-banks Healthcare Airlines & Mileage TMT Housing Source: BTG Pactual estimates
Earnings share by sector
Net Income 2018E 2019E 70.7% 151.5% -10.2% 86.5% 52.3% 77.3% 38.4% 38.1% 84.8% 34.9% 26.2% 32.4% -29.5% 29.1% 1.0% 26.7% 36.1% 17.3% n.a. 17.3% 15.3% 15.0% -5.7% 15.0% 19.6% 12.6% -2.0% 6.8% 11.7% 6.6% -13.8% 5.6% 51.5% n.a. n.a. n.a.
Banks Metals & Mining Food & Beverage Pulp & paper Utilities Financials ex-banks Retail TMT Capital Goods Infrastructure Agribusiness Healthcare Commercial Properties Car Rental & Logistics Education Oil & Gas Airlines & Mileage Housing
Net Income 2018E 2019E 41.7% 36.7% 15.6% 21.2% 9.3% 9.6% 3.4% 6.6% 7.5% 6.4% 6.0% 4.9% 3.2% 3.2% 5.2% 2.9% 1.1% 1.6% 1.6% 1.4% 1.1% 1.1% 1.3% 1.0% 0.9% 0.8% 0.6% 0.6% 0.7% 0.6% 0.6% 0.6% 0.5% 0.4% -0.5% 0.2%
Source: BTG Pactual estimates
28
Downwards earnings revisions stopped in August ✓ Weaker-than-expected economic growth drove down earnings forecasts – With economic growth falling short of initial expectations, earnings growth forecasts were inevitably cut. In the beginning of 2018, GDP growth estimates were 2.7%, but were cut down to 1.3% after May’s truckers drivers strike. – Naturally, weaker economic activity led earnings estimates to be revised down. Since the beginning of the year, our team has cut its 2018 consolidated domestic earnings estimate by 5%. Our 2019 estimates were also lowered, albeit admittedly not as much (-3%). – The good news is that domestic earnings estimates for 2018 and 2019 haven't moved the needle since August.
Real GDP growth estimate (Focus survey) 2.9%
2.7%
3.0%
3.0%
3.0%
2.9%
2.8%
2.7%
3.0%
Revisions to 2018E and 2019E earnings (domestic companies)
3.0% 2.5%
2.5%
2.5%
2.5%
2.5%
2.5%
2.8% 178,024 177,316
2.2%
1.6%
1.5%
155,780 154,633 1.4%
1.4%
1.4%
147,737 147,938
1.3%
2018 Domestic Earnings (R$ mn) 2018
Source: Central Bank
2019
174,000 172,204
1 year ago
8 months ago
2019 Domestic Earnings (R$ mn) 4 months ago
Today
Source: BTG Pactual
29
Brazilian equities look under-owned
Global and GEM investors have reduced their exposure to Brazil in 2018 ✓ In September, Global and GEM funds were close to historical lows. Exposure levels rose slightly in October, but allocation is still way off levels seen in the recent past.
✓ At the end of October, Global funds had 0.5% of their money parked in Brazil (26% lower than January allocation). Allocation into Brazilian equities
Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Jan-18 Mar-18 Jun-18 Sep-18 Oct-18
G.E.M.
Global
16.7%
2.40%
15.9%
1.97%
16.4%
2.24%
11.9%
1.31%
11.0%
1.07%
9.1%
1.07%
6.0% 8.6%
0.52% 0.93%
7.2%
0.60%
7.6%
0.69%
7.5%
0.62%
6.0%
0.42%
6.4%
0.37%
8.0%
0.51%
Source: EPFR
31
Huge potential inflows from foreigners ✓ Potential inflows into Brazilian equities is huge − Although low allocation levels reveal Foreign Investors’ continued (extreme) cautiousness when it comes to investing in Brazil, we see huge potential inflows into Brazilian equities. − Assuming allocations return to October 2014 levels, i.e. just before ex-President Rousseff´s reelection, and based on the current AUM levels of all fund categories, our back-of-the envelope calculation estimates BRL193bn (USD52bn) could flow into Brazilian equities. Allocation to Brazilian Equities April 2010 April 2012 Oct/14 (Before elections) Feb 2017 Apr 2017 Jun 2017 Aug 2017 Dec 2017 Mar 2018 Jun 2018 Sep 2018 Oct 2018
Estimated inflows to Brazilian equities assuming past allocations (US$ bn) April 2010 April 2012 Oct/14 (Before elections) Feb 2017 Apr 2017 AuM @ July 2018 (US$bn)
Global
GEM
2.00% 2.33% 1.41% 1.11% 0.92% 0.75% 0.71% 0.60% 0.62% 0.42% 0.37% 0.51%
Global
49.1 60.1 29.6 19.8 13.7 3,291.9
BRIC
16.0% 16.3% 11.7% 9.1% 8.1% 7.1% 7.8% 7.2% 7.5% 6.0% 6.4% 8.0%
GEM
25.0% 31.1% 26.3% 19.1% 17.4% 16.2% 16.6% 14.7% 16.7% 13.7% 13.4% 17.0%
BRIC
48.6 50.7 22.5 6.5 0.6 608.9
0.33 0.58 0.38 0.08 0.01 4.1
LatAm
66.0% 65.5% 57.1% 57.3% 54.7% 52.6% 54.8% 56.4% 58.2% 52.3% 53.3% 60.3%
LatAm
0.8 0.7 (0.4) (0.4) (0.8) 14.1
Total USD Total BRL
99 112 52 26 13
366 415 193 96 50
# Trading days (YTD ADTV)
30.5x 34.6x 16.1x 8.0x 4.2x 32
Source: EPFR and Anbima
Local funds: potentially another R$190bn in flows from local industry ✓ Local investors’ equities allocations aren’t inspiring either (despite October’s growth), being also low at ~9.8% (vs. 12% at YE14 and an average 14% in 2011-13)
✓ With long-term rates set to fall, equities inflows from local funds are set to soar. ✓ If locals also increase their allocations to equities back to the levels seen at the end of 2014, i.e. from the current 9.8% to 11.9%, extra flows to equities would add up to BRL83.5bn (USD23bn). If equities’ weight in locals’ portfolios go back to the average seen from 2011 to 2013 (14%), then the extra flows could reach BRL187bn (USD50bn).
4,122 22.0%
4000
18.0% 18.3%
AuM (R$bn)
14.8%
2500 15.5% 11.3% 9.9% 854
10.6%
717 893 11.1% 940
11.6%11.4% 1,420 981
1,651
1,500
2,246
2,362
2,557
1,950 1,858
2,104
17%
14.3% 14.0%
1,167
13%
8.7%
11.9% 9.1%
500 362
0
19%
2,803
15%
14.9%
2000
1000
21%
3,269
3000
1500
23%
3,776
3500
25%
334
356
331
9.8%
11% 9%
8.5%
7% 330
Equity Share of Mutual Funds, Selic Rate (% )
4500
405
311 321 303 255 278 224 97 88 80 99 113 133 221 5% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Oct-18 Fixed Income AuM (R$bn)
Equity AuM (R$bn)
Equity Share
End of Period Selic Rate
33 Source: EPFR and Anbima
Lower long-term rates to drive locals’ money to equities ✓ As confidence grows, allocations to Brazilian equities should rise − As the new president’s economic policies become clear, we would expect allocations in Brazilian equities to rise. Increased investors’ confidence in the government´s ability to deal with its fiscal problems should drive long-term real interest rates down, making stocks more attractive. − In fact, long-term rates have already come down in recent months, anticipating the new government’s commitment to reducing the fiscal gap. The long-term 2035 government bond (2035 NTN-B) now pays inflation plus 5.2%, down from inflation plus 5.6% a couple of months ago. That’s still a juicy return, which should trend down as Brazil´s fiscal accounts improve. Evolution of Interest rate curve in Brazil
Evolution of NTNB-2035 coupon 6.1%
13.0%
12%
12%
12%
12%
13%
12%
12.0% 11%
12%
12%
12%
12%
11.8%
11%
11.9%
12.0%
12.1%
13%
13%
12.3%
12.4%
10.7%
10.7%
10.3%
10.4%
13%
12.2%
12.1%
11.6%
5.7%
11%
11.0%
10%
11.5% 11.4% 11.3% 11% 11.2% 11% 11.1% 11.0% 11% 10.8% 10% 10.7% 10.5%
9.9% 9.8% 9.7%9.7% 9.6% 10% 9.4% 9.8% 9.3% 9% 9.2% 9.6% 9.6% 9.5% 9.0% 9% 9.3%9.4% 8.9% 9.3% 9.3% 8.7% 9.1% 9% 9.0% 8.6% 9.0% 8.9% 8.8% 8.4% 8% 8.6% Today 8.6% 8% 8.1% 8% 8.5% 8% 8.3% 8.3% 7.9% 8% 8.1% 7.6% 8% 8.0% 7.9% 7.9% 7% 7.4% 7.7% 7% 7.7% 7.6% 7% 7.5% 7.4% 7.3% 7.2%
10.0%
10%
10.3%
10.2%
10.3%
8.0%
7.0%
10.3%
10.4%
10.6%
10.5%
10.0%
10.1%
9.0%
5.9%
9.8%
9.9%
10.0%
10.1%
10.2%
10.1%
5.47%
5.5%
9.6%
5.3% 1 week ago
1 month ago
2 months ago
5.1%
5.18%
4.9%
Source: Bloomberg
11/01/29
07/01/29
03/01/29
11/01/28
07/01/28
03/01/28
11/01/27
07/01/27
03/01/27
11/01/26
07/01/26
03/01/26
11/01/25
07/01/25
03/01/25
11/01/24
07/01/24
03/01/24
11/01/23
07/01/23
03/01/23
11/01/22
07/01/22
03/01/22
11/01/21
07/01/21
03/01/21
11/01/20
07/01/20
03/01/20
11/01/19
07/01/19
03/01/19
11/01/18
6.0%
Coupon
2018 Average
Source: Tesouro Direto 34 Source: EPFR and Anbima
Credit Market: Funding costs are plummeting
Brazil’s credit markets are well and truly back on their feet ✓ Average spread (DI+) and tenor of issuances have normalized after tough years Domestic debentures: average spread (DI+) vs. average tenor of issuances *issuers/issuances rated AA- or higher )in the Brazilian national scale)
2.50%
2016² 3,3y @ DI+2,3%
2.30% 2.10%
Avg. Spread (DI+)
1.90% 1.70%
2015 3,3y @ DI+1,8%
1.50% 1.30%
2014 4,2y @ DI+1,2%
1.10% 2018 4,2y @ DI+1,0%
0.90%
2017 4,4y @ DI+1,0%
0.70%
2013 5y @ DI+0,9%
0.50% 3.0
3.5
4.0 4.5 Avg. Tenor (years) Source: Anbima; BTG Pactual
5.0
5.5 36
Brazil’s credit markets are well and truly back on their feet ✓ In 2015-16, local capital market operations were tough to sell, and foreign markets were basically closed to Brazilian issuers – Top-quality issuers had to rely more on bank loans, and banks reduced loans to smaller (riskier) companies. – Result: the number of companies filing for bankruptcy protection in 2016 was 2.2x more than in 2014. – Now, with credit markets back to normal, the number of companies filling for bankruptcy protections are coming down (even though is still quite high in 2018).
Number of companies filing for bankruptcy protection
1,863 1,420
1,287 670
252
269
312
2006
2007
2008
2009
757 475
515
2010
2011
2012
874
828
2013
2014
2015
2016
2017
1,297
Nov-18
Source: Serasa
37
Capital market deals are back ✓ In 2017, international debt markets reopened their doors to Brazilian issuers – After raising USD30bn in the international bonds market and USD13.8bn in IPOs and Follow-On transactions in 2017, Brazilian companies have raised USD14.5bn in international bonds and USD7.3bn in IPOs and Follow-Ons so far in 2018.
Number of deals in 2018 (USDmn)
Deal Type International Bonds IPO Follow-On
2017 # of issuers Money raised 23 30,071 15 7,554 13 6,222
2018 # of issuers Money raised 19 14,450 6 6,231 2 1,060
38
Lower Selic rate: Financing companies is good again ✓ Increasingly high interest for local corporate bonds – With government bonds yields down, local bond issuances skyrocketed in 2017 and 2018. The higher NTN-B real interest rates, the lower the appetite for corporate bonds
Local bond market (R$bn)
70.0
8.0% 6.7%
95.87
60.0
82.85
6.3%
36.97
30.70
2015 CRI
NP
30.0
2016 CRA
5.0%
4.2% 58.3
2017
Oct-18
61.8 3.0% 2.0%
33.2 23.3
22.5 12.9
12.6
18.8
20.2
20.4
2014
2015
2016
1.0%
0.0
0.0%
2009
FIDC
6.0%
4.0%
38.93
10.0
2014
5.5%
4.7%
20.0
2013
7.0%
6.3% 5.3%
50.0
40.0
34.93
6.3%
6.1%
6.7%
2010
Debêntures
2011
2012
2013
Debêntures - Volume (R$ bn)
2017
Oct-18
NTNB - 20 avg.
Source: ANBIMA, BTG Pactual estimates
Source: ANBIMA, BTG Pactual estimates
– While local mutual funds’ asset allocation in fixed-income instruments (ex-government bonds) is still at very low levels, it tends to increase in the next years.
Local mutual funds’ allocation in fixed income instruments (ex-government bonds)
23.2%
25.0% 20.0%
18.7%
19.7%
18.4%
16.0% 15.0%
13.9%
13.8% 9.4%
10.0% 4.9% 5.0%
4.8%
3.7%
3.0%
4.5%
0.0% Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Oct-18 Total credit Source: ANBIMA, BTG Pactual estimates
Financials
Corporates
39
Politics: The new administration
Claudio Ferraz [email protected] +55 21 3262-9758 Iana Ferrão [email protected] +55 11 3383-3453
President and Vice-president Personal
Educational Specialization: Officers enhancement (EsAO) • Specialization: Paratrooper (Parachute Infantry Brigade) • Specialization: Physical Education (Army Physical Education School) • BS: Military Sciences (Artillery) (Agulhas Negras Military Academy)
Political
• • •
63 years old Campinas - SP
Jair Bolsonaro (PSL)
• •
Congressman (Federal Representative of Rio de Janeiro) - 1991-present City councilor of Rio de Janeiro (RJ) 1989-1991
President • • • •
65 years old Porto Alegre - RS
• •
General Hamilton Mourão (PRTB) Vice-president
•
Specialization: Politics, Strategy and High Military Administration (ESG) Specialization: High Military Studies (ECEME) Specialization: Officers enhancement (EsAO) Specialization: Paratrooper and Jumpmaster (Parachute Infantry Brigade) BS: Military Sciences (Artillery) (Agulhas Negras Military Academy)
•
•
Secretary of Economy and Finance of the Brazilian Army: 2016-2017 General Commander of the Southern Army: 2014-2016
Source: Media reports, BTG Pactual Digital, BTG Pactual
41
Main Ministries
Current ministries
Finance Planning, Development and Management
Ministries of Bolsonaro
MSc and PhD: Economics (University of Chicago) • MSc: Economics (Getulio Vargas Foundation - FGV/EPGE) • BS: Economics (Federal University of Minas Gerais - UFMG) •
Economy Paulo Guedes
Industry, Trade and Services
Chief of Staff of the Presidency of the Republic
Education
Chief of Staff of the Presidency of the Republic
•
Onyx Lorenzoni
BS: Veterinary Medicine (Santa Maria Federal University)
MSc: System Engineer (Naval Postgraduate school - Monterrey, California) • BS: Aeronautic Engineer (Institute of Aeronautical Technology - ITA) • BS: Public Administration (Air Force Academy - AFA) • BS: Aeronautical Sciences (Air Force Academy - AFA)
Background • • • • • • •
Founder of Millenium Institute Founder and CEO of Bozano Investimentos Founder of BR Investimentos Founder of JGP CEO and majority shareholder of IBMEC Founder of Pactual Bank Professor at PUC-Rio, FGV and IMPA
•
Congressman (Federal Representative of Rio Grande do Sul): 2003-present State Representative of Rio Grande do Sul (RS): 19952003
•
• Ministry of Science, Technology, Innovation and Communication
Ministry of Science and Technology Marcos Pontes
• • •
• Ministry of Agriculture, Livestock and Food Supply
Ministry of Agriculture Tereza Cristina
•
BS: Agronomic Engineer (Federal University of Viçosa - UFV)
•
UN ambassador for Industrial Development: 2001-present First Brazilian astronaut - NASA Fighter pilot (Brazilian air force): +2000 hours flying
Congressman (Representative of Mato Grosso do Sul): 2015-present Secretary of Agrarian Development, Production, Industry, Commerce and Tourism of Mato Grosso do Sul: 20072014
Source: Media reports, BTG Pactual
42
Main Ministries (II) Current ministries
Ministries of Bolsonaro
Education Course: Lawyers training program (Harvard Law School) • PhD: Law (Federal University of Paraná - UFPR) • MSc: Law (Federal University of Paraná - UFPR) • BA: Law (State University of Maringá) • Specialization: Child Orthopedic Medicine (Scottish Rite Hospital for Children - Atlanta) • Major: Orthopedic Medicine (Federal University of Mato Grosso do Sul UFMS) • BS: Medicine (Gama Filho University) • Specialization: Politics, Strategy and High Military Administration (ESG) • Specialization: High Military Studies (ECEME) • Specialization: Officers enhancement (EsAO) • BS: Military Sciences (Infantry) (Agulhas Negras Military Academy) • Specialization: High Military Studies (ECEME) • Specialization: Officers enhancement (EsAO) • BS: Military Sciences (Cavalry) (Agulhas Negras Military Academy)
Background
•
Justice Public Security
Health
Defense
Institutional Security
Justice Sérgio Moro
Health Luiz H. Mandetta
Defense General Fernando Azevedo e Silva
Institutional Security General Augusto Heleno Pereira
Source: Media reports, BTG Pactual
• •
Professor at UFPR and UniCuritiba Federal Judge of the 13th Federal Criminal Court of Curitiba
• • •
Congressman (Federal Representative of Mato Grosso do Sul): 2011-present President of Unimed Campo Grande: 2001-2014 Health Secretariat of Campo Grande (MS): 2005-2010
• • • •
Army Chief of Staff: 2016-2018 General Commander of the Eastern Army Responsible for 2016 Olympic Games security President of the Olympic Public Authority: 2013-2015
•
Head of the Army’s Department of Science and Technology General Commander of the Amazon Army Secretary of Public Security of the Ministry of Justice and Public Security Commander at UN-MINUSTAH mission
• • •
43
Heads of key government entities Head
Education
Background •
• Central Bank
•
Postgraduate: Economics & Finance (University of California - UCLA) BS: Economics & Finance (University of California - UCLA)
Roberto Campos Neto
National Bank of Development (BNDES) Joaquim Levy
Secretary of the National Treasury
• • • • •
• • •
PhD: Economics (University of Chicago) MSc: Economics (Getulio Vargas Foundation - FGV/EPGE) BS: Marine Engineering (Federal University of Rio de Janeiro - UFRJ)
• • • • • • •
•
PhD: Public Policy (Massachusetts Institute of Technology MIT) – not concluded MSc: Economics (University of São Paulo) BS: Economics (Federal University of Ceará)
• •
• •
Head of Treasury & National and International Markets at Santander: 2010present Head of local trading at Santander: 2006-2010 Portfolio Manager at Santander Claritas: 2004-2006 Head of international fixed income trading at Santander: 2000-2003 Head of international fixed income trading at Bozano Simonsen Bank: 1999 Derivatives, fixed income, debt and exchange trader at Bozano Simonsen Bank: 1996-1998 World Bank Chief Financial Officer (CFO): 2016-2018 Minister of Finance: 2015 Superintendent Director at Bradesco Asset Management 2010-2014 Secretary of the National Treasury: 2003-2006 Economist - European Central Bank: 1999-2000 Economist - International Monetary Fund: 1992-1999 Professor at FGV
Secretary of the National Treasury: 2018 Economist - Institute for Applied Economic Research (IPEA)
Mansueto Almeida Source: Media reports, BTG Pactual
44
Heads of key government entities (II) Head
Education
Background
• •
Post-Doctoral: Economics (University of Chicago) PhD: Economics (Getulio Vargas Foundation - FGV/EPGE)
• • • •
Petrobras board member: 2015-2016 Investor Relations and Chief Economist at Vale: 1999-2014 Brazil Central Bank Director: 1985 Professor at FGV
•
PhD: Economics (University of Rochester)
• •
Privatization specialist - worked on Banespa’s privatization Partner at Brasil Plural
• • • •
Professor at FGV Economist at the National Development Bank (BNDES) President of the Brazilian Association Supporting Micro and Small Enterprises (Sebrae) Writer of economic books
• •
Founder and CEO of Localiza Counselor of Millenium Institute
Petrobras Roberto Castello Branco
Caixa Econômica Federal Pedro Guimarães
•
PhD: Economics (University of Chicago)
Banco do Brasil
Rubem Novaes
Secretary of Privatizations Sallim Mattar
•
BS: Business
Source: Media reports, BTG Pactual
45
Proposals of the elected President
General •
• •
Plans to maintain macroeconomic tripod (fiscal- and inflation-targeting regime plus floating exchange rate) and simplify Brazil's tax system. Plans to reduce public debt by 20% via privatizations, concessions and sale of federal government real estate. Plans to eliminate primary public deficit in first year of government and convert it into a surplus in second year.
Social Security Reform •
•
Privatizations •
•
Plans to implement a wide-sweeping privatization program. All resources from privatizations and concessions must be used to pay public debt.
Plans to gradually change pension model from distribution to capitalization. New participants would be able to choose between the two systems. Those who opt for capitalization would 'earn' the benefit of lower labor charges. Shortage of resources caused by transition from one regime to another will be remedied by creating a fund to strengthen social security financing and offset the reduction of social security contributions in the old system.
Tax Reform • •
Fiscal Policy • • • • •
Reduce the primary deficit to zero in 2019 and turn it into a surplus during the second year of government. Promote a Tax Reform to unify taxes and simplify the national system. Reduce the tax burden whilst creating room to rein in expenditures. Reduce debt via spending control and less red tape. Reduce the size of the State.
Defends simplifying and unifying federal taxes and decentralizing and 'municipalizing' taxes. Opposes taxing large fortunes and inheritances and new taxes on entrepreneurs.
Political Reform •
•
Inflation •
•
•
Will preserve inflation-targeting regime. Defends autonomy and independence of Central Bank, with 4-year regimes that do not coincide with the 4-year term of Brazil’s President. Critical of Petrobras’ daily price adjustment.
Expand government support, approving solutions to the problems of caucuses – e.g. backing ‘ruralists’ with land property issues. Reduce the number of ministries.
External Sector • • •
Defends stronger trade ties with China and US and closer ties with Chile. Reduce importance of Mercosur in international trade. Plans to promote greater openness of the economy.
Source: Bolsonaro's government program, Media reports , BTG Pactual
46
Proposals of the elected President (II)
Public Banks •
Doesn’t plan to privatize Banco do Brasil or Caixa Econômica Federal.
Infrastructure • • • •
Health • • •
Create the National Electronic Record with the aim of integrating the national health system. Establish neonatal programs (including dental check-ups) throughout the country. Include physical education professionals in family health program.
Less bureaucracy and privatization of infrastructure projects, generating low regulatory risk for investments. Integrate Northeast region with the country’s developed regions. Increase port efficiency. Promote investments in railways, waterways and improvements in the quality of highways.
Agribusiness • • •
Education • •
• • •
Defends distance learning, from basic to higher education. Militarization of education with military schools. Initially, create schools in São Paulo – Campo de Marte. Invest in university research. Against quota policy in universities. Defends schools without political influence from teachers.
Create a new federal agricultural structure, with a dedicated agricultural policy. Centralize agribusiness demands at a single ministry. Create specific policies to consolidate and open up new external markets.
Social Programs •
•
Public Security • • • • • •
Reduce minimum criminal age to 16. Ease gun ownership rules. Promises to restructure the Disarmament Statute. Provide legal backing to security officers and to anyone who reacts to a crime or property invasion. End the progression of prison sentences and temporary releases. Restructure the human rights policy. Reinforce the role of Brazil’s Armed Forces in combating organized crime.
Plans to keep social programs such as ‘Bolsa Familia’, ensuring a minimum level of subsistence for families. Defends a family planning program to control birth rates.
Additional proposals •
Plans to create Economy Ministry, covering functions currently performed by the Finance, Planning and Trade Ministries, as well as the Executive Secretariat of the PPI (Investment Partnership Program).
Source: Bolsonaro's government program, Media reports , BTG Pactual
47
Proposals defended by the Finance Minister Proposal
Definition
Delinking
Give more freedom to the Budget, which today has minimum compulsory
the budget
expenditures (inflation-adjusted) for health and education
Pension reform
Tax reform
20% income tax
Pre-salt auction
Privatizations
How to implement
Proposal provides for capitalization system (individual accounts) for new entrants
Constitutional amendment
High
Constitutional amendment
High
Substitution of employers´ payroll contribution by a contribution on financial Constitutional amendment
transactions Change income tax to 20% (no details on if there will be changes to income tax bands and brackets)
Allows other companies to operate in blocks currently controlled by Petrobras
Government is talking about privatizing or liquidating companies such as EPL (bullet train) and Valec (railroads)
Complexity level
Ordinary law
High
High
Draft bill to be voted in the Senate facilitates the auction process
Medium
Control of some state-owned companies, such as EPL, can only be sold if authorized by law
Medium
Source: Media reports, BTG Pactual
48
Proposals defended by the Finance Minister (II)
Proposal Possession and carrying of weapons
Sale of subsidiaries
Definition
Reduction in minimum age for carrying weapons from 25 to 21, and waiving the requirement to declare the need to own a gun. Carrying a weapon is authorized for those above the age of 25 who meet the gun possession criteria. Sell, for example, areas of public banks not directly related to banking, such as insurance and cards
Sale of properties
Selling federal government real estate to raise funds to reduce public debt
13th Bolsa Família extra year-
During the election campaign, Bolsonaro promised a 13th (extra monthly) salary for
end allowance
the Bolsa Família family allowance program
How to implement
Complexity level
Must be approved in congress since it requires changes in the disarmament statute.
Medium
Some experts say it needs approval via law, such as the sale of state-owned companies
Medium
Done by bidding, you also need Congressional approval
Medium
Provisional measure
Medium
Provisional measure
Medium
Government decree
Low
The new portfolio, which will coexist with the current one, will guarantee only Green and yellow wallet
constitutional rights such as paid vacations, 13th year-end bonus salary and FGTS (Workers´ Severance Fund)
Lower industry tariffs and
Cautious and negotiated trade opening, under a pro-competitive agenda; avoids a
gradual trade opening
reduction in trade tariffs with no counterpart measures
Source: Media reports, BTG Pactual
49
Procedural passage of main legislative rules
Votes required for approval
One of the main obstacles to the approval of the Social Security Reform is that the proposal requires changes in the text of the Constitution. The criteria for approval of a constitutional amendment are much stricter than for approval of statutory legislation. Constitutional Amendment (EC)
Statutory Law (LO)
Supplementary Law (LC)
Provisional Measure (MP)
3/5
Simple majority
Absolute majority
Simple majority
(308 federal deputies and 49 senators)
(more than 50% of total votes, excluding abstentions. An absolute majority must be present for the bill to be voted)
(257 federal deputies and 41 senators)
(more than 50% of total votes, excluding abstentions. An absolute majority must be present for the bill to be voted)
Thematic committees
Thematic committees
Joint congressional committee
2
(may have a conclusive nature )
2
(may have a conclusive nature )
»
»
»
»
Special Committee (CE)
Legal Committee in the House of Representatives (CCJC)1
Legal Committee of the House of Representatives (CCJC)1
1 round in House of Representatives
»
»
»
»
2 rounds in House of Representatives
1 round in House of Representatives
1 round in House of Representatives
1 round in Senate
Thematic committees
»
»
CCJ3
»
»
Processing
Legal Committee in the House of Representatives (CCJC)1
Thematic committees 2
(may have a conclusive nature )
Signed into law or vetoed by president 2
(may have a conclusive nature )
»
»
»
2 rounds in the Senate
CCJ3
CCJ3
»
»
»
Enactment
1 round in Senate
1 round in Senate
»
»
Signed into law or vetoed by president
Signed into law or vetoed by president
If rejected, one-third of deputies may call a floor vote. 2 This means that the bill would not need to be put to a floor vote. 3 If rejected, one-third of senators may call a floor vote. CCJC: Commission on Constitution, Justice and Citizenship in the House of Representatives; CE: Special Committee; and CCJ: Commission on Constitution and Justice in the Senate. 1
Source: Brazilian Constitution, Rules of Order of House of Representatives, Rules of Order of Senate, BTG Pactual
50
Constitutional amendments usually take long to get approved •
The fastest approval of a constitutional amendment occurred in 4 months, while the longest approval is 155 months. The median time is 21 months. The Social Security reform approved by the Fernando Henrique Cardoso (FHC) administration took 45 months to be approved. The reform approved by the Lula administration, which was much narrower than that of the FHC government, took 8 months.
•
The procedural passage track record of PECs suggests that approval of the Social Security reform in the first half of 2019 would be atypical. Only 8 of the 99 amendments were approved within six months
Procedural passage time (months) 155
45 37
21 8 4 Source: House of Representatives, Senate, BTG Pactual
Minimum
Social Security Reform - Lula
Median
Average
Social Security Reform - FHC
Source: House of Representatives, Senate, BTG Pactual
Maximum
51
PT and PSL will be the biggest parties in Brazil’s Lower House Party PT PSL PP MDB PSD PR PSB PRB PSDB DEM PDT SD PODE PSOL PTB PC do B PSC PPS PROS Novo AVANTE PHS PATRI PV PRP PMN PTC PPL DC REDE PSDC PRTB Total
2014 election 69 1 38 65 36 34 33 20 54 21 20 15 4 5 25 10 13 10 11 0 1 5 2 8 3 3 2 0 2 0 2 1 513
Currently 61 8 50 51 37 40 26 21 49 43 19 10 17 6 16 10 9 8 11 0 5 4 5 3 0 0 0 1 0 2 0 0 512
2018 election 56 52 37 34 34 33 32 30 29 29 28 13 11 10 10 9 8 8 8 8 7 6 5 4 4 3 2 1 1 1 0 0 513
Growth/reduction in number of seats: 2018 vs. 2014 election PSL
10 8 8 8 7 6 5 3 1 1 1 1 0 0
DEM Novo AVANTE PATRI
PRP REDE PTC PR PC do B
PRTB SD PSDC PV PT
PSDB
-25 -31
-13 -15
-1 -1 -1 -1 -1 -1 -2 -2 -2 -2 -3 -4 -5
51
Growth/reduction in number of seats: 2018 election vs. current level PSL
9 9 8 6 4 4 3 3 2 2 2 1 1 0 0 0 0 0
PDT PSB PRP PMN
PHS PV PPS PPL PRTB PSC PSD PT PTB PP MDB
-13 -14 -17 -20
44
-1 -1 -1 -3 -3 -5 -6 -6 -7
Source: Superior Electoral Court, House of Representatives, BTG Pactual
52
MDB lost most Senate seats in the upcoming legislature Party MDB PSDB DEM PT PP PSD PDT PSB REDE PSL PTB PR PPS PHS PRB SD PSC PODE PROS PRP PSOL PC do B Novo PATRI PV PTC No party Total
2014 election
Currently
2018 election
18 10 5 12 5 3 8 7 0 0 3 4 0 0 1 1 0 0 1 0 1 1 0 0 1 0 0 81
18 12 5 9 6 5 3 3 1 0 2 4 1 0 2 0 0 5 1 0 0 1 0 0 1 1 1 81
12 8 7 6 6 6 6 5 5 4 4 2 2 2 1 1 1 1 1 1 0 0 0 0 0 0 0 81
Growth/reduction in number of seats: 2018 vs. 2014 election REDE PSD PPS PP PSC PRP
0 0 0 0 0 0 0
SD Novo PTC PSOL PV PDT PR PT
-6 -6
-1 -1 -1 -2 -2 -2 -2
1 1 1 1 1
2 2 2
3
4
5
Growth/reduction in number of seats: 2018 election vs. current level REDE
PDT PSB PHS PPS PSC 0 0 0 0 0
PP PSOL PATRI PC do B PTC PR PSDB MDB
-6
-4 -4
-3
-2
1 1 1 1 1
2 2 2 2
3
4 4
-1 -1 -1 -1 -1
Source: Superior Electoral Court, House of Representatives, BTG Pactual
53
Bolsonaro’s possible base of support looks good Lower House composition after 2018 election The number of parties will remain at a high level in the next legislature (2019-22) PT PDT PSB PSOL PC do B PROS PV Rede PPL Avante PPS PSDB MDB Novo PMN PTC Patriotas PHS DC PRP PSC SD Podemos PTB PR PSD PP DEM PRB PSL
56 28 32 10 9 8 4 1 1 7 8 29 34 8 3 2 5 6 1 4 8 13 11 10 33 34 37 29 30 52
Parties which probably will support Bolsonaro’s administration
Left parties 148 in 2018 election (vs. 157 in 2014)
Left parties
Parties which will probably support Bolsonaro’s administration: 268 in 2018 election (vs. 214 in 2014)
Source: Superior Electoral Court, House of Representatives, BTG Pactual
54
Bolsonaro’s possible base of support looks good ✓ Bolsonaro may have more than 50% of the votes in the Lower House. Lower House Bolsonaro's support base Party PSL PP PSD PR DEM PRB Podemos PTB PSC PHS SD PRP DC
Opposition
Independents
# of seats
% of total
Party
# of seats
% of total
52 37 34 33 29 30 11 10 8 6 13 4 1
10.1% 7.2% 6.6% 6.4% 5.7% 5.8% 2.1% 1.9% 1.6% 1.2% 2.5% 0.8% 0.2%
PT PDT PSB PV Rede PROS PSOL PcdoB
56 28 32 4 1 8 10 9 148
10.9% 5.5% 6.2% 0.8% 0.2% 1.6% 1.9% 1.8% 28.8%
268
52.2%
Party MDB PSDB PPL PMN PTC Patriotas Avante PPS Novo Total
# of seats
% of total
34 29 1 3 2 5 7 8 8 97 513
6.6% 5.7% 0.2% 0.6% 0.4% 1.0% 1.4% 1.6% 1.6% 18.9%
55
State-owned companies: A long list of assets to sell
A big government ✓ A Finance Ministry report a few weeks ago shows that there were 148 Federal government-owned companies in Brazil at the end of 2017, 5 less than at the end of 2016 – However, since the end of 2004, i.e. in the past 13 years, 16 new state-owned companies were created. – The chart below shows the different types of stakes held by the government. It controls some companies directly, some indirectly and is a minority investor in others. Types of ownership
Equity Share
Federal Government Companies
Control Interest
Direct Control State owned companies Mixed capital companies
Minority Interest
Indirect Control
State Government Companies
Privatelyheld Companies
Stakes in other institutions
Indirectly controlled companies
Source: Finance Ministry report on Brazilian government’s ownership stakes 57
47 directly-controlled companies ✓ At the end of 2017, the government controlled 47 companies directly, including high-profile listed companies like Petrobras, Eletrobras and Banco do Brasil. Companies directly controlled by the government Controlling stake - 148 companies Direct control - 47 Companies
26 state-owned
20 mixed public-private
%
capital companies
13 Non-dependents
%
6 Listed 100.00
BANCO DO BRASIL
50.73
BNDES
100.00
ELETROBRÁS (*)
40.99
CAIXA ECONÔMICA FEDERAL
100.00
PETROBRAS (*)
28.67
CASA DA MOEDA
100.00
TELEBRAS (*)
47.39
51.00
BASA-BANCO DA AMAZÔNIA
51.00
CORREIOS ECT
100.00
BNB - BANCO DO NORDESTE
50.92
EMGEA-EMP.GEST.ATIVOS
100.00
11 Non-listed
EMGEPRON-EMP.GEST.PROJ.NAVAIS
100.00
CASEMG-CIA ARMAZ. SILOS DE MG
92.96
FINEP-FINANCIAD.ESTUDOS
100.00
CEAGESP-CIA ENTREP.ARMAZ.SP
99.68
HEMOBRAS-EMP.BR.HEMOD.BIOTEC.
100.00
CEASAMINAS-CENT.ABAST.MG
99.57
INFRAERO
100.00
CDC-CIA DOCAS DO CEARÁ
99.93
PPSA-PRÉ-SAL PETRÓLEO S.A.
100.00
CDP-CIA DOCAS DO PARÁ
100.00
13 Dependents
CDRJ-CIA DOCAS DO RJ
99.99
AMAZUL-AMAZÔNIA AZUL TEC.DEFESA
100.00
CODEBA-CIA DOCAS DA BA
98.36
CEITEC-CENT.EXCEL.TEC.ELETR.AVANÇ.
100.00
CODERN-CIA DOCAS DO RN
99.99
CODEVASF-CIA DES.VALES.FR.PARN
100.00
CODESA-CIA DOCAS DO ES
99.45
CONAB-CIA NAC.ABASTECIMENTO
100.00
CODESP-CIA DOCAS DE SP
99.97
97.33
CODOMAR-CIA DOCAS DO MA
99.97
EBC-EMP.BRASIL COMUNICAÇÃO
100.00
3 Dependents (non-listed)
EBSERH-EMP.BR.SERVIÇOS HOSPIT.
100.00
CBTU-CIA BR. TRENS URBANOS
99.99
EMBRAPA-EMP.BR.PESQUISA AGROP.
100.00
HNSC-HOSP.N.S.CONCEIÇÃO
99.99
EPE-EMP.PESQ.ENERGÉTICA
100.00
TRENSURB-EMP.TR.URB.P.ALEGRE
99.88
EPL SA-EMP.PLANEJ.LOGÍSTICA
100.00
HCPA-HOPS.CLÍNICAS PORTO ALEGRE
100.00
IMBEL-IND. MATERIAL BÉLICO DO BR
100.00
VALEC ENG.CONSTR.FERROVIAS S.A.
100.00
CPRM-CIA PESQUISA REC.MINERAIS
%
company
ABGF-AG.BR.GEST.FUND.GARANT.
DATAPREV
1 Binational
Source: Finance Ministry report on Brazilian government’s ownership stakes
ALCANTRA CYCLONE SPAC
51.18
58
Petrobras, Eletrobras and BB control 92 subsidiaries ✓ In addition to the 47 directly controlled companies, the government controls 101 companies indirectly. – Brazil’s new administration has been talking about privatizing a large number of companies but has reiterated that it doesn’t intend to privatize Petrobras or Banco do Brasil (and maybe not even Eletrobras). – However, Petrobras, Eletrobras and Banco do Brasil control together 92 subsidiaries. By selling some of these subsidiaries, the government can slash the number of state-owned companies.
✓ The government also has minority stakes in 58 companies from a range of sectors. – Of these, 27 have an equity value above R$100mn. The government also has golden shares in three privately-controlled listed companies: Vale, Embraer and IRB.
59
Broad privatization program could slash debt levels ✓ Big companies under control – The book value of the government´s stakes in the 47 companies it directly controls was R$270bn at the end of 2017. In 2014, before the write-downs at Petrobras and Caixa, the book value of these stakes was R$314bn. Book value of government´s direct stakes in 47 companies
314 270
32
168 27 13
25
179
293
281
277
270
34
36
37
15
20
66
61
229
40
62
35
205
25
18 61
52
22
66
13 28
20
24
37
33
46
53
2008
2009
30
34
31
34
63 55
33
35
29
26
96
95
98
2010
2011
2012
Petrobras
34
27
26
28
34
Eletrobras
23
100
2013 BB
BNDES
31
40
89
2014 Caixa
44
36
39
17
18
19
73
72
76
2015
2016
2017
Others
Source: Finance Ministry report on Brazilian government’s ownership stakes
60
Profits of state-owned companies have plummeted ✓ The three big listed state-owned companies were trading at or below their book values at the end of 2017. Price/Book Value: Petrobras, Eletrobras and Caixa 1.03 x
1.03 x 0.92 x 0.84 x
0.83 x 0.82 x
0.79 x 0.72 x 0.58 x 0.52 x
0.50 x
0.41 x 0.39 x 0.22 x 0.15 x
Petrobras
BB 2014
2015
2016
Eletrobras 2017
3Q18
Source: Finance Ministry report on Brazilian government’s ownership stakes
✓ The profits generated by government-controlled companies have also plummeted in recent years, as shown in the table below.
Earnings of companies directly controlled by the government (R$mn) Company Banco do Brasil BNDES Caixa Petrobras Eletrobras Other Total
2012
2013
2014
2015
2016
2017
12,310 8,136 6,066 20,895 -6,879 1,452 41,980
15,810 8,150 6,723 23,408 -6,287 -2,984 44,822
11,313 8,594 7,092 -21,692 -3,031 -3,428 -1,153
14,109 6,199 5,797 -34,836 -14,442 -9,609 -32,782
7,930 6,392 3,702 -14,824 3,426 -4,434 2,193
10,881 6,183 12,462 -446 -1,764 -3,154 24,162
Source: Finance Ministry report on Brazilian government’s ownership stakes 61
State-owned companies have been draining cash ✓ Consistent negative contributions – State-owned companies have consistently negatively contributed to the country’s fiscal accounts. In other words, the government is having to put more money into state-owned companies (capitalizations + debt financing) than it has been able to collect (dividends + interest). – The amount of money required to fund these companies’ deficits has been growing consistently, rising from R$6.5bn in 2012 to ~R$15bn in 2017.
Direct subsidies for state-owned companies (R$mn) 14,841 13,348 11,146
9,856 8,229 6,533
– In the past 5 years, except for 2014, the government has pumped more money into state-owned companies than it has taken out. In 2016 and 2017, the money-in/money-out ratio was as low as 0.2x and 0.3x, respectively. 2012
2013
2014
2015
2016
2017
Source: Finance Ministry report on Brazilian government’s ownership stakes
Costs vs. returns of state-owned companies (R$mn) Costs (R$ thousands)
Return (R$ thousands)
Year
AFCI
Hybrid Instruments
Subsidy
Total Costs
Interest Income (Hybrid Instruments)
Dividends
Total Return
Return/Costs
2012
3,285,634
21,099,997
6,531,679
30,917,310
2,391,340
27,775,051
30,166,391
0.98
2013
5,384,644
23,000,000
8,229,590
36,614,234
1,373,016
16,909,531
18,282,547
0.50
2014
5,132,002
999,999
9,856,531
15,988,532
2,779,339
18,905,531
21,684,870
1.36
2015
5,634,086
0
11,145,857
16,779,943
2,677,569
12,044,357
14,721,926
0.88
2016
8,666,265
0
13,348,536
22,014,801
1,668,075
2,835,828
4,503,903
0.20
2017
5,334,390
0
14,840,910
20,175,300
1,029,182
5,498,246
6,527,428
0.32
Total
33,437,021
45,099,996
63,953,103
142,490,120
11,918,521
83,968,544
95,887,065
0.67
Source: Finance Ministry report on Brazilian government’s ownership stakes 62
Economic recovery to accelerate in 2019
Claudio Ferraz, BTG’s Brazil Chief Economist [email protected] +55 21 3262-9758
A slow recovery and lots of slack. Watch out for a confidence boost. ✓ 3Q18 GDP came in strong as expected, but heavily driven by base-effects. – Election result may bring a confidence boost – In fact, consumer confidence has already shown positive signs (expectations component). – Preliminary exercises suggest that GDP can grow from 2.6% to 3.8% in 2019 if there is a post-elections confidence boost.
64
A slow recovery after the worse GDP performance in decades
Deviation from the peak before recession
GDP – Median market forecasts (Focus report)
Source: IBGE and Central Bank of Brazil
Source: IBGE and Central Bank of Brazil
65
Industrial activity bounced back from the strike ✓ But growth at the margin has been sluggish
Industrial Production, s.a.
Industrial Production, y/y %
Indústrial geral
Extrativa
Apr-18
Jul-17
Oct-16
Jan-16
Apr-15
Jul-14
Oct-13
Jan-13
Apr-12
Jul-11
Oct-10
Jan-10
Apr-09
Jul-08
Oct-07
Jan-07
20 15 10 5 0 -5 -10 -15 -20
Transformação
1.1 0.2
Jan-03 Nov-03 Sep-04 Jul-05 May-06 Mar-07 Jan-08 Nov-08 Sep-09 Jul-10 May-11 Mar-12 Jan-13 Nov-13 Sep-14 Jul-15 May-16 Mar-17 Jan-18
130 125 120 115 110 105 100 95 90 85 80
y/y
3-month average y/y
66
Commerce: Retail sales was also impacted by the strike ✓ And recovery has been at a much slower pace…
Retail Sales, index s.a. (2014=100)
Chart 1: Retail Sales breakdown, index s.a (3-month moving average)
105 170
100
Core retail sales Source: IBGE
Broad retail sales
Supermarkets and foodstuff Furniture and household appliances Books, magazines and stationery Vehicles
Apr-18
Jul-17
Oct-16
Jan-16
Apr-15
Jul-14
Oct-13
Jan-13
Apr-12
Jul-11
Jan-10
Jul-18
Jan-18
Jul-17
Jan-17
Jul-16
Jan-16
Jul-15
70
Jan-15
80
Jul-14
90
Jan-14
85 Jul-13
110
Jan-13
90
Jul-12
130
Jan-12
95
Oct-10
150
Apparel Pharmaceutical goods, cosmetics Office, communication and IT equip. Building material
Source: IBGE
67
Services: lagging behind in the ongoing economic recovery… Services output, index s.a
105
100 95 90
Jun-18
Nov-17
Apr-17
Sep-16
Feb-16
Jul-15
Dec-14
May-14
Oct-13
Mar-13
Aug-12
Jan-12
85
Services output
Core services
3-m av. (Services output)
3-m av. (Core services)
Source: IBGE and BTG Pactual
68
Consumption and investment show signs of recovery ✓ But remain low by historical standards, and the GDP should end 2018 5% below the 2014 peak – Consumption: 6% below the 2014 peak – Investments: 26% below the 2013 peak GDP (Consumption & Investments); Índice 1995=100
210 190
170 150 130
110 90
Consumption
Investment
Nov-17
Mar-16
Jul-14
Nov-12
Mar-11
Jul-09
Nov-07
Mar-06
Jul-04
Nov-02
Mar-01
Jul-99
Nov-97
Mar-96
70
GDP
69
Labor market: employment has improved of late… ✓ But driven by low paying, less secure, non-payroll jobs
107
93
105
92
103
91
101
90
n.s.a. Source: IBGE and BTG Pactual
s.a.
Labor force
Aug-18
Jan-18
Jun-17
Nov-16
Apr-16
Sep-15
Feb-15
Jul-14
88 Dec-13
95 May-13
89 Oct-12
97 Mar-12
Sep-18
Mar-18
Sep-17
Mar-17
Sep-16
Mar-16
Sep-15
Mar-15
Sep-14
99
Employment (rhs)
Source: IBGE and BTG Pactual
70
Millions
12.1% 11.7%
Millions
Labor force and employment, s.a.
Mar-14
Sep-13
Mar-13
Sep-12
Mar-12
Unemployment rate 14 13 12 11 10 9 8 7 6
Actual Forecast
6
Actual
Dec-20
10
May-20
12
Oct-19
13
Mar-19
-600
Aug-18
7 Jan-18
-400
Jun-17
8
Nov-16
-200
Apr-16
9
Sep-15
0
Feb-15
200
Jul-14
400
Dec-13
Net payroll jobs, s.a.
May-13
600
Oct-12
800
Mar-12
Mar-20
Mar-19
Mar-18
Mar-17
Mar-16
Mar-15
Mar-14
Mar-13
Mar-12
Mar-11
Mar-10
Mar-09
Mar-08
Mar-07
Mar-06
Mar-05
Mar-04
Thousands
...and the adjustment will take long Unemployment rate, s.a. %
14 Dec-18 11.8
11 Dec-19 11.1
Forecast
71
Credit market has shown some positive signs ✓ With momentum slowly increasing
Non-performing loans, s.a.
7.5
3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0
6.5 6.0 5.5 5.0 4.5 4.0 3.5 3.0 2.5
7.0 6.5 6.0 5.5 5.0 4.5
Total Source: IBGE
Households
Non-financial corporations
Households
Oct-18
Mar-18
Aug-17
Jan-17
Jun-16
Nov-15
Apr-15
Sep-14
Feb-14
Jul-13
Dec-12
May-12
Oct-11
Mar-11
Jan-18
Mar-17
May-16
Jul-15
Sep-14
Nov-13
Jan-13
Mar-12
May-11
Jul-10
Sep-09
Nov-08
Jan-08
4.0
Mar-07
Trillions
Total outstanding loans (s.a., current R$)
Non-financial corporations (rhs)
Source: IBGE
72
Leverage has fallen over the past years ✓ Despite worsening slightly at the margin
Household debt, % of annual income
Household debt service, % monthly income
Total Source: IBGE
Total
Ex-mortgage
Nov-17
Dec-16
Jan-16
Feb-15
Mar-14
Apr-13
Nov-17
Dec-16
Jan-16
Feb-15
Mar-14
Apr-13
May-12
Jun-11
Jul-10
Aug-09
Sep-08
Oct-07
Nov-06
Dec-05
Jan-05
15
17.6
May-12
20
Jun-11
23.7
Jul-10
25
20.0
Aug-09
30
Sep-08
35
Oct-07
40
24 23 22 21 20 19 18 17 16 15
Nov-06
42.1
Dec-05
45
Jan-05
50
Ex-mortgage
Source: IBGE
73
Business and consumer confidence have started to improve ✓ But remain below their historic average (mean=100)
Consumer confidence, s.a.
Business confidence - Industry Average=100 and SD=10
Average=100 and SD=10
130
125
120 115
110
105
Source: FGV
Expectations
Confidence index
Current situation
Expectation
Mar-18
May-17
Jul-16
Sep-15
Nov-14
Jan-14
Mar-13
May-12
Jul-11
Sep-10
Jan-09
Nov-09
Mar-08
May-07
Sep-05
May-18
Jul-17
Sep-16
Nov-15
Jan-15
Mar-14
May-13
Jul-12
Nov-05
Current situation
Sep-11
60
Nov-10
65
Jan-10
70
Mar-09
75
May-08
80
Jul-07
85
Sep-06
90
Jan-05
95
Jul-06
100
Consumer confidence index
Source: FGV
74
A confidence boost improves the outlook for GDP growth
Business confidence trajectories
GDP growth (y/y) vs business confidence scenarios 10
120
8
110
6 3.2% in 2019 2.8% in 2019
4
100
2
90
0 -2
80
-4
70
-6
Source: IBGE, FGV and BTG Pactual
2006
Average 2002-2006
Feb-19
Mar-18
Apr-17
May-16
Jun-15
Jul-14
Aug-13
Sep-12
Oct-11
Nov-10
Dec-09
Jan-09
Feb-08
Jul-19
Sep-18
Nov-17
Jan-17
Mar-16
May-15
Jul-14
Sep-13
Nov-12
Jan-12
Mar-11
Jul-09
May-10
Sep-08
Nov-07
Jan-07
Average 2002-2006
Mar-07
-8
60
2006
Source: IBGE, FGV and BTG Pactual
75
Mar-17
Unemployment rate, s.a. %
14
12 12.0
10 81
8
79
6
4 75
Jan-05 Oct-05 Jul-06 Apr-07 Jan-08 Oct-08 Jul-09 Apr-10 Jan-11 Oct-11 Jul-12 Apr-13 Jan-14 Oct-14 Jul-15 Apr-16 Jan-17 Oct-17 Jul-18
Unemployment rate - Brazil Sep-13 Jun-15
Dec-11
Jun-08 Mar-10
Sep-06
Mar-03 Dec-04
Jun-01
Dec-97 Sep-99
Jun-94 Mar-96
Sep-92
How much slack? Capacity Utilization in Industry, %
87
85
83 Avera ge 2007-2017 Avera ge 2012-2017
80.4
78.4
77 75.3
73
76
Benign inflation scenario ✓ Benign inflation scenario in the short and medium term. – In the short term, energy prices (electricity tariffs and fuels) are declining significantly. – Sizable slack in the economy favors contained inflationary pressures. – In fact, underlying inflation measures running at a weak pace for this time of year. – Medium and long-term inflation expectations remain well-anchored, amidst declining inflation targets. – Central Bank credibility will be critical to maintain inflation expectations anchored should the BRL faces a more volatile environment. – Our expectation for the IPCA is 3.8% for 2018 (target: 4.5%) and 4.2% for 2019 (target: 4.25%) IPCA 2018-2020 (12-month accumulated inflation, %)
20 15
10 5
IPCA
Monitored prices
Sep-20
Apr-20
Nov-19
Jun-19
Jan-19
Aug-18
Mar-18
Oct-17
May-17
Dec-16
Jul-16
Feb-16
Sep-15
Apr-15
Nov-14
Jun-14
Jan-14
0
Free prices
Source: IBGE and BTG Pactual
77
Benign inflation outlook in the short term ✓ Energy prices and core measures have helped...
Median
Seasonality: Gasoline
Source: IBGE and BTG Pactual
Source: IBGE and BTG Pactual
2017
2018
15-Dec
15-Nov
15-Oct
15-Sep
15-Aug
15-Jul
15-Jun
15-May
15-Apr
15-Mar
15-Feb
15-Jan
Seasonality: Headline 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0 -0.2 -0.4
2019
Seasonality: Electricity
Source: IBGE and BTG Pactual
78
Benign inflation outlook in the short term ✓ Energy prices and core measures have helped... Daily price of gasoline 2.60 5.00 2.40 4.80
2.20
4.60
2.00
4.40
1.80
4.20
1.60
Consumer prices - ANP
Dec-18
Nov-18
Oct-18
Oct-18
Sep-18
Aug-18
Aug-18
Jul-18
Jun-18
Jun-18
May-18
Apr-18
Mar-18
Mar-18
Feb-18
Jan-18
0.80 Jan-18
3.40 Dec-17
1.00 Nov-17
3.60
Nov-17
1.20
Oct-17
3.80
Sep-17
1.40
Sep-17
4.00
Petrobras distribution price d-20 (rhs)
Source: ANP, Petrobras and BTG Pactual
79
Benign inflation outlook in the short term ✓ With core measures trending around comfortable levels
Seasonality: core measures (average)
Seasonality: core services (as per BCB)
0.8
1.2
0.7
1.0
0.6
0.8
0.5
0.6
0.4 0.4
0.3
Source: IBGE and BTG Pactual
2017
2018
2019
2017
2019
Source: IBGE and BTG Pactual
80
28-Dec
15-Dec
15-Nov
28-Nov
15-Oct
28-Oct
15-Sep
28-Sep
15-Aug
2018
28-Aug
15-Jul
28-Jul
15-Jun
28-Jun
15-May
Median
28-May
15-Apr
28-Apr
15-Mar
28-Mar
15-Feb
28-Feb
15-Jan
15-Dec
28-Dec
15-Nov
28-Nov
15-Oct
28-Oct
15-Sep
28-Sep
28-Aug
15-Aug
15-Jul
28-Jul
15-Jun
28-Jun
15-May
Median
28-May
15-Apr
28-Apr
15-Mar
28-Mar
15-Feb
-0.2
28-Feb
0.0
15-Jan
0.0
28-Jan
0.1
28-Jan
0.2
0.2
12-month services inflation at low levels 12
10 8 6 4
Services
Services ex-air fare
Jan-18
Jan-17
Jan-16
Jan-15
Jan-14
Jan-13
Jan-12
Jan-11
Jan-10
Jan-09
Jan-08
Jan-07
Jan-06
Jan-05
Jan-04
Jan-03
Jan-02
2
Services BCB
Source: IIBGE, Central Bank of Brazil and BTG Pactual
81
Benign inflation outlook in the medium term ✓ Inflation expectations remain well anchored
IPCA Inflation Expectations 2018-2020 12-month accumulated inflation, %
20 15 10
5
IPCA
Monitored prices
Sep-20
Apr-20
Nov-19
Jun-19
Jan-19
Aug-18
Mar-18
Oct-17
May-17
Dec-16
Jul-16
Feb-16
Sep-15
Apr-15
Nov-14
Jun-14
Jan-14
0
2016 2017 2018F 2019F 2020F
IPCA 6.3 2.9 3.8 4.2 4.1
Monitored 6.5 1.3 3.0 3.8 4.0
Free 5.5 8.0 5.8 5.3 4.6
Free prices
Source: IBGE e BTG Pactual
82
Midpoint target and target band 4.00
jan-16
2020
6.5 6 5.5 5 4.5 4 3.5 3 2.5 2
Source: BCB
83
nov-18
set-18
jul-18
mai-18
jan-18 mar-18
nov-17
set-17
jul-17
mai-17
6.5 6 5.5 5 4.5 4 3.5 3 2.5 2 jan-17 mar-17
nov-16
set-16
jul-16
mai-16
3.94
mar-16
2019
Midpoint target and target band
2021
nov-18
set-18
jul-18
mai-18
jan-18 mar-18
nov-17
set-17
jul-17
mai-17
2018
jan-17 fev-17 mar-17 abr-17 mai-17 jun-17 jul-17 ago-17 set-17 out-17 nov-17 dez-17 jan-18 fev-18 mar-18 abr-18 mai-18 jun-18 jul-18 ago-18 set-18 out-18 nov-18
nov-18
set-18
jul-18
mai-18
jan-18 mar-18
nov-17
set-17
jul-17
6.5 6 5.5 5 4.5 4 3.5 3 2.5 2 mai-17
jan-17 mar-17
nov-16
set-16
jul-16
mai-16
jan-16 mar-16
2018 6.5 6 5.5 5 4.5 4 3.5 3 2.5 2
jan-17 mar-17
nov-16
set-16
jul-16
mai-16
jan-16 mar-16
2020
Benign inflation outlook in the medium term
✓ Inflation expectations remain well anchored
2019 Midpoint target and target band
4.12
2021 Midpoint target and target band 3.86
External accounts remain at a good shape ✓ The current account deficit will increase in 2018, owing mainly to a decline in the trade balance. We expect an increase in the current account deficit in 2019, primarily owing to more robust economic growth, which will likely increase imports and other expenditures such as remittances of profits and dividends – FDI will remain relatively stable in 2018 in comparison with 2017. However, the composition will change, with a sharp increase in intercompany loans and a decline in equity capital. The prospects of higher GDP growth in the coming years will contribute to increase the FDI in 2019. FDI will continue to finance the current account deficit comfortably in 2018 and 2019. – International reserves remain at a very high level, helping keep Brazil’s external vulnerability at a low level. – The adverse external scenario for EM economies tends to curb further BRL appreciation in 2018. The dynamic of the exchange rate in 2019 will depend on the capacity of the new administration to implement the structural reform agenda. Current account balance and foreign direct investment (US$bn) 101.2 88.5
97.2
86.6
74.7
69.7
50.7
54.1
31.5 20.1
-30.6
5.2
77.8
12.6
24.1
-23.7 -74.2
60.9
66.0
-9.8
-14.0
85.0 55.0
-7.0
-26.3
-77.0
80.0
15.3
12.4 -5.2
-75.8
70.7
-30.0
-59.5 -74.8 -104.2
2008
2009
2010
2011
2012
Current account
2013
2014
2015
2016
Foreign direct investment (FDI)
2017
2018e
2019e
Balance
Source: Central Bank of Brazil and BTG Pactual
84
Balance of Payments overview Current account Trade Balance Exports Imports Services Travel Operational leasing Other Primary income Compensation of employees Interest Profits and dividends Secondary income
Capital and financial account Capital account Investments - assets Direct investment Portfolio investments Other assets Investments – liabilities Direct investment Portfolio investments Equity and investment fund shares Debt securities Long-term loans and debt securities issued abroad Short-term loans and debt securities issued abroad Other liabilities Financial derivatives – assets and liabilities Reserve assets
Errors and omissions
2010 -75.8 18.5 201.3 182.8 -30.2 -10.7 -13.7 -5.7 -67.1 0.5 -12.0 -55.6 2.9 -76.3 0.2 71.8 26.8 -0.6 45.7 197.1 88.5 55.2 37.7 17.5 30.1 27.4 -4.1 0.1 49.1 -0.4
2011 -77.0 27.6 255.5 227.9 -37.2 -14.7 -16.7 -5.8 -70.5 0.6 -14.4 -56.6 3.0 -79.5 0.3 35.0 16.1 -5.2 24.1 172.9 101.2 12.4 7.2 5.3 47.7 -3.9 15.5 0.0 58.6 -2.5
2012 -74.2 17.4 242.3 224.9 -40.2 -15.7 -18.7 -5.8 -54.3 0.5 -16.6 -38.2 2.8 -74.2 0.2 36.5 5.2 3.8 27.5 129.3 86.6 17.0 5.6 11.4 18.7 -4.1 11.1 0.0 18.9 0.1
2013 -74.8 0.4 241.6 241.2 -46.4 -18.6 -19.1 -8.8 -32.5 0.5 -19.3 -13.7 3.7 -74.1 0.3 62.2 14.9 3.4 43.9 130.0 69.7 42.1 11.1 31.0 2.5 -0.1 15.9 -0.1 -5.9 0.7
2014 -104.2 -6.6 224.1 230.7 -48.1 -18.7 -22.6 -6.8 -52.2 0.4 -21.4 -31.2 2.7 -100.9 0.2 79.5 26.0 -1.4 54.9 192.5 97.2 38.6 11.5 27.1 21.6 24.9 10.3 1.6 10.8 3.4
2015 -59.5 17.7 190.1 172.4 -36.9 -11.5 -21.5 -3.9 -42.9 0.3 -22.5 -20.8 2.8 -55.6 0.5 53.9 13.5 -1.1 41.5 114.1 74.7 26.5 9.8 16.7 -3.6 -6.3 22.7 3.4 1.6 3.8
2016 -23.7 45.0 184.5 139.4 -30.4 -8.5 -19.5 -2.5 -41.2 0.3 -22.1 -19.4 2.9 -16.8 0.3 45.4 12.8 -1.7 34.3 70.2 77.8 -15.6 11.0 -26.7 -15.7 4.4 19.4 -1.0 9.2 6.9
2017 -9.8 64.0 217.2 153.2 -33.9 -13.2 -16.8 -3.8 -42.6 0.3 -21.9 -21.0 2.6 -6.6 0.4 62.9 6.3 -6.7 63.4 74.9 70.7 0.6 5.7 -5.1 -5.7 -5.3 14.6 0.7 5.1 3.3
2018e -15.0 54.0 239.2 185.2 -35.0 -13.0 -15.5 -6.5 -36.7 0.3 -19.0 -18.0 2.7 -9.0 0.4 50.0 2.0 0.0 48.0 84.0 80.0 -1.0 4.0 -5.0 0.0 0.0 5.0 3.0 22.4 6.0
2019e -30.0 45.0 275.0 230.0 -40.0 -15.0 -19.0 -6.0 -38.6 0.4 -14.4 -24.0 3.0 -25.0 0.5 70.0 10.0 5.0 55.0 129.0 85.0 17.0 12.0 5.0 7.0 5.0 15.0 5.0 29.5 5.0
85
Slight increase in the current account deficit in 2018 ✓ The current account deficit will increase just slightly in 2018, to 0.8% of GDP from 0.5% of GDP in 2017. The decline in the trade balance will be the main driver of the reduction in the current account deficit in the year. On the other hand, net expenditures with income fell in 2018, curbing a higher increase in the current account. – The increase in the current account deficit in 2019 will be driven mainly by an acceleration in imports, in turn reflecting higher growth in domestic demand. Current account balance 12-month accumulated (left axis: US$bn; right axis: % of GDP) 30
2.0
1.7
1.5 1.2
10
4 0.7
11
14
13
1.0
0
-8 -10
-25
-10
0.0
-24
-24
-26
-15
-0.5 -30
-1.6 -50
-1.8
-1.6
-76
-77
-74
-1.3
-75
-1.0
-1.5 -2.0
-104 -2.9 -3.0 -3.0
-70
-3.0
-3.3
-3.4 -90
-0.8
-59
-31
0.0
-30
-3.8
-4.0
-4.2
-4.2
-110
-5.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018e2019e
Source: Central Bank of Brazil and BTG Pactua l
86
Higher current account deficit in 2018; Slightly worse trade balance ✓ The reduction in the trade balance in 2018 has been partially offset by the decline in net expenditures with income (remittances of profits and dividends and interest payments). Net expenditures with services (e.g. travel and equipment rental) have remained relatively stable in the year.
Breakdown of current account balance 12-month accumulated 80
60 40 20 0
-20 -40 -60 -80
-100 -120 2000
2001
2002
2003
Other services and income
2004
2005
Trade balance
2006
2007
Interest rate
2008
2009
2010
2011
Profits and dividends
2012
2013
2014
Equipment rentals
2015
2016
Transportation
2017 Travel
Source: Central Bank of Brazil and BTG Pactual
87
Trade balance remains at a high level in 2018 Trade Balance and growth of exports and imports (US$bn, %)
54
52 43
33 23 15
24 7
7
12
3
2
20 18
38 29 23
48
54
45 45
38
33
24
18
11
25
28
25
16
17
15
0
0
-3
-1
-7
-8 -17
Exports (year-on-year change) Imports (year-on-year change)
-33
-34 -45 -46
Trade balance
2001
-6
-10
-13
2000
14
18
1
2
-2
13
22
45
64
54
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
-58
2015
2016
2017
Oct-18
* Growth in exports and imports: year-to-date until October versus the same period of the previous year. Trade balance cumulative in 12 months until October.
Source: Central Bank of Brazil and BTG Pactual
88
Exports overview: countries, products and share Main destinations – Exports (%)
Exports (as % of GDP)
4
5
16
90 16
79
36
5
16
NAFTA Latin America (ex-Mexico) Asia (ex-Middle East) Other Countries
53
European Union Middle East Africa
43 38 30
29
26
25
24
Main products – Exports (%) 20
19
15
1
13
11
10
9
1
42 7 15 6
Source: The World Bank Data, Central Bank of Brazil and BTG Pactual
Non-commodities Soy Complex Iron ore
10
Other Commodities Meat Complex Steel
Sugar Complex Wood & Pulp Oil & Fuels
89
Significant growth of imports in 2018 ✓ Growth in exports in 2018 was explained by an increase in prices and quantum, while growth in the quantum was the main driver of expansion in imports.
Imports: price, quantum and value (%, y/y)
Exports: price, quantum and value (%, y/y) Value 32 17
16
23
Value 44
27 30
18 10
17
14
24
42
32
24
20
-5
0
3
-7
8
11 10 3 -3
9
5
19 11 129 13 11 3 5
-5
-13
26
-15
Price
10
-2 -11 -13
8
3 0 -5 -3
-1
-4
-15 -25
-26
21 23 3
-1
-3
-15
-23
16
-3
-7
10
7
2
3
37
Quantum
10 7 4 3
13 2 0
-2 -5
0
3
6
22 22 18 18 16 11 10 8 7 5
4
-6
-22
-3
-5 -15
-3 -4 -12
Price
14 9
Quantum
13 45 6
9 1 -2 -1
-11 -17
-20
-2-3 -9 -12 -15 -12
* Year-to-date until September. Source: MDIC, FUNCEX and BTG Pactual
Source: MDIC, FUNCEX and BTG Pactual
90
FDI may increase significantly in 2019 ✓ FDI will remain relatively stable in 2018 in comparison with 2017. However, the composition will change, with a sharp increase in intercompany loans and a decline in equity capital. – The prospects of higher GDP growth in the coming years will contribute to increase the FDI in 2019. FDI will continue to finance the current account deficit comfortably in 2018 and 2019, we believe. Foreign Direct Investment (US$bn) Equity and investment fund shares Intercompany loans 101 88
16
97 87
85
13 23
70
39
75
80
78 71
18
24
57
54
12
18 24
51 45 21
33 3
38
19 23 4
17
30 19
18
17 -1
10 1 9
19
15
4
75
64
58
12
19 15
31
85
26
15
59
67 56
31
30
20
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018e2019e
Source: Central Bank of Brazil and BTG Pactual
91
Share of Brazil in EM FDI is higher than 15% ✓ Brazil’s Foreign Direct Investment (FDI) has accounted for around 15% of the total FDI received by Emerging Markets since 2011 (excluding 2014, when this share declined to 10.7%). – The share of Brazil in world FDI is around 3.5% in 2018, much higher than it was in the previous decade.
Share of Brazil in world and Emerging Markets FDI (%) 25 22.9
20
16.5
15.6
15
15.2
15.9
15.7
14.5 13.6
14.1
12.3
10.7
10
9.2 8.2
7.5 5.6
5 2.3
2.9
2.2
1.4
1.8
00
01
03
04
05
5.4
1.0
0.9
06
07
0
8.3
9.2
4.7
1.4
08
2.1
2.3
09
10
Brazil/World
11
4.4
12
5.3 4.1
13
3.3
14
15
3.1
3.2
3.6
16
17
18
Brazil/EM
Source: Central Bank of Brazil and BTG Pactual
92
Brazil was the sixth highest receptor of world FDI
Ranking of the highest receptors of FDI (US$ bn)
2005
2015
2010
United Kingdom (1)
253
Netherlands (2)
United States (1)
264
China (2)
210
United States (1)
509
China (2)
244
Brazil position in the FDI ranking
2017
242
United States (1)
355
Netherlands (2)
317
2005
21
2006
27
2007
United States (3)
142
Netherlands (3)
116
Ireland (3)
Belgium (4)
111
Hong Kong (4)
235
China (3)
21
168 2008
China (4)
104
France (5)
85
Brazil (5)
88
Netherlands (5)
Austria (6)
81
Germany (6)
86
Switzerland (6)
Germany (7) Ireland (8)
Arab World (9) Brazil (21)
60 47
46 15
181 181 116
Hong Kong (4)
122
Germany (5)
78
Brazil (6)
71
Hong Kong (7)
83
Brazil (7)
75
United Kingdom (7)
65
Arab World (8)
70
Singapore (8)
71
Singapore (8)
64
United Kingdom (9)
67
Canada (9)
62
France (9)
47
Singapore (10)
55
Germany (10)
54
Australia (10)
45
14
2009
14
2010
5
2011
5
2012
5
2013 2014
6 5
2015
7
2016
7
2017
6
Country (#), where # is position in the ranking of the highest receptors of FDI.
Source: World Bank Data and BTG Pactual
93
Foreign investments in portfolio will remain low in 2018 ✓ Foreign investments in portfolio have remained highly volatile in 2018. These investments will continue to be much lower in 2018 than what we saw up to 2015.
Foreign investment in portfolio (US$ bn)
Foreign investment in portfolio (12-month, US$ bn)
Equity and investmets fund
42.1
Debt securities issued in Brazil
38.6
Portfolio investment
26.5
10.1
10.3
6.0
6.2
31.0 17.0
0.6 0.7 -0.1
2.8
4.1
2.3
0.5
-3.0 -5.7
2.2 4.1
-4.1
-4.4
-3.7
-2.0 -6.4
-1.9 -1.2 -3.1
Dec-17
Feb-18
-0.1
-7.7
5.3 7.2
11.4
5.6
11.1
11.5
9.8
Jun-18
Aug-18
0.6 5.7 -5.1
-26.7
-2.7 -0.8 -3.5
0.7
-3.1 -2.4
Equity and investmets fund -15.6
-7.8 Apr-18
11.0
1.5 0.6
Debt securities issued in Brazil
-7.8 Oct-17
16.7
12.4
5.4 3.1 1.4
27.1
Oct-18
2011
2012
2013
2014
2015
2016
2017
Oct-18
Source: Central Bank of Brazil and BTG Pactual
94
External debt stable in the last four years ✓ Brazil's total external debt remained relatively stable in the past four years at approximately USD540bn. – The external debt of the public sector has remained relatively stable since 2012. – The external debt of the private sector increased significantly from 2009 to 2014, but since then has declined gradually. – External debt of intercompany loans increased significantly from 2005 to 2018 and has accounted for the bulk of external debt since 2016. External debt composition (US$bn) 561
540
544
545
545
206
222
228
244
207
195
184
128
127
133
487 455 208
416 352
263 226
102
108
228
235
17
20
85
125
79
69
136
132
199
190
128
123
106
95
241
220 19
278
128
174
188
199
47
79
65
196
19
27
69
83
107
114
103
100
89
86
84
96
214
173
153
104
114
139
127
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Oct-18 External Debt - Public Sector
External Debt - Private Sector
Intercompany Loans
Source: Central Bank of Brazil and BTG Pactual 95
Short-term external debt account for less than 15% of total
External debt by term composition (US$bn) External Debt - Long Term External Debt - Short Term Intercompany Loans - Long Term Intercompany Loans - Short Term
6
10
11
9
196
212
218
51
56
51
19
0 0 202
2 8
3 13 28
4 13 23
4 16 20
4 14 19
4 4 15 19
5 22 20
43 39
5
9
87
59
71
57
37
31
128
182
187
2001
2002
2003
183
2004
151
152
154
162
167
2005
2006
2007
2008
2009
40
33
295
58 33
280
295
2011
2012
2013
2014
59
284
270
266
2015
2016
2017 Jun-18*
199
2010
218
104
269 195
174
242
Source: Central Bank of Brazil and BTG Pactual
96
International Reserves still at a high level
International Reserves (US$bn, % of GDP)
US$ bn % of GDP 20
20
20 18
15
14 13
13 11 9 7
15
15
373
359
364
356
365
374
381
2012
2013
2014
2015
2016
2017
Nov-18
13 352
289 8
6
8
6
5
239 180
194
2007
2008
86 33
36
38
49
53
54
2000
2001
2002
2003
2004
2005
2006
2009
2010
2011
Source: Central Bank of Brazil and BTG Pactual
97
Brazil’s exports are higher than the net external debt
Exports (as % of GDP)
Net total external debt/Exports (ratio)
450
3.5 400
350
300
2.8
2.7 2.1
250
1.4 200
150
0.9 0.5
100
50
-0.1 -0.1 -0.4
-0.3
-0.2
-0.3
-0.2 -0.4
-0.3
-0.4
0
Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14 Jan-16 Jan-18
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Source: Central Bank of Brazil and BTG Pactual
98
The key challenge: Fiscal reforms ✓ Positive fiscal news in the shorth term but long-term scenario yet to be addressed. – Public accounts should outperform the 2018 target, with help from all government spheres. – But primary surpluses are still far away. Unless for significant non-recurring revenues or tax hikes, public accounts should return to positive territory only in 3-4 years. – Spending cap ceiling will be respected this year and (with strong efforts) next year. Margin of maneuver require urgent reform on mandatory expenses – Golden rule to be met this year and the following. Risks still lie ahead due to pressure to adjust via discretionary spending (investment). – Fiscal turnaround needed is large (~4% of GDP). Risk of higher tax burden increase if markets impose a frontloaded adjustment. Dependency ratio and social security expenditures % of GDP (2014-2016)
Italy France
Greece Portugal
% of GDP
Brazil
Japan
Dependency ratio (65+ / 20-64)
99
Consolidated Public Accounts - Summary In Nominal Terms (R$ Bn)
Nominal Result (C=A+B) Central Government Federal Government Central Bank Subnational Government States Municipalities Government Owned Companies Federal States Municipal Interest Payments (B) Central Government Federal Government Central Bank Subnational Government States Municipalities Government Owned Companies Federal States Municipal Primary Result (A) Central Government Federal Government Central Bank Social Security Subnational Government States Municipalities Government Owned Companies Federal States Municipal
Oct-18 -6.1 -0.2 -2.0 1.8 -6.2 -5.6 -0.6 0.4 0.6 -0.3 0.0 -13.9 -10.4 -12.6 2.1 -3.1 -2.8 -0.3 -0.3 0.1 -0.4 0.0 7.8 10.2 23.8 -0.4 -13.2 -3.1 -2.8 -0.3 0.7 0.5 0.1 0.0
Monthly Oct-17 -30.5 -24.6 -29.6 5.0 -4.7 -4.2 -0.5 -1.1 -0.4 -0.7 0.0 -35.3 -29.6 -34.5 4.9 -5.1 -4.7 -0.4 -0.6 0.0 -0.5 0.0 4.8 5.0 18.7 0.0 -13.8 0.4 0.5 -0.1 -0.6 -0.4 -0.2 0.0
∆ 24 24 28 -3 -1 -1 0 1 1 0 0 21 19 22 -3 2 2 0 0 0 0 0 3 5 5 0 1 -3 -3 0 1 1 0 0
Oct-18 -369 -326 -393 67 -41 -39 -2 -1 1 -2 0 -317 -260 -327 67 -52 -48 -4 -5 0 -5 0 -52 -66 103 -1 -168 11 9 2 4 1 2 0
YTD Oct-17 -416 -385 -418 34 -27 -27 0 -4 -1 -3 0 -338 -289 -323 34 -45 -41 -4 -5 0 -4 0 -77 -96 60 -1 -155 18 14 4 1 -1 1 0
∆ 47 58 25 33 -14 -13 -2 3 2 1 0 21 29 -4 33 -7 -7 0 0 0 0 0 26 30 43 0 -13 -7 -5 -2 3 2 1 0
Rolling 12-month Oct-18 Oct-17 -464 -601 -401 -554 -478 -584 78 30 -61 -42 -55 -39 -6 -4 -2 -5 1 -1 -3 -4 0 0 -380 -414 -312 -354 -391 -385 79 31 -62 -55 -57 -50 -5 -5 -6 -6 0 0 -6 -5 0 0 -85 -187 -89 -200 107 -18 -1 -1 -195 -181 0 12 1 11 -1 1 4 0 1 -1 2 1 0 0
∆ 137 153 106 47 -19 -16 -2 3 2 1 0 34 42 -6 47 -7 -7 0 0 0 0 0 102 111 126 0 -14 -12 -10 -2 3 2 1 0
Rolling 12-month (% of GDP) Oct-18 Sep-18 Oct-17 -6.8 -7.2 -9.2 -5.9 -6.3 -8.5 -7.0 -7.4 -9.0 1.1 1.2 0.5 -0.9 -0.9 -0.7 -0.8 -0.8 -0.6 -0.1 -0.1 -0.1 0.0 -0.1 -0.1 0.0 0.0 0.0 0.0 -0.1 -0.1 0.0 0.0 0.0 -5.6 -5.9 -6.4 -4.6 -4.9 -5.4 -5.7 -6.1 -5.9 1.1 1.2 0.5 -0.9 -0.9 -0.8 -0.8 -0.9 -0.8 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 0.0 0.0 0.0 -0.1 -0.1 -0.1 0.0 0.0 0.0 -1.2 -1.3 -2.9 -1.3 -1.4 -3.1 1.6 1.5 -0.3 0.0 0.0 0.0 -2.9 -2.9 -2.8 0.0 0.1 0.2 0.0 0.1 0.2 0.0 0.0 0.0 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Source: Central Bank of Brazil and BTG Pactual 100
The key challenge. Fiscal accounts in red ink
PSBR
Gross and Net Debt 85.0
-5.0% -3.7% -3.7% -3.2%
-3.2%
-3.3% -2.6% -1.9%
-3.0%
-2.2%
Gross debt
65.0
-1.7%
-2.0%
Net debt
75.0
-2.9%
% of GDP
-1.0% 0.0%
55.0
45.0 Central Government
0.6%
1.2%
2.5%
Jan-18
Aug-18
Jun-17
Apr-16
Nov-16
Sep-15
Feb-15
Jul-14
Dec-13
May-13
Oct-12
Aug-11
Mar-12
2018.10.
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
Jan-11
25.0
Jun-10
1.9%
3.0%
Apr-09
Primary - Total
35.0
Nov-09
2.0%
1.7%
Sep-08
Government Owned Companies
Jul-07
Subnational Government
Feb-08
1.0%
Dec-06
% of GDP - (-) = surplus
-4.0% -3.2%
Source: Central Bank of Brazil and BTG Pactual
101
Positive short term fiscal performance ✓ Strong revenue growth and contained expenditures; the recurring primary deficit measure still points to a bigger deficit
15.0
5.0% 4.0%
10.3
10.0
3.0%
2.0%
% of GDP
12-month accumulated - Real terms
Federal Government
5.0
0.0
0.0
1.0% 0.0% -1.0%
-2.0% -3.0%
Net revenues
-5.0
-4.0%
-5.0%
Total expenditures Sep-18
Jan-18
May-18
Sep-17
Jan-17
May-17
Sep-16
Jan-16
May-16
Sep-15
Jan-15
May-15
Sep-14
Jan-14
May-14
Sep-13
Jan-13
May-13
Sep-12
Jan-12
May-12
Sep-11
Jan-11
May-11
-10.0
Consolidated Primary Surplus
Primary Surplus - Adjusted
Source: Central Bank of Brazil and BTG Pactual
102
Backloaded slow fiscal adjustment ✓ But big imbalance persists; compliance with the spending cap rule is a growing challenge
28%
Expenditures
26%
2000-2016 Avg increase
24%
Source: Central Bank of Brazil and BTG Pactual
103
2027
2025
2023
2021
2019
12%
2017
13%
2015
14%
2013
14%
2011
16%
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018*
15%
2009
18%
2007
16%
20%
2005
17%
2011-2016 Avg increase
22%
2003
% of GDP
% of GDP
18%
2001
19%
Under the rule of the spending cap ceiling
1999
20%
Primary Expenditures Net revenues
1997
21%
Long term challenges – secular growth in expenditures
Primary Expenditures, % of GDP
Primary Expenditures, % of GDP (Breakdown)
20.0
12.0
19.0
10.0
~6% pa in real terms ~0.3% of GDP pa 18.0
Income Transfer Personnel Fed Discretionary, Soc Ministries (ex-FP) Extended Subsidies Other Current Expenditures PAC (ex-Housing Program)
8.0 % of GDP
17.0
16.0
Primary Expenditures, % of Budget (Breakdown) Other Legislative, 0.1% Executive, 4% Education, 3%
Judiciary, 0.7%
Soc Development, 3% Health, 8%
6.0
PAC, 2% 4.0
15.0
Other mandatory expenditures, 14%
2.0
14.0
Social security benefits, 43%
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
0.0
13.0
Payroll, 22%
Source: Central Bank of Brazil and BTG Pactual
104
Long term challenges - High debt and high tax burden
Gross debt (% of GDP) – IMF Fiscal Monitor 0
20
40
60
Tax Burden (% of GDP) – IMF 2015 80
100
120
40 35
1
2
30 25 20
3
15 10
4
5 0
5
Developed economies
Brazil
Emerging economies
Low income countries
Source: Treasury, fiscal monitor (IMF) and BTG Pactual
105
Long term challenges – Tax breaks
Other 10%
Other 20%
Worker benefits 4%
IT & Automation 18%
"Simples Nacional" 33%
Exempt income tax and taxable 7%
North and Northeast 4%
Payroll tax break 7%
Support to cultural events 4% Boats and aircraft 5%
Basic Basket 9%
Exempt income tax and nontaxable 10%
Medicines 16%
Non-profit organizations 10%
Zona Franca de Manaus 10%
Public transportation 5% Technological Information Chemical & 6% Pharmaceutical 7%
Auto sector 8% Housing sector 7%
Source: Treasury, fiscal monitor (IMF) and BTG Pactual
106
Long Term challenges – Generous Pension system
Dependency ratio and social security expenditures % of GDP (2014-2016)
Italy France
Greece Portugal
% of GDP
Brazil
Japan
Dependency ratio (65+ / 20-64)
107
Long Term challenges – Generous Pension system ✓ Deficits everywhere…
108
Long Term challenges – Generous Pension system ✓ Deficits everywhere - breakdown RGPS (% of GDP) 1.0% 0.5%
% of GDP
0.0%
Total
Rural
9.5
9.3
120.0
-110.7
0.1%
1.8%
-1.7%
RPPS Total**
0.9
37.1
123.5
-86.3
0.6%
1.9%
-1.3%
Civil servants
0.6
33.8
82.4
-48.7
0.5%
1.3%
-0.7%
Army
0.3
3.3
41.0
-37.7
0.1%
0.6%
-0.6%
Urban
Rural
2017
-1.1%
2017
-2.8%
6.7%
2016
8.5%
5.6%
2016
5.7%
-71.7
2015
-182.4
437.2
2015
557.2
365.5
2014
374.8
20.3
2014
29.8
Urban
-3.0%
2013
RGPS - Total
-2.5%
RGPS
RPPS (% of GDP) 0.0%
-0.2% -0.4%
*Except regional government spheres (deficit of ~1%) **number of benefits as of dec/2016
% of GDP
-0.6%
-0.8% -1.0% -1.2% -1.4% -1.6%
Civil servants
2013
-4.1%
2012
10.4%
2012
6.3%
2011
-268.8
2011
680.7
2010
411.9
2010
30.7
2009
Private System - Total
-2.0%
2009
Revenues Expenditures
2008
Total
2008
Revenues Expenditures
-1.5%
2007
# of benefits
-1.0%
2007
Social security deficit*- (% of GDP) - Breakdown 2017
-0.5%
Army
RPPS
109
Gross Debt: Scenarios Debt stabilization scenarios - Required Primary surplus % Interest rate
GDP Growth
Debt T= 80% 0.0%
2.0%
4.0%
6.0%
8.0%
1.0%
-0.8
0.8
2.4
4.0
5.6
2.0%
-1.6
0.0
1.6
3.2
4.8
3.0%
-2.4
-0.8
0.8
2.4
4.0
4.0%
-3.2
-1.6
0.0
1.6
3.2
Debt stabilization scenarios - Imp. Interest rate% Primary Surplus
GDP Growth
Debt T= 80%
Source: Treasury and BTG Pactual
-2.0%
-1.0%
0.0%
1.0%
2.0%
1.0%
-1.5
-0.3
1.0
2.3
3.5
2.0%
-0.5
0.8
2.0
3.3
4.5
3.0%
0.5
1.8
3.0
4.3
5.5
4.0%
1.5
2.8
4.0
5.3
6.5
110
Exchange rate of BRL3.90/USD YE 2018 and 2019 BRL/USD exchange rate forecast 5.00
benign scenario
5.00
baseline scenario
4.50
adverse scenario
4.00
3.90 3.90
3.50
3.40
3.00
2.50
2.00
1.50
Source: Central Bank of Brazil and BTG Pactual
111
External factors curbs further BRL appreciation Brazil’s 10-year CDS spread scenarios
625
benign scenario
575
baseline scenario
525
adverse scenario
475 425 400 375 325 275
225
225
175 150
125 75
Source: Central Bank of Brazil and BTG Pactual
112
External factors curbs further BRL appreciation
10-year US Treasury rate forecast (%, p.a.) 5.25
2-year US Treasury rate forecast (%, p.a.) 6.00
benign scenario baseline scenario
4.75
5.00
adverse scenario
4.25 4.00 3.75
4.00
3.75
3.50 3.25
3.25
3.00
2.75
3.00 2.75
2.00 2.25
1.00
Dec-19
Dec-18
Dec-17
Dec-16
Dec-15
Dec-14
Dec-13
Dec-12
Dec-11
Dec-10
Dec-09
Dec-08
Dec-07
0.00 Dec-06
Dec-19
Dec-18
Dec-17
Dec-16
Dec-15
Dec-14
Dec-13
Dec-12
Dec-11
Dec-10
Dec-09
Dec-08
Dec-07
Dec-06
Dec-05
1.25
Dec-05
1.75
Source: Central Bank of Brazil and BTG Pactual
113
Macro Scenario
2011
2012
2013
2014
2015
2016
2017
2018
2019
Real Growth
4.0
1.9
3.0
0.5
-3.5
-3.5
1.0
1.3
2.8
IPCA IGPM
6.5 5.1
5.8 7.8
5.9 5.5
6.4 3.7
10.7 10.5
6.3 7.2
2.95 -0.52
3.8 8.6
4.2 3.3
R$/US$ (end of period) R$/US$ (average)
1.9 1.7
2.0 2.0
2.3 2.2
2.7 2.4
3.9 3.3
3.3 3.5
3.31 3.19
3.80 3.55
3.90 3.85
End of period Average Real / Average (IPCA)
11.00 11.71 4.89
7.25 8.46 2.47
10.00 8.44 2.39
11.75 11.02 4.33
14.25 13.58 2.63
13.75 14.15 7.39
7.00 9.83 6.69
6.50 6.6 2.7
7.50 6.7 2.4
Primary Surplus - % GDP Net Public Debt - % GDP Gross Debt - % GDP
3.1 36.5 51.3
2.2 32.2 53.7
1.7 30.5 51.5
-0.6 32.6 56.3
-1.9 35.6 65.5
-2.5 46.2 70.0
-1.7 51.6 74.0
-1.8 51.8 76.1
-1.2 55.5 78.8
GDP
Inflation
FX Rate
Interest Rates
Public Accounts
As of Dec-18
Source: Central Bank of Brazil and BTG Pactual
114
Investment Themes, by sector
Basic Materials
VALE | Risk/return profile looking attractive Simplified risk/return analysis for Vale – stock currently pricing in < US$60/t IO price Implied EBITDA/t
40 11
45 16
50 21
55 26
60 31
65 36
70 41
75 46
80 51
390
390
390
390
390
390
390
390
390
IO EBITDA - US$mn
4,290
6,240
8,190
10,140
12,090
14,040
15,990
17,940
19,890
Bmetals/others EBITDA - US$mn
3,200
3,200
3,200
3,200
3,200
3,200
3,200
3,200
3,200
TOTAL EBITDA
7,490
9,440
11,390
13,340
15,290
17,240
19,190
21,140
23,090
6.0x
6.0x
6.0x
6.0x
6.0x
6.0x
6.0x
6.0x
6.0x
Implied EV Net Debt Adjustments Asset sales
44,940 17,838 0 0
56,640 16,570 0 0
68,340 15,303 0 0
80,040 14,035 0 0
91,740 12,768 0 0
103,440 11,500 0 0
115,140 10,233 0 0
126,840 8,965 0 0
138,540 7,698 0 0
Implied Equity value
27,103
40,070
53,038
66,005
78,973
91,940
104,908
117,875
130,843
5.2 -59%
7.7 -40%
10.2 -21%
12.7 -1%
15.2 18%
17.7 38%
20.2 57%
22.7 76%
25.2 96%
(1,159) (698.00) (4,000) 1,633 2%
(1,077) (1,088) (4,000) 3,275 5%
(995) (1,478) (4,000) 4,917 7%
(912) (1,868) (4,000) 6,560 9%
(830) (2,258) (4,000) 8,202 12%
(748) (2,648) (4,000) 9,845 14%
(665) (3,038) (4,000) 11,487 16%
(583) (3,428) (4,000) 13,129 19%
(500) (3,818) (4,000) 14,772 21%
11.8x
9.2x
7.5x
6.4x
5.5x
4.8x
4.2x
3.8x
3.4x
Volumes – Mt
EV/EBITDA target
Equity value/shr Upside/downside
FCF yield potential Net Financial Expenses Taxes Capex FCFE Yield % EV/EBITDA
Source: BTG Pactual.
117
VALE | A 10% dividend yield at US$60/t IO… ✓ All these, dividend payments respect a leverage ceiling of 1.5x (max). Conservative BS. ✓ M&A unlikely. ✓ Large capex unlikely.
Dividend Potential – 2019 Scenarios Iron Ore pricing - US$/t 50
55
60
65
Dividend Potential
US$5bn
US$6bn
US$7.5bn
US$9bn
Yield (%)
7%
8%
10%
12%
Source: Vale, Bloomberg, BTG Pactual.
118
Brazilian steels ✓ All things considered, domestic demand remains resilient... 40% 30% 20% 10% 0% -10% -20% -30% -40%
Flats growth % y/y
Longs growth % y/y
Source: IABr, BTG Pactual.
119
What’s priced in? A contraction from current levels GGBR
USIM
CSN
TX
Shr Price
15.33
8.70
8.50
28.20
#shrs
1,702
1,238
1,357
196
Market Cap
26,092
10,773
11,535
5,536
Net debt - 2019 YE
9,967
3,877
22,386
1,572
Adjustments
-882
162
-2,961
510
35,177
14,812
30,959
7,618
6.0x
6.0x
6.0x
4.5x
Implied Norm. EBITDA
5,863
2,469
5,160
1,693
Recurring EBITDA 19
7,125
3,216
6,177
2,385
Implied growth
-18%
-23%
-16%
-29%
EV
Target multiple
Note: Priced as of 10/12/2018
120
Pulp S&D Outlook ✓ A tight market… and structural upside risk ahead.
Source: RISI, BTG Pactual
121
P&P | FCF Profile
FCF Yield 2019 sensitivity to BHKP prices -- assuming FX at spot
20% 18% 17% 15% 13% 12% 9%
9%
600
9%
10%
630
10%
660
10%
10%
690
720
Klabin
11%
750
11%
780
12%
810
Suzano
Note: Priced as of 10/12/2018.
122
Food and Beverage
Our main Food & Beverage calls In a low beta sector, we favor stocks that benefit from undemanding valuations and positive cyclical effects ✓ Proteins: time to change your diet! Lower growth, deleverage and positive cycle to drive stronger performance: − JBS: Our top pick on a combination of improving corporate governance, management professionalization, strong momentum across most relevant segments and undemanding valuation; − Marfrig: Some exposure to stronger US and Brazil beef outlook, but weaker track record of execution and lack of clarity on further deleveraging after buying assets in Argentina make it no longer our preferred vehicle to surf the sector’s new diet. − BRF: also a beneficiary of improving poultry cycle in Brazil, but we believe poor visibility on structural margins following indirect costs inflation and lost of pricing power in both Brazil and internationally leave us Neutral.
✓ Ambev (Neutral) seems unattractive on a combination of rich valuations and continued miss to consensus earnings expectations on deteriorating revenue mix and earnings quality, all of which justifies a de-rating, in our view. ✓ M.Dias Branco: our Neutral remains in place at least until we have greater visibility of when margins will rebound. MDB shares remains a “mean reversion” story, which we believe shall start to happen only later in 2019, when margins normalize, following the full implementation of 2018’s price increases and the impact of the recent drop in wheat prices on costs. That said, we admittedly like the stock more today, and believe the differentiated pricing approach in 2018 could be a strong testament that MDB’s improving commercial platform could be bearing fruits. This could mean stronger LT margins, in our view. 124
2019: Beef - positive cattle cycle is up and running Positive cattle cycle in Brazil is intensifying, which should translate into higher margins for players
Positive cycle: higher female slaughtering meaning more cattle availability and cheaper cattle
Brazil has the cheapest cattle the in world
55%
6.0 5.5 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5
50%
Cattle prices (USD/Kg)
45% 40%
35% 30%
Brazil
US
Cow slaughtering (% of total slaughter)
Australia
Spreads are 11% above historical average
12M moving average
Brazil – Total Beef production to grow (‘000 tons)
2.200 2.00 1.800 1.600 1.400 1.200 1.00
9,951 9,675 9,723 9,425
9,307
10,150
9,550 9,284
Sep-18
Jan-18
May-17
Sep-16
Jan-16
May-15
Sep-14
Jan-14
May-13
Sep-12
Jan-12
May-11
Sep-10
Jan-10
9,024 8,935 9,115 9,030
Beef exports spread (LHS)
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
20%
2000
Sep-18
Jul-17
Feb-18
Dec-16
Oct-15
May-16
Mar-15
Jan-14
Aug-14
Jun-13
Apr-12
Nov-12
Sep-11
Jul-10
Feb-11
Dec-09
Oct-08
May-09
Mar-08
Jan-07
Aug-07
25%
Average
Source: Bloomberg / BTG Pactual / Cepea / IBGE / Secex / USDA / MAPA
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017 2018E 2019E
125
JBS: Our Top Food Pick Strong momentum and attractive valuation, well positioned to benefit from positive commodity cycles 43% of JBS’ EBITDA comes from its US beef business, with growing cattle supplies… 24% 22% 20%
… which should translate into higher spreads, which already are 16% above historical average 50
15%
30
10% 5%
10
16% 14%
-5%
-30
-10%
Jan-00 Oct-00 Jul-01 Apr-02 Jan-03 Oct-03 Jul-04 Apr-05 Jan-06 Oct-06 Jul-07 Apr-08 Jan-09 Oct-09 Jul-10 Apr-11 Jan-12 Oct-12 Jul-13 Apr-14 Jan-15 Oct-15 Jul-16 Apr-17 Jan-18 Oct-18
12%
Brazil’s Seara should also improve margins as sector has historically responded to supply cuts 4.10 3.70 3.50
3.30 3.10 2.90 2.70 May-18
Jul-17
Dec-17
Feb-17
Apr-16
Sep-16
Nov-15
Jun-15
Jan-15
Aug-14
Oct-13
Mar-14
May-13
Jul-12
Dec-12
Feb-12
Apr-11
Sep-11
Jun-10
Nov-10
Jan-10
2.50
Historical avg. Tyson Beef
JBS USA
Trading at a steep discount to historical 25% 20% 15% 10% 5% 0% -5% -10% -15% -20%
3.90
Brazil's poultry production volumes y/y
US beef spread National Beef
12-month moving avg
Poultry production margin (R$/Kg)
Source: Companies data / Bloomberg / BTG Pactual / Secex / APINCO / IBGE
15x 13x
11x 9x
7x 5x
3x Jan-09 Jun-09 Nov-09 Apr-10 Sep-10 Feb-11 Jul-11 Dec-11 May-12 Oct-12 Mar-13 Aug-13 Jan-14 Jun-14 Nov-14 Apr-15 Sep-15 Feb-16 Jul-16 Dec-16 May-17 Oct-17 Mar-18 Aug-18
Cow slaughter (% of total slaughter)
0%
-10 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18
18%
EV/EBITDA 12M Fwd
Average
Avg + Std. Dev.
Avg - Std. Dev.
126
BRF – The gross margin and asset turnover dilemma Asset turnover and operating margin seem to have suffered a downshift in recent years BRF is struggling to show improvements on both fronts
?
2.0
25%
BRF - COGS (R$mn)
20%
COGS (16,796) (19,047) (22,064) (22,953) (20,497) (22,108) (26,206) Soybean + corn (from 20-F) 22.7% 23.0% 25.0% 24.6% 27.2% 27.4% 32.5% COGS from soybean + corn (3,813) (4,381) (5,516) (5,646) (5,575) (6,058) (8,517) Depreciation + Amortization (633) (800) (856) (1,016) (1,022) (1,085) (1,296) Total Volumes (k tons) 6,064 6,202 6,337 5,863 4,722 4,726 4,688 COGS / kg (R$) (2.77) (3.07) (3.48) (3.91) (4.34) (4.68) (5.59) Soybean + corn / kg (R$) (0.63) (0.71) (0.87) (0.96) (1.18) (1.28) (1.82) Depreciation + Amortization / kg (R$) (0.10) (0.13) (0.14) (0.17) (0.22) (0.23) (0.28) COGS / Kg (ex-grains) (R$) (2.14) (2.36) (2.61) (2.95) (3.16) (3.40) (3.77) Cash COGS / Kg (ex-grains) (R$) (2.04) (2.24) (2.48) (2.78) (2.94) (3.17) (3.50) Y/Y 9.8% 10.8% 12.2% 5.9% 7.6% 10.4%
BRF's ROIC (pre-tax) %
Invested Capital turnover (x)
2019E
2018E
2017
2016
2015
-5% 2014
1.0 2013
0% 2012
1.2 2011
5%
2010
1.4
2009
10%
2008
1.6
2007
15%
2006
1.8
EBIT Margin %
Pricing has lagged below inflation for quite some time now 4%
5.0
12%
4.5
0%
10%
4.0
-2%
8%
3.5
-4%
6%
3.0
-6%
4%
2.5
-8%
2%
2.0
FPP Price vs. inflation LTM
EBIT mg in Brazil LTM
Source: Company data / Bloomberg / BTG Pactual / Secex
3Q18
2Q18
1Q18
4Q17
3Q17
2Q17
1Q17
4Q16
3Q16
2Q16
1Q16
4Q15
3Q15
2Q15
1Q15
4Q14
3Q14
2Q14
1Q14
2%
2011
2012
2013
2014
2015
2016
2017
2018E
(26,796) (28,592) 28.5% 30.5% (7,637) (8,720) (1,378) (1,470) 4,919 4,932 (5.45) (5.80) (1.55) (1.77) (0.28) (0.30) (3.89) (4.03) (3.61) (3.73) 3.4% 3.2%
International margins have decoupled from spreads
14%
More promotional prices take effect and affect margins
2010
1,600 1,400 1,200 1,000 800 600 400 200
(200) (400) (600)
1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18
2.2
Indirect costs are now at higher levels
BRF Int'l EBIT/ton (R$)
Secex (gross profit per ton)
127
Ambev: Good, but not necessarily great; a de-rating call Economic environment is improving but Ambev is failing to capture it; pricing power is down Beer consumption shows strong correlation with GDP
Ambev’s apparently losing share based on IBGE’s data
10.00%
70%
8.00%
68%
6.00%
66%
64%
4.00%
62%
2.00%
60%
.00%
58%
-2.00%
56%
2019 E
Margin resilience based on pricing power is under threat 60% 55%
46%
50% 45%
42%
40%
0%
50% 51% 48% 49% 50%
3% 3%
1%
-1%
35%
1%
3%
4%
56%
6%
52% 54%
30,000
2%
3% 2%
0%
2% 0%
3Q2018
1Q2018
3Q2017
1Q2017
3Q2016
1Q2016
3Q2015
1Q2015
3Q2014
1Q2014
3Q2013
1Q2013
3Q2012
1Q2012
3Q2011
CONSENSUS EBITDA REVIEW 2007 2011 2015 2019
4%
45% 45% 46%
3%
Consensus continues to revise earnings down
24,000
2008 2012 2016
2009 2013 2017
2010 2014 2018
18,000
-2%
30%
30% 30% 30% 28%
33%
31% 30%
34% 33% 33% -4% 30% 30% 29% 29% 28% -6%
12,000
Source: Company data / SICOBE / BTG Pactual / IBGE
Jan-18
Jan-17
Jan-16
Jan-15
Jan-14
Jan-13
Jan-12
Jan-11
Jan-10
Jan-09
6,000
Jan-08
2018E
2017
2016
2015
2014
2012
2013
ABV's Brazil Beer EBITDA margin
Jan-07
ABV's Brazil Beer Price VS. Inflation ABV's Brazil Beer SG&A as % of Revenues
2011
2010
2009
2008
2007
2006
2005
-6% 2004
20%
Jan-06
25%
0%
52% 53%
1Q2011
Beer consumption growth
3Q2010
2018E
2017
2016
2015
2014
2013
2012
2011
50% 1Q2010
GDP Growth
2010
2009
2008
2007
2006
2005
2004
52%
2003
54%
-6.00% 2002
-4.00%
128
Agribusiness
Agribusiness: Sugar world production could be at a turning point Sugar prices still under pressure, but we and the market are consistently revising surplus estimates down Attribute
Country
Sugar Production (1000 MT)
Total Use (1000 MT)
2006/2007 2007/2008 2008/2009 2009/2010 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 2015/2016 2016/2017 2017/2018E 2018/2019E
Brazil
31,450
31,600
31,850
36,400
38,350
36,150
38,600
37,800
35,950
34,650
39,333
29,200
28,000
China
12,855
15,898
13,317
11,429
11,199
12,341
14,001
14,263
11,000
9,050
9,300
10,250
10,800
India
30,780
28,630
15,950
20,637
26,574
28,620
27,337
26,605
30,460
27,385
22,200
34,000
31,000
Thailand
6,720
7,820
7,200
6,930
9,663
10,235
10,024
11,333
10,793
9,743
10,033
13,730
14,100
European Union
17,987
15,834
14,290
16,897
15,939
18,320
16,655
16,020
18,449
14,283
16,500
21,150
19,900
Others
64,486
63,475
61,226
60,891
60,496
66,683
71,341
70,080
70,810
69,592
74,106
75,000
75,750
World
164,278
163,257
143,833
153,184
162,221
172,349
177,958
176,101
177,462
164,703
171,472
183,330
179,550
World
151,399
151,247
154,448
154,926
155,938
160,219
166,816
168,172
171,241
172,488
173,573
175,309
177,062
-0.1%
2.1%
0.3%
0.7%
2.7%
4.1%
0.8%
1.8%
0.7%
0.6%
1.0%
1.0%
% y/y
Surplus / (deficit)
World
12,879
12,010
-10,615
-1,742
6,283
12,130
11,142
7,929
6,221
-7,785
-2,101
8,021
2,488
Ending Stocks (1000 MT)
World
36,736
43,080
29,836
28,028
29,491
35,190
42,521
43,928
45,762
37,763
32,828
40,849
43,337
Stock-to-Use (% )
World
24.3%
28.5%
19.3%
18.1%
18.9%
22.0%
25.5%
26.1%
26.7%
21.9%
18.9%
23.3%
24.5%
Avg Sugar Price (USDc/lbs)
World
10.4
12.1
20.8
23.8
25.4
20.1
17.4
15.8
13.2
17.1
20.0
14.0
12.5
Average BRL/USD
Avg. Oct - Sep
2.04
1.71
2.13
1.77
1.65
1.89
2.11
2.29
3.01
3.62
3.20
3.52
3.86
Avg Sugar Price (BRLc/lbs)
World
21.1
20.8
44.4
42.1
41.8
38.0
36.6
36.0
39.7
61.9
64.1
49.3
48.3
Stock-to-Use (%)
Avg Sugar Price (USDc/lbs)
Source: BTG Pactual / USDA / Datagro
-7,785
Surplus / (deficit)
Sugar Production (1000 MT)
2018/2019E
2017/2018E
2016/2017
2015/2016
2014/2015
-10,615 2013/2014
2018/2019E
2017/2018E
2016/2017
2015/2016
2014/2015
2013/2014
2012/2013
2011/2012
2010/2011
2009/2010
2008/2009
2007/2008
2006/2007
16%
-2,101
2012/2013
18%
8,021
-1,742
2011/2012
20%
7,929 6,221
2,488
2010/2011
22%
6,283
2009/2010
24%
12,130 11,142
2008/2009
26%
190,000 12,879 12,010 185,000 180,000 175,000 170,000 165,000 160,000 155,000 150,000 145,000 140,000 2007/2008
28%
27 25 23 21 19 17 15 13 11 9
2006/2007
30%
Total Use (1000 MT)
130
Agribusiness: Ethanol market still supportive despite oil price slump Despite high ethanol inventories, our S-D model still points to a tight market by crop-end, driven by strong consumption Ethanol (m ³)
Cro p B o P
Cro p Eo P
Inventory (BoP)
Production
Net im port
Available
Consum ption
Inventory (EoP)
January-18
7,252,445
323,938
41,264
7,384,588
2,292,575
5,092,013
February-18
5,092,013
259,883
99,855
5,396,550
2,088,632
3,307,918
March-18
3,307,918
563,255
255,803
4,354,791
2,351,787
2,003,004
April-18
2,003,004
2,658,072
313,295
4,362,633
2,198,022
2,164,611
May-18
2,164,611
3,774,927
11,394
6,105,132
2,143,978
3,961,154
June-18
3,961,154
4,491,870
(63,814)
8,175,531
2,345,116
5,830,415
July-18
5,830,415
5,002,034
(37,248)
10,583,342
2,418,293
8,165,049
August-18
8,165,049
4,380,728
(178,514)
12,314,644
2,685,826
9,628,818
September-18
9,628,818
4,235,914
(170,724)
13,536,968
2,581,980
10,954,988
October-18
10,954,988
3,219,020
(213,012)
13,851,802
2,858,114
10,993,688
November-18
10,993,688
167,969
(85,145)
11,076,512
2,459,331
8,617,181
December-18
8,617,181
67,187
18,396
8,702,764
2,745,026
5,957,738
January-19
5,957,738
50,391
123,791
6,131,919
2,398,188
3,733,731
February-19
3,733,731
33,594
299,565
4,066,890
2,204,531
1,862,359
March-19
1,862,359
16,797
511,606
2,390,762
2,485,341
(94,579)
36,256,741
(94,579)
TOTAL
29,245,578
Drop in gasoline prices is a risk, but ethanol remains well below pump parity, offering upside 80%
72%
70%
63%
64% 56% 48%
May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18
40%
Source: BTG Pactual / ANP / MAPA
131
São Martinho: our Top Agri Pick – When asset quality pays off Strong FCF, even during sugar price lows. Unique ethanol storage capacity should enable better pricing
SMTO is one of the most efficient S&E producers 2.14
1.89
Low leverage ratio may trigger stronger dividends 3,000
2.50x
2,500
2.00x
2,000
0.88
1.50x
1,500 14.6
14.6
13.9
10.6
1.00x
1,000
0.50x
500 0
São Martinho
Adecoagro
Cosan
Cash Production Costs (c/lb)
0.00x 2010A 2011A 2012A 2013A 2014A 2015A 2016A 2017A 2018A 2019E
Avg. Brazil
Net Debt (R$mn)
Cogeneration
Net Debt/EBITDA
We see SMTO trading at a compelling 15% Adjusted FY2019 FCFE yield (R$mn) Net Revenues EBIT
FY2017A 3.003 850
FY2018A 3.436 1.049
FY2019E 3.740 992
FY2020E 4.091 1.120
FY2021E 4.403 1.189
EBIT Margin
28,3%
30,5%
26,5%
27,4%
27,0%
Cash net fin expenses Cash Income Tax Earnings D&A Cash Earnings CAPEX FCF Adjusted Market Cap * Adjusted FCF Yield
(273) (162) 415 739 1.154 (869) 285 5.556 5%
(169) (131) 749 896 1.644 (1.065) 579 6.276 9%
(175) (107) 709 971 1.681 (1.024) 657 5.016 13%
(155) (145) 820 1.022 1.841 (1.081) 761 5.016 15%
(111) (162) 916 1.106 2.022 (1.169) 854 5.016 17%
Source: Companies data / Bloomberg / BTG Pactual
132
Farming companies: Back to land Land market to soon show some recovery on combination of stronger farming yields and low interest rates
20%
14.000
15%
12.000 10.000
10%
8.000
5%
6.000
0%
4.000
-5%
Brazil land prices - real y/y appreciation
Aug-18
Feb-18
Aug-17
Feb-17
Aug-16
Feb-16
Aug-15
Feb-15
Aug-14
Feb-14
Aug-13
Feb-13
Aug-12
Feb-12
Aug-11
Aug-10
-10%
Feb-11
2.000
Brazil average land prices (R$/ha)
✓ SLC Agrícola and BrasilAgro have for some years now sold land more often than buying it. We believe this approach may soon have to change, as we believe land market could be on the verge of a recovery. Brazil’s soybean and cotton yields have improved over 20% in the past two years, which combined with low real rates all suggest land prices may soon show real term appreciation. Source: FNP/ IBGE / BTG Pactual
133
Fuel Distribution
Fuel Distribution Industry – A very tough macroeconomic backdrop After 11 years of sales growth, fuel volumes stagnated in the last 3-4 years. Volumes in 2019 should recover, but on a very weak comparison basis.
Diesel + Otto
Growth y/y
120,000
12% 10%
100,000
8% 6% 4%
60,000
2%
40,000
0% -2%
20,000
-4%
0
-6%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 10M18
'000 m3
80,000
135 Source: ANP / BTG Pactual
Fuel Distribution Industry – Fiercer competition Bad macro + premium to international parity = imports. Recent scenario has favored smaller distributors
Diesel imports reached record level in 2017…
… helping smaller players to gain share and….
'000 m3
(since beginning of subsidy, it has fallen sharply)…
90%
2,000
Plural
80%
Others/White Flags 73%
1,600
70%
1,200 50%
800 30%
400
20%
0
27%
10%
… sales efficiency relative to top 3 players Ipiranga
BR
Raízen
Others & White Flag
3,500 3,000 2,500 2,000 1,500 1,000 500
0 2010
2011
Source: Companies data / ANP / BTG Pactual
2012
2013
2014
2015
2016
2017
9M18
136
Cosan: our Top Fuel Distribution Pick Competition should hinder high returns from the past. CSAN’s better positioned in a scenario of increased competition
Pre-tax ROIC has trended higher for private Co’s… Ipiranga
Raizen Combustíveis
… driven mainly by higher EBIT margin
BR Distribuidora
BR Distribuidora
40%
4.0%
34%
3.6%
28%
3.2%
22%
2.8%
16%
2.4%
10%
2.0% 2011
2012
2013
2014
2015
2016
Ipiranga
Raizen Combustíveis
Raizen Combustíveis
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
2017
Asset turnover has failed to impress, with Cosan’s Raízen being the only exception
Ipiranga
Out of top 3 players, only Raízen has grown share in last 7 years (Otto cyle + diesel) Ipiranga
BR Distribuidora
BR
Raízen
35%
12.00
31%
10.80
27%
9.60
23%
8.40
19%
7.20
Jul-18
Oct-18
Apr-18
Jan-18
Jul-17
Oct-17
Apr-17
Jan-17
Jul-16
Oct-16
Apr-16
Jan-16
Jul-15
Oct-15
Apr-15
Jan-15
Jul-14
Oct-14
Apr-14
Jan-14
Jul-13
2017
Oct-13
2016
Apr-13
2015
Jan-13
2014
Jul-12
2013
Oct-12
2012
Apr-12
2011
Jan-12
15%
6.00
137 Source: Companies data / BTG Pactual
BR Distribuidora: a binary story! A ‘what if’ analysis to BRDT’s investment case
We run a DCF-based valuation for BRDT shares, using a real WACC of 8.2% and real perpetuity of 2.5% DCF, BRL mn EBIT (ex-PF) (-) Tax NOPLAT (+) Depreciation (-) NWC (-) Capex Cash Flow Cash flow (real) DCF
2019E 2,754 (936) 1,818 457 (609) (682) 984 984 984
2020E 3,226 (1,097) 2,129 490 (505) (330) 1,784 1,716 1,586
2021E 3,436 (1,168) 2,268 521 (482) (330) 1,977 1,832 1,565
BRDT could capture up to R$49/m3 in a bull case scenario if fully closes its gaps to peers
2022E 3,659 (1,244) 2,415 554 (513) (380) 2,077 1,855 1,465
2024E 4,149 (1,411) 2,739 627 (580) (380) 2,406 1,996 1,348
2025E 4,418 (1,502) 2,916 667 (616) (380) 2,586 2,069 1,291
2026E 4,705 (1,600) 3,105 709 (656) (380) 2,778 2,142 1,235
2027E 5,009 (1,703) 3,306 754 (697) (380) 2,983 2,216 1,182
2028E 5,333 (1,813) 3,520 802 (741) (380) 3,200 2,292 1,130
We estimate an significant gain of R$12/share to our current TP if all upsides materialize 40
140
125
4
17
30
100
8
25
32 R$
80
35
35
9
120
R$ / m3
2023E 3,897 (1,325) 2,572 589 (545) (380) 2,236 1,925 1,406
60
20 15
40
10
67 20
23
5 0
0 2017 Norm. Co's Adj. EBITDA
Gross Profit
SG&A
Inflation
2020 Norm. Co's Adj. EBITDA
PT w/o gap improvements
Gross Profit
SG&A
PT with gap improvements
138 Source: Company data / BTG Pactual
Ultrapar – High multiples don’t bode well with lower growth Focus in WK management and increase POS productivity is the right path in the long term, but it comes at a cost
EV/EBITDA 12M Forward
P/E 12M Forward 48.0x
18.0x
39.0x
15.0x
30.0x
9.9x 21.0x
6.0x
12.0x
Average
Avg + Std. Dev.
P/E 12M Forward
Avg - Std. Dev.
Average
Avg + Std. Dev.
2018
2017
2016
2015
2014
2013
2009
2012
3.0x
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
3.0x
EV/EBITDA 12M Fwd
22.6x
22.2x
9.0x
2011
10.1x
2010
12.0x
Avg - Std. Dev.
Company recently released its ‘19 guidance to even lower figures. Gas station conversion should slow down 2,500
R$ mn
2,000 1,500 1,000 500 0 2013
Ultragaz
2014
Oxiteno
2015
Ultracargo
2016
Ipiranga
2017
2018E
Extrafarma
19 UGP Guidance
Others
139 Source: Company data / BBG / BTG Pactual
Financials
In Financials, our top picks for Brazil are Bradesco and B3! ✓ Bradesco – After several bad years in Brazil’s economy and the acquisition of HSBC, Bradesco’s ROE (and investor’s preference) lost ground versus peers Itau and Santander. But with the help of insurance (stronger healthcare and financial results at the group due to stable/higher Selic), HSBC´s full incorporation (as of Jan/19 they will be able to adjust fees of former HSBC clients), and a stronger economy (which helps Bradesco more than peers in SMEs, countryside/north & northeast clients; and should drive another nominal decline in provisions), we expect the group´s earnings to outpace peers in the coming years, paving the way for a bigger re-rating on a relative basis.
✓ B3 – As we’ve been banging on the drum for a while, B3 is one of the most interesting stories to play as capital markets gain more relevance. With the overhang of elections now behind us, market sentiment is set to improve and B3 should benefit from additional volumes in many different ways - from cash equities trading to fixed income custody. Even though there are some risks – change in regulation for auto liens and loans and an expected new competitor in registration – the upside from higher activity in a favorable market seems much larger than such threats. If volumes remain at these levels, there is a very relevant upside risk to our (and consensus) earnings estimates.
141
B3: Capital markets to continue gaining importance in 2019 ✓ While demand for capital has been increasing Capital markets more active, particularly in fixed income
Domestic pension funds allocation in equities has a lot of room to increase…
Capital raising activity (R$bn)
AuM - Pension Funds (R$bn)
190
200 150 100 50
156148
139
188
134
102
19
14
2011
2012
176 144 135 111
115 88
173
71 40 44
24
15
18
11
2013
2014
2015
2016
7
0 BNDES
Capital Markets - Fixed Income
2017
3Q18
74% 74% 80% 72% 71% 64% 70% 61% 62% 60% 60% 50% 40% 29% 29% 30% 25% 30% 19% 18% 18% 17% 20% 11% 11% 11% 10% 9% 9% 9% 9% 10% 0% 2011 2012 2013 2014 2015 2016 2017 5M18
Fixed Income
Capital Markets - Equities
AuM - mutual funds (R$bn) 85%
86%
86%
88%
91%
91%
91%
Number of individual investors by asset class ('000)
90%
80% 60% 40% 20%
15%
14%
14%
12%
9%
9%
9%
10%
0% 2011
2012
2013
2014
Fixed Income
2015
2016
Equities
Others
With lower interest rates, more individual investors have been buying more sophisticated products
…mutual funds as well
100%
Equities
2017
5M18
1,600 1,400 1,200 1,000 800 600 400 200 0
1,466 1,043 587 484
583 482 1562
144 96
125 88
2011 REITs
589 510
2012
2013
766 620 619 564 564 557 500 505 438 438 413 341 399 204 185 237 163 119 2014
Tesouro Direto
2015 Equities
2016
2017
Hedge Funds
3Q18 142
Scenario remains positive for banks ✓ A better Brazil + HSBC full benefits + insurance improvement = BBDC’s earnings outgrow vs peers! – ROE of credit business should match CoE in the medium-to-long run. But the credit ROE destroyed value in the past few years and just very recently got above the CoE. If, on average, ROE = CoE in credit, we need to see a value generation in the next 12-18 months to compensate for the previous years destruction. – Loan growth + favorable mix (SME recovery and double digit growth in individuals) + healthy NPLs should lead to ROE expansion in 2019! – In such scenario, Bradesco is our TOP PICK among the banks.
ROE – CoE of the system continues expanding
While NPLs should fall for Bradesco and BB
Overall, loans should accelerate in 2019
18.0 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 -
13.7% 10.6%12.0% 10.1% 10.1% 10.1% 10.0%10.4% 8.9% 8.4% 7.3% 7.1%
15.0% 10.0%
5.0% 0.0%
6.4%
6.0%
5.0%
5.3%
4.9% 4.2%
4.0%
1.3%
0.4%
7.0%
3.9%
4.4% 3.7%
3.2%
5.0%
3.7%
4.9% 4.2%
4.0%
3.7%
3.0%
2.9%
2019E
2020E
3.0% 2.0%
SELIC
Jun-18
Jun-17
Dec-17
Dec-16
Jun-16
Jun-15
Adjusted ROE for the system
Dec-15
Dec-14
Jun-14
Jun-13
Dec-13
Jun-12
Dec-12
Jun-11
Dec-11
Dec-10
-5.0%
-3.2% -5.6%
1.0% 0.0%
-10.0% 2017 Itau
Bradesco
2018E
2019E
Banco do Brasil
2020E
Santander Brasil
2017 Itau
2018E Bradesco
Banco do Brasil
Santander Brasil
143
Retail
Dynamic periodic table 2018 – our main calls Consumer & Retail main themes
Our calls
Premium Companies
Good Momentum
Exposure to Internet Secular Growth
Exposure to Lower SELIC
Turnaround stories
Short term portfolio (3-6 months)
Mid-term portfolio (1-2 years)
Long-term portfolio
LREN
B2W
B2W
B2W
NATU
B2W
B2W
B2W
RADL
MGLU
MGLU
LAME
PCAR
MGLU
MGLU
LAME
MELI
BKBR
MELI
VVAR
HGTX
LREN
LREN
MGLU
ARZZ
LAME
MGLU
VVAR
CVCB
CVCB
MELI
LAME
VVAR
LLIS
MEAL
BKBR
BKBR
LREN
LAME
RADL
CVCB
PCAR
AMAR
Premium companies should continue outperforming the overall sector
Exposure to staples segment and cheap valuation theses do not always pays-off during the economic downturn. We prefer top-notch execution!
E-commerce is a irreversible trend in Brazil, and should post a secular growth in the coming years, but only with a few potential winners
Turnaround stories, such as HGTX and PCAR should be kept on the radar screen, also benefiting from a better macro outlook
145
Brazilian e-commerce – secular growth ahead
Brazilian e-commerce sales (R$bn) to triple until 2025 CAGR 17/25E = 14.2%
200 179
CAGR17/21E = 16.5%
159
142 127
112 96
59
2016A
69
2017A
82
2018E
2019E
2020E
2021E
2022E
2023E
2024E
2025E
146
Brazilian e-commerce – market breakdown ✓ MercadoLibre as the LatAm winner with its Alibaba/Taobao-esque platform, and B2W and Magazine Luiza as the winners with an Alibaba/Tmall-esque platform
Taobao-like platform
C2C
and smaller players
B2C
Tmall-like platform
35%
65%
of the market
of the market
147 Source: e-Bit and BTG Pactual
Brazilian e-commerce – only a few potential winners
Taobao-like market
Tmall-like market
Total GMV (R$bn) 32% 48%
R$200bn
13%
68%
10% 26% 2%
2017
139,979
R$69bn
70%
2017 MELI
B2W
MGLU
MELI's Share (Taobao-like market)
VVAR
Others
Others 15%
10%
44,992 24,226
65%
13%
59,991
35%
2017 Taobao-like market
30%
28%
85%
2025 40%
Tmall-like market
8%
2025
2025 MELI
B2W
MGLU
VVAR
Others
MELI's Share (Taobao-like market)
Others
148 Source: BTG Pactual
LatAm Transportation & Capital Goods
Transportation and Capital Goods Best Ideas
150
Rumo – Still Top Pick ✓ 2018 to remain strong: market share gains, new projects ✓ Positive FCFE for the first time in several years ✓ Double digit normalized FCF yield ✓ We believe the likelihood of Malha Paulista’s renewal has not changed and is still high; we also believe investors over-quantify its value
✓ Sorriso Project is material upside risk R$mn
Comment
EBITDA
4,500
Assuming mid-point of 2020 guidance
Capex, pre expansion
(1,200)
Maintenance; in line w/ depreciation. 2020 last expansion year
Net financial expenses, cash
(500)
Avg. R$5bn adjusted net debt
Taxes
(420)
Tax rate @ 20% , Malha Norte benefit + accumulated losses
Working capital change
(50)
Assumes WK @ 5% of revenues
FCFE
2,330
Market cap
25,334
FCFE yield (early 2020s)
9.2%
P/CF
10.9x
More than 35% upside without assuming optionalities EBITDA Target fw EV/EBITDA
R$mn
Comment
4,500
Assuming mid-point of 2020 guidance
9.0
In line with forward EV/EBITDA of North American Class 1
Target EV
40,500
Net debt
6,000
Target Equity value
34,500
Implied fw P/CF Current market cap 12-month upside
14.8 25,334 36%
151
Assumes 2019 end valuation potential
Embraer – Good risk/return from Boeing outcome ✓ Since the strategic partnership with Boeing was officially announced, ERJ shares underperformed as the deal came at a lower value than investors were expecting. – But we see good upside from current levels, and believe investors are not pricing in a deal happening. – Embraer’s value is now below the monetization value announced for Embraer’s Commercial Aviation alone (cash portion net of taxes + put option), which we believe is unfair – we continue to expect a deal to ultimately happen, which should be highly accretive to ERJ. – ERJ has recently announced the golden share request notification. Strategic partership
US$mn
100% - Eq. V - Comercial aviation, gross of taxes 80% - Eq. V - Comercial aviation, gross of taxes
4,750 3,800
Book value of comercial aviation (60% of total)
2,600
Base for capital gain Tax on capital gain (34% rate)
2,150 731
Synergies, annual NPV @ 10x Pretax
150 1,500
1. Monnetization of Commercial stake, net of taxes 2. 20% of newco pre-synergies (Put option) 3. 20% of synergies 4. 20% of Commercial net debt (estimate) 5. Re-rating ERJ - Commercial all-in
3,069 950 300 0 250 4,569
Defense value (12x normalized EBIT - zero value for JV) Defense + Executive synergies @ 10x
960 375
Total value - EV
5,904
Net debt ex Commercial (estimate) Equity Equity per ADR # of ADRs
300 5,604 30.6 183
152
Real Estate
Housing: 2019 is shaping up much better Mid/high-income is getting better all the time. MCMV program remains a government priority Mortgage rates are starting to decrease, at a slow pace
mortgage conditions) and rising consumer confidence (a mandatory condition for higher demand), we believe all is set for higher home sales in 2019. Thus, we are more positive on mid/high-end homebuilders and brokers (we like Even and Lopes)
12.0%
✓ The low-income homebuilders have suffered a lot, as investors are
10.0%
skeptical on the continuity of MCMV housing program, but with a huge pent-up demand and since the government is ultra-committed with MCMV program, we expect another strong year for this segment, which is our preference in the coverage (MRV is our favorite pick)
9.5%
Launches / sales of residential units in the city of São Paulo
11.5%
Bradesco
11.0%
Itau
10.5%
BB Santander
CEF
9.0% Nov-18
Jun-18
Jan-18
Aug-17
Mar-17
Oct-16
May-16
Dec-15
Feb-15
8.5% Jul-15
✓ In a scenario of much lower interest rates (and much better
MCMV budget remains solid for the next four years
50,000
FGTS' budget
Launches
Gross Sales
Inventory
53
2021E
46
53
26
2018E
53
43
2017
53
40
51
35
48
32
2016
9
2015
9
2014
9
2013
9
2012
8
9
2011
9M18
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
-
7
11
2010
5
10,000
5
10
2020E
20,000
8
2019E
30,000
2005
UNITS
40,000
Mortgages + Construction Financing
Subsidy
154
Housing: we prefer low-income (very attractive valuation) ROEs will lackluster in the mid/high-end segment; strong growth for low-income homebuilders
✓ Valuations of mid/high-income homebuilders are already pricing-in a nice recovery of ROEs, but we think they may take much longer to materialize than market is expecting. Therefore, we prefer (i) the brokerage firm Lopes; and (ii) the discounted homebuilder Even.
Aggregate launches and sales – mid/high-end segment 24.0
20.0 16.0 12.0
✓ On the flipside, low-income homebuilders combine: (i) EPS growth; (ii) nice cashflow generation; and (iii) attractive valuation. MRV at 6x P/E and 13% FCF yield for 2019E is our favorite pick.
8.0 4.0
0.0 2009
2010
2011
2012
2013
Launches
Brazilian Housing – Valuation multiples
2015
Sales
2016
2017 2018E
Inventory
Aggregate launches and sales – low-income segment P/E
Last
Target
Upside
Rating
Price
Price
12m
P/BV
2018E
2019E
Cyrela
Buy
15.33
14.00
-9%
1.08x
NM
18.6x
MRV
Buy
12.08
18.00
49%
1.32x
6.7x
6.3x
7.5
Gafisa
Neutral
16.33
9.00
-45%
1.23x
NM
-8.6x
6.0
Tecnisa
Neutral
1.35
1.20
-11%
0.53x
NM
-6.4x
Even
Buy
5.72
5.50
-4%
0.83x
NM
21.6x
Direcional
Buy
7.65
15.20
99%
0.81x
NM
9.2x
EZTec
Neutral
24.50
18.00
-27%
1.62x
59.1x
17.6x
1.5
Helbor
Neutral
1.48
1.20
-19%
0.58x
NM
-11.2x
0.0
Company
2014
10.5
9.0
4.5
3.0
2009
2010
2011
2012
Launches
2013
2014 Sales
2015
2016
2017 2018E
Inventory
155
Malls: all set for a strong year; Offices: we would still avoid Malls should see nice SSS and SSR growth; Rents to keep falling in the office segment
30% 25% 20%
while rents should keep falling (in nominal terms), mostly in the Rio de Janeiro market.
15%
✓ The sector should benefit from low interest rates, mostly
0%
10%
Same-Store-Sales (SSS) growth of listed shopping malls
SP
2018E
2017
2016
2015
the leveraged companies, with some potential upside coming from a reduction of long-term real rates.
2014
2010
5% 2013
✓ In office spaces, we expect vacancy to remain high,
35%
2012
sales improving and (ii) easy comps. This combined with a higher IGP (LTM is 8%), we also expect companies to post nice Same-Store-Rent growth.
Office vacancy in São Paulo and Rio markets
2011
✓ We expect nice Same-Store-Sales for malls: (i) retail
RJ
Same-Store-Rents (SSR) growth of listed shopping malls
20%
20%
15%
15%
10%
10%
5%
5%
0%
3Q18
1Q18
3Q17
1Q17
Iguatemi
3Q16
1Q16
3Q15
1Q15
BR Malls
3Q14
1Q14
3Q13
1Q13
3Q12
Aliansce
1Q12
3Q11
1Q11
3Q10
1Q10
Multiplan
3Q18
1Q18
3Q17
1Q17
Iguatemi
3Q16
1Q16
3Q15
1Q15
BR Malls
3Q14
1Q14
3Q13
1Q13
3Q12
Aliansce
1Q12
3Q11
-5%
1Q11
-10% 3Q10
0% 1Q10
-5%
Multiplan
156
Properties: solid outlook for malls, with a potential re-rating Retail sales recovering + low interest rates = Buy shopping malls Brazilian Properties – Implied IRR vs. long-term interest rates
recovering, top line growth (higher sales and some reduction of discounts to tenants), adjusted Ebitda growth (lower vacancy and NPLs).
10%
✓ We prefer more premium portfolios (AAA-oriented), that
4%
6%
2%
✓ For the office companies, we still expect vacancy to remain high (Rio’s market is ~40% vacant and SP’s is ~20%), while rents should remain under pressure for a while and allowances very high.
✓ In terms of valuation, we see malls trading at attractive valuations (nice premium to long-term real interest rates). Multiplan is our favorite pick, on AAA portfolio of shopping malls and attractive valuation.
SCAR3
BRPR3
PARAUCO
ALSC3
IGTA3
0% BRML3
we believe are in better shape to surf a recovery of tenants’ sales (it should be translated into higher rents faster).
NTNB ‘35
8%
MULT3
✓ We expect a solid 2019 for shopping malls: (i) retail sales
Brazilian Properties – Valuation multiples P / FFO
Last
Target
Upside
Implied
Company
Rating
Price
Price
12m
IRR
2018E
2019E
BR Malls
Buy
13.10
15.00
15%
7.7%
19.6x
16.2x
Multiplan
Buy
23.29
26.00
12%
6.8%
19.3x
18.7x
Iguatemi
Buy
39.15
45.00
15%
8.1%
18.7x
16.8x
Aliansce
Buy
18.16
22.00
21%
9.2%
18.7x
14.2x
157
Our calls in summary Housing and Properties preferred picks
What to own? • Homebuilders focused in the low-income segment (strong top line growth + high FCF yields + attractive valuation)
• Shopping malls, focused on the more AAA portfolios (faster recovery beta) and at attractive valuation
What to avoid? • Commercial properties with high exposure to the office sector (supply glut, high vacancies and declining rents) • High-end homebuilders that would remain destroying equity value for a while and too much geared (i.e. the “turnaround” stories)
Top stock ideas • Low-end Homebuilders: MRV • Mid/high-end Homebuilders: Even and Lopes • Shopping Malls: Multiplan
158
Healthcare and Education
Education – K12 and DL in the spotlight K12 on the rise: A year for Kroton to deliver synergies and for Arco to take a toll on market leaders 15%
16%
17%
17%
18%
18%
18%
18%
13%
14%
47
47
47
46
46
46
45
45
44
44
44
6
6
7
7
7
8
8
8
8
8
8
41
41
40
39
39
38
37
37
36
36
36
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
12%
Public Students - #mn
After the acquisition of Somos by Kroton and the IPO of Arco, K12 is definitely on the radar screen. The private Basic Education market showed a ~4% 2007-17 CAGR.
Private Students - #mn
While Kroton will keep pushing its brownfield strategy and delivering the synergies promised, Arco is set to keep investing in order to take on the leaders by adding new features and supplementary products to its core business.
% of Private Students
Distance Learning: growing uncertainty about price pressure after the capacity expansion The higher flexibility in the regulatory framework for DL was the main catalyst for the recent market growth acceleration. KROT is market leader, but ESTC is closing the gap.
17.6% CAGR 1.6 1.2
In 2018 companies were in growth mode not only in the number of learning centers, but expanding its portfolio of courses. We believe that competition will deteriorate down the road and margins will likely come down. But Estácio still has ample room to grow in the segment, helping the consolidated profitability of the company.
0.7
2010
0.8
2011
0.9
2012
1.3
1.4
1.0
2013
2014
2015
2016
2017
mn of DL students
160
Estácio: Our Top Pick in Education Faculty Cost: Efficiencies clearly being captured Faculty Costs per Student [R$ / Student / Month]
0%
9%
20% 5%
316 279
-1% 325
259
277
-3% 306
3%
266
-5% -22% 253
262
-6%
-5%
289 252
One of ESTC’s main objectives in 2018 was to turnaround the operation in terms of efficiency in order to start thinking about growth from 2019 onwards. The company deployed a number of initiatives (reassessing professors’ salaries, increasing the number of students per class and implementing its strategic source project). Elsewhere, ESTC is ready to accelerate consolidation, with some interesting M&A moves on the radar screen.
1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18
Faculty Costs Per Student (Average)
y/y Growth
Distance Learning: Accelerating… If the onsite business is proving to be a big growth challenge (ESTC has been suffering with double digit intake drops recently), DL is doing better than expected. The company continues to fine tune its products and increase the offer of courses.
ESTC is doubling the efforts in the sector, reaching 506 active LCs by 3Q18, 81% up y/y. To keep growing, the company wants to have 85 courses available in the DL business, 38 more than in 2Q18.
206
117 59
61
128
133
154
170
171
146
79
1H13 2H13 1H14 2H14 1H15 2H15 1H16 2H16 1H17 2H17 1H18 DL Students - 000s
161
Healthcare – Vertical players still outperforming Vertical players will keep consolidating the market Average MLR in Brazil [%] 83%
83%
58%
79%
81%
76%
83% 66%
78%
74%
72%
80%
73%
82%
It’s no news that vertical players are outperforming, even when operating in tough market conditions. In 2018, Hapvida and GNDI IPOed and the sector experienced several M&As. GNDI was responsible for the largest moves: GreenLine, Mediplan and Samed. At the same time, Hapvida acquired Uniplam and Free Life. The vertical players will keep on leveraging on inefficient providers and operators to increase their footprint.
*2017 Data, except Vitallis, São Francisco and Plena = 2016 Data (last available)
Pay-for-performance will impose challenges for providers – consolidation to accelerate In 2018 we finally saw the pay-for-performance model gaining room. Bolstered by operators and premium providers, new payment models are gaining traction and are set to change the hospital and the diagnostic markets in the years to come. However, there are other moving parts (such as population aging) that will keep pushing up the “per capita” HC expenditure.
4 3
3 2
Smaller players tend to have less control over its costs, so we expect consolidation moves to keep gaining traction in the years to come.
Sabin
Fleury
Pardini
São Marcos
# of acquisitions
162
Hapvida: Our Top Pick in Healthcare Growing organically, but the market expects M&A moves from 1H19 on
Year
2017
2016
2017*
2017*
2017
2016
State
SP
MG
SP
RJ
SP
SP
Net Revenues
2,329
487
1,071
772
169
74
MLR (ex-IBNR)
79%
81%
70%
78%
74%
80%
Gross Margin
21%
16%
29%
26%
24%
19%
EBIT Margin
9%
0%
6%
4%
-1%
0%
EBITDA Margin
10%
1%
7%
4%
0%
1%
Net Margin
7%
0%
6%
4%
1%
3%
Average Ticket [R$/month]
554.4
122.4
156.1
139.0
123.4
132.1
Members ['000]
374.0
331.4
571.8
463.1
114.2
46.6
With R$3bn in cash available for acquisitions, investors are already anticipating potential targets and awaiting for bold M&A moves in 2019, mostly after GNDI’s recent acquisitions. In addition to the most obvious N/NE regions, HAPV is clearly looking for targets in the S, SE and MW regions – after GNDI’s acquisition of GreenLine, we believe it’s less likely to see HAPV coming to SP soon.
Lower price caps for Individual health plans -> ST negative, but LT positive for HAPV ANS is working on the new methodology for the calculation of max price hikes for Individual health plans, and we believe it will come down, closer to the 7-8% range. While ST negative for all the operators, it’ll certainly accelerate consolidation moves. Good for those better prepared to capture that, like Hapvida.
2017 VDA
17.4%
Age Adjustment
1.8%
Adj VDA
15.3%
FGE
3.7%
IVDA
11.6%
Adjusted CPI
2.9%
IVDA Weight
80%
IPCA* Weight
20%
Readjustment
9.8% 163
Telecom and Technology
Sector consolidation I: Oi is a unique strategic asset ✓ Once Oi’s debt restructuring is concluded, it would be natural to expect M&A talks to resurface. - The company will be a full corporation with 71% of its capital in the hands of former bondholders and distressed debt investors. - We believe these investors may favor a sale to a strategic player, assuming a reasonable offer is made.
✓ Oi is also a unique strategic asset. - With integrated operations and scale, it is probably the best (if not the only) alternative for newcomers looking to enter Brazil’s telecom market.
- It is also attractive for existing players looking to expand and complement their operations in the country. - Equally important, by buying Oi current players would prevent a new, large telecom player from entering Brazil´s already competitive telecom market.
- When a unique asset is up for sale and there is demand, M&A is the logical outcome.
✓ A strategic asset and a few possibilities. - Infrastructure-wise, no one has Oi’s reach and size, as the company is present with copper and fiber fixed infrastructure in 26 of Brazil’s 27 states, whilst also operating a nationwide mobile network.
- It provides all types of services (fixed and mobile voice telephony, broadband and pay-TV) and serves all types of clients (residential fixed and mobile, small- and medium-size businesses, large businesses and the government). Oi ended October with 58.5 million clients.
- A potential merger between Oi and TIM has been speculated countless times by the media in the past. And the reason for this is that they have extremely synergic network and services. While TIM has strong mobile operations, Oi controls extensive copper and fiber infrastructure across the country. We believe synergies could reach as much as R$30bn, the bulk of it coming from lower capex.
165
Sector consolidation II: Nextel has valuable spectrum & clients ✓ Nextel is the other attractive asset which is up for sale - Nextel Brazil is an interesting target for any of the big three mobile operators in Brazil: TIM, Vivo and Claro. With the new spectrum cap regulation having been recently approved by Anatel, we believe the company should be sold in the near future.
- Nextel Brazil is the 5th largest wireless carrier in Brazil, with 3.1mn subscribers and 1.3% overall market share. Its subscriber base mostly comprises postpaid users (96% of its customers, or 3mn subscribers) with an ARPU of R$56 in 2Q18 (vs. R$28 for Vivo, R$22 for TIM and R$17 for Claro). Its share of the postpaid market is 3%. TIM has 20%, Vivo 41% and Claro 23%.
✓ The company’s spectrum portfolio has a lot of value for all telco’s (especially TIM) - The company’s spectrum portfolio includes 20Mhz of national spectrum in the 1.9/2.1GHz frequency band, 30MHz in the 1.8GHz frequency band in SP & another 20MHz in the 1.8GHz frequency band in RJ, ES, MG and the North & Northeast regions.
- Nextel’s 1.8MHz frequency (formerly used for 2G services) has a lot of value for companies looking to increase their 4G/LTE coverage (all other telcos are refarming their 1.8GHz frequency for 4G use) and its 1.9/2.1GHz frequency can be used for 3G services.
166
Sector consolidation II: Nextel has valuable spectrum & clients ✓ Spectrum alone is likely worth at least R$2.7bn - In December 2010, Nextel paid R$1.2bn for 20Mhz national spectrum in the 1.9/2.1Ghz frequency band, and then forked out an additional R$200mn for 20Mhz spectrum in the 1.8Ghz band in part of the Southeast, North and Northeast regions.
- At the end of 2015, it paid another R$455mn for 30Mhz spectrum in the 1.8Ghz band in São Paulo, for a total investment of R$1.9bn in 3G and 4G spectrum in a five-year window.
- If we adjust these payments by past inflation, this spectrum is worth at least R$2.7bn.
✓ Clientbase is also valuable for current players - Nextel Brasil has 3.1mn 3G/4G subscribers, 96% of them postpaid. Its client base generated R$2.6bn in sales in 2017 and R$1.15bn in 1H18 (R$2.3bn annualized). Full-year 2017 EBITDA was -R$74mn, improving to +R$2mn in 1H18.
- The incremental margin of Nextel’s clients when plugged into the operations of existing telecom providers should be very high. These companies probably won’t have to make any important adjustments to their structures to absorb Nextel’s 3mn clients (Vivo has 75mn clients, Claro 59mn, TIM 56mn). The commercial structure, networks, support overhead, systems are all in place and operating.
- The incremental margin of Nextel’s clients when plugged into the operations of existing telecom providers should be very high. These companies probably won’t have to make any important adjustments to their structures to absorb Nextel’s 3mn clients (Vivo has 75mn clients, Claro 59mn, TIM 56mn). The commercial structure, networks, support overhead, systems are all in place and operating.
✓ Nextel Brazil seems more attractive for TIM - TIM has less spectrum than its competitors and a weaker position in postpaid. Claro could also be a strong bidder. At a June event in New York, senior management openly expressed their interest in the asset. Claro´s share in the postpaid segment is a relatively small at 23%.
- Vivo, on the other hand, may face some regulatory/anti-trust constraints as its share of Brazil´s postpaid market is a sizable 41% and it is particularly strong in São Paulo, home to most of Nextel Brasil’s 3mn clients
167
Regulatory environment: Important pipeline, but uncertain timeline ✓
After being approved in the Lower House and by the Senate's thematic commission, the Telecom Bill (PL#79), that changes fixedline concessions to authorizations, got bogged down in the Senate in a dispute involving Senate leaders, opposition parties and the Supreme Court.
✓ ✓ ✓
Recently, in a surprising turn of events, the bill was approved in the Senate’s Cience & Technology commission.
✓
In our base case scenario: the bill will most probably only be voted next year, once the new government takes office and a new President is elected for the Senate. Having said this, there is still a 2-week window before Congress enters its end of year recess where we could see positive surprises
At this point, the only thing that is needed for the Bill to be sanctioned is the approval of the Senate’s plenary (by simple majority). While this looks like a simple task, for unknown reasons, the Senate’s President, Eunício de Oliveira hasn’t been putting it up for voting in plenary.
Telefonica estimated savings if concession rules change
Oi estimated savings if concession rules change In BRL mn
1) End of concession fees (1% of concession revenues)
85
In BRL mn 1) End of concession fees (1% of concession revenues)
151
2) Savings with public phones
100
2) Savings with public phones
300
3) Savings from less harsh requirements
150
3) Savings from less harsh requirements
300
4) Rental gains from real estate assets under concession Estimated market value of real estate assets % of the value of the assets effectively rented Value of assets rented rental fee per year rental gains 6) Total estimated gains from change in regulation
4) Rental gains from real estate assets under concession 7.294 70% 5.106 6% 306 641
Estimated market value of real estate assets % of the value of the assets effectively rented Value of assets rented rental fee per year rental gains 6) Total estimated gains from change in regulation
Contribution to EBITDA margin (based on 2015 net revenues)
+1,5%
Contribution to EBITDA margin (based on 2015 net revenues)
Contribution to overall EBITDA (based on 2015 EBITDA)
+5,0%
Contribution to overall EBITDA (based on 2015 EBITDA)
Contribution to overall OpFCF (2015 EBITDA - Capex)
Source: BTG Pactual estimates
18.235 50% 9.118 6% 547 1.298 +4,8% +18,5%
+14,6%
Source: BTG Pactual estimates
168
Linx is our top pick ✓ Omni-platform is a reality; This is where the next leap will come from ￚ Linx has been investing heavily in its Omni platform since its IPO in 2013. A platform designed to help retailers improve their customers' shopping experience with seamless integration between physical stores, virtual sales channels, retailers’ headquarters and tax authorities. ￚ And it seems that the company is finally in a position to start selling these solutions to the market in a competitive way. The 2 most important solutions OMS & E-commerce (website & marketplace integration) are already attracting relevant retailers.
ￚ Linx has already been hired to deploy its OMS or E-commerce solutions for the following big retailers: Centauro, Hering, Drogarias São Paulo, Restoque, Boticário, Ri-Happy. ￚ Given the complexity of the solutions, we could be talking about relevant contracts for Linx. At this point, contribution to topline is still small (the solutions are still being deployed), but we believe they can grow to become relevant revenue generators for the company in the future.
✓ Payments: taking advantage of unique position as Brazil’s leading software management company for retailers ￚ Being the largest technology player when it comes to management software for Retail in Brazil, Linx processes a relatively large amount of payments transactions for retailers using the company’s POS solutions. ￚ The company is looking for alternatives to monetize the payments transactions processed within its client base. This is the goal of the partnership with REDE. ￚ Linx basically helps REDE convert a retailer that uses some other acquirer into becoming a REDE client and receives a % of the MDR charged by REDE from this client. ￚ The second strategy, which is more incipient, and similar to what we have been seeing in more developed countries, Linx and REDE are developing a model so that they can access micro retailers and micro service providers and offer an integrated solution that combines acquiring and technology for business management (POS + simplified ERP). ￚ Last but not least, there seems to be an incipient discussion inside the company on the possibility of becoming a sub-acquirer. 169
The reasons why we like Linx… ✓ There’s still room to grow on the Traditional Business (POS/ERP + Cross-selling initiatives): ￚ Even though Brazil’s macroeconomic scenario has been extremely challenging for some time (with retailers closing stores, no new clients being added, etc), the company has grown organically some 9/10% per year (down from mid-teens some years ago). ￚ As economic activity picks up, store openings should accelerate and new clients should be added. In addition, one specific crossselling initiative (electronic invoicing – NFC-e) should prove a strong tailwind for the business in the coming years. ￚ Until the end of 2019, all retailers will be required to have electronic invoicing (this is a regulatory obligation). Linx sells the solution for R$50 per store and its clients own 120,000 stores. Since only ~30,000 stores already have NFC-e, we would expect some R$50mn of incremental revenues (some 8% of revenues) in the next years. Margins of the solution are very high (probably close to 100%), which makes it even more relevant in terms of incremental EBITDA generation. ￚ We expect organic revenue growth to accelerate in the coming years as the traditional businesses improve.
✓ M&A’s: there’s room for more! ￚ Since its follow-on in October 2016, the company acquired 7 companies, deploying R$320mn in this transactions - the average multiple paid on average was 3.4x EV/Sales. In addition to addition to growing the company, these acquisitions brought in new technology to Linx, reinforcing their portfolio of solutions. ￚ Linx is still sitting on a net cash position of R$217mn, which it could deploy in more acquisitions, generating more value through M&A’s for shareholders
170
Utilities
Highlights for 2019 ✓ After relevant M&A deals during 2018 (Eletropaulo, Cesp, Eletrobras’ discos) and general elections, we expect advances on the regulatory agenda in 2019 with a new structure for the sector coming sooner than expected.
Coverage SANEPAR SABESP AES TIETE EDP DO BRASIL COPEL LIGHT OMEGA COPASA ALUPAR ENGIE BRASIL TRANSMISSÃO PAULISTA CESP TAESA EQUATORIAL ENERGISA CEMIG
Relevant topics Conclusion of GSF Proposal Better hydrology, leading to lower spot prices: GSF still expected @ 88% Potential privatizations ahead Consolidation of the distribution segment CP33 to boost the free market State elections: a positive trigger or a non-event?
172
IRR & Utilities ERP ✓ IRR
✓ Utilities ERP
– After the elections period, the Utilities Average IRR is now close to 8%, reflecting the decrease on Brazilian 10y Real Rates, which dropped to 4.5%.
– We see the Utilities ERP now close to 4%, with a small volatility during the year on the Top 5 IRR – Bottom 5 IRR, always varying between 6.0% and 4.5%.
16%
8.0%
14%
7.0%
12%
6.0%
10%
5.0%
8%
4.0%
6%
3.0%
4%
2.0%
2%
1.0%
0% Oct-12 Apr-13
Oct-13 Apr-14
Oct-14 Apr-15
Average IRR
Oct-15 Apr-16 Median IRR
Oct-16 Apr-17 10y Real Rates
Oct-17 Apr-18
Oct-18
0.0% Oct-12 Apr-13
Oct-13 Apr-14
Oct-14 Apr-15 Utility ERP
Oct-15 Apr-16
Oct-16 Apr-17
Oct-17 Apr-18
Oct-18
Top 5 IRR - Bottom 5 IRR
173
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19
Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
Southeast
Northeast
Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19
Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19
Reservoir Levels – Historical
✓ After five years of intense draught the reservoirs seems to be recovering their seasonal regularity.
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
South
North
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
174
Reservoir Levels 2019 According to the most recent forecast made by CCEE (Energy Trading Chamber), we can expect a strong recovery in the Northeast region reservoirs, allowing not only the Southeast region to regain storable energy, but also the whole system to improve the metabolism of reservoirs depletion during the dry months.
Southeast
South
Northeast
North
We expect a return to the historical regular steadiness for the region, with a consistent recovery in important reservoirs such as Furnas, Nova Ponte and Emborcação.
With an almost unanimous scenario of El Niño we expect precipitations above the long term average on the main southern watersheds, leaving the region with a secondary role of energy exporter.
After years with recurrent difficulties on recovering its reservoirs we expect a decent improvement, also the profile of generation complementarity between hydro and wind was a key factor to this recovery.
We expect an enlargement on the region role as main exporter of energy with the evolution of Belo Monte and the full availability of Madeira’s hydro generation transmission lines.
175
Dec-19
Oct-19
Nov-19
Sep-19
Jul-19
Aug-19
Jun-19
Apr-19
May-19
Mar-19
Jan-19
Feb-19
Dec-18
Dec-19
Oct-19
Nov-19
Sep-19
Jul-19
Aug-19
Jun-19
Apr-19
May-19
Mar-19
Jan-19
Feb-19
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Dec-18
Dec-19
Oct-19
Nov-19
Sep-19
Jul-19
Aug-19
Jun-19
Apr-19
May-19
Mar-19
Jan-19
Feb-19
Dec-19
Oct-19
Nov-19
Sep-19
Jul-19
Aug-19
Jun-19
Apr-19
May-19
Mar-19
Jan-19
Feb-19
Dec-18
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Dec-18
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
Top Picks: Equatorial ✓ Incorporating Cepisa – After incorporating Cepisa in our model, we’ve updated our TP to R$79/share for YE19. – We incorporate its extraordinary tariff review in 2019 and assume EQTL will be able to implement its full turnaround.
✓ Celpa’s tariff review – We see Celpa’s tariff review as a potential upside for EQTL. – The tariff review will help reset volumes and we model for a RAB of R$4.9bn.
✓ Valuation – We see EQTL trading at 2.2x EV/RAB, but we still see it as one of the best carry names in the sector
176
Top Picks: Cemig ✓ Political upside – We believe Cemig still has significant upside considering the current political scenario – While a privatization may still be a long shot, the nomination of a pro-market CEO could be the next trigger for Cemig. – Tackling costs and implementing its full divestment plan could are the next milestones.
✓ What if the privatization is succesfull? – In a scenario where Cemig is privatized, we believe is disco could be sold above 2x EV/RAB, which would translate into a R$19/share TP.
– The current fiscal deficit in the State of Minas Gerais poses as an incentive for the Governor to pursue the sale of Cemig
177
Top Picks: Light ✓ An offer around the corner? – We still see a high probability that it’ll be sold. – Due to its high leveraged profile, any significant improvement in operations can have a big impact on equity.
✓ Crucial timing – We acknowledge that we’d rather see the deal coming back sooner than later, as Light’s deteriorating Operations could lead to potential value destruction.
✓ Valuation – Assuming the same deal structure with GP, if Light is valued at 1.3x EV/RAB, post the R$2bn capital increase, it could be worth ~R$26/share.
178
Brazil Follow the Money: Allocations are low
180
G.E.M Weighted Funds AuM and and Allocations Allocations - GEM Weighted AuM Weighted Funds Funds 700.000 700.000
16% 16%
14% 14% 12% 12%
600.000 600.000 500.000 500.000
10% 10% 8%8%
400.000 400.000 300.000 300.000
6%6% 4%4%
200.000 200.000 100.000 100.000
00 13-Dec-11 6-Dec-11
Allocation in Brazil (%) Allocation in Brazil (%)
18% 18%
Equity AuM (USD mn) Equity AuM (USD mn)
800.000 800.000
13-Dec-12 6-Dec-12
13-Dec-13 6-Dec-13
13-Dec-14 6-Dec-14 AuM AuM
13-Dec-15 6-Dec-15
13-Dec-16 6-Dec-16
13-Dec-17 6-Dec-17
2%2% 0%0% 13-Dec-18 6-Dec-18
Allocation Allocation in in Brazil Brazil
Evolution of allocations among the main G.E.M economies G.E.M Dez-09 Dez-10 Dez-11 Dez-12 Dez-13 Dez-14 Dez-15 Dec-16 May-17 Dec-17 May-18 Oct-18
China 15.3% 14.6% 15.6% 15.4% 17.3% 19.5% 21.9% 20.6% 22.5% 24.1% 27.7% 25.2%
India 7.6% 8.1% 6.1% 7.6% 7.7% 10.8% 11.3% 10.3% 10.0% 9.8% 9.3% 9.3%
Brazil 16.7% 15.9% 16.4% 11.9% 11.0% 9.1% 6.0% 8.6% 7.5% 7.2% 6.5% 8.0%
South Korea 10.6% 11.7% 12.9% 12.6% 12.8% 10.2% 10.0% 10.5% 11.8% 11.2% 11.6% 10.9%
Taiwan 9.2% 8.9% 8.0% 7.4% 8.5% 9.6% 9.7% 9.7% 10.2% 9.2% 9.5% 10.0%
South Africa 6.3% 6.3% 7.1% 6.4% 6.1% 6.9% 6.4% 6.9% 6.2% 7.0% 6.1% 5.4%
Russia 7.2% 6.9% 6.5% 6.9% 7.2% 3.2% 4.0% 5.9% 4.7% 4.9% 4.8% 5.3%
Mexico 5.0% 4.9% 3.9% 5.0% 4.5% 4.0% 4.4% 3.6% 3.5% 3.1% 2.7% 2.9%
Turkey 2.9% 2.7% 2.0% 3.0% 1.9% 2.4% 2.0% 1.7% 1.8% 1.7% 1.5% 1.2%
Indonesia 2.3% 2.8% 3.0% 2.5% 1.6% 2.9% 2.9% 3.1% 2.8% 2.7% 2.3% 2.4%
Source: EPFR, BTG Pactual Estimates
180
181
Global Weighted Funds AuM and and Allocations Allocations - Global Weighted AuM Weighted Funds Funds 3.500.000 3.500.000
1,4% 1,4%
Allocation in Brazil (%) Allocation in Brazil (%)
1,6% 1,6%
Equity AuM (USD mn) Equity AuM (USD mn)
4.000.000 4.000.000
3.000.000 3.000.000
1,2% 1,2%
2.500.000 2.500.000
1,0% 1,0%
2.000.000 2.000.000
0,8% 0,8%
1.500.000 1.500.000 1.000.000 1.000.000
0,6% 0,6%
500.000 500.000 00 13-Aug-15 13-Jan-16 13-Jun-16 6-Aug-15 6-Dec-15 6-Apr-16 6-Aug-16 13-Nov-16 6-Dec-16 AuM AuM
0,4% 0,4% 0,2% 0,2%
13-Apr-17 6-Apr-17
0,0% 0,0% 13-Sep-17 13-Feb-18 13-Jul-18 13-Dec-18 6-Aug-17 6-Dec-17 6-Apr-18 6-Aug-18 6-Dec-18
Allocation in Brazil Allocation in Brazil
Evolution of allocations among continents (Global funds ex-USA) Global Latin America Dez-09 4.6% Dez-10 3.8% Dez-11 3.7% Dez-12 3.1% Dez-13 2.4% Dez-14 1.9% Dez-15 1.4% Nov-16 2.8% Jan-17 2.7% May-17 2.6% Oct-17 2.1% Dec-17 2.1% May-18 1.6% Oct-18 1.4%
Emerging Asia 8.5% 9.1% 8.3% 8.0% 7.0% 7.6% 7.7% 9.7% 9.2% 9.3% 8.1% 8.4% 8.0% 7.3%
Developed Asia 22.8% 23.6% 23.1% 22.8% 23.6% 23.4% 25.1% 25.7% 25.6% 24.4% 26.2% 26.3% 26.8% 26.7%
Emerging Europe 1.4% 0.8% 0.9% 1.0% 1.2% 0.7% 0.5% 0.9% 1.1% 1.0% 0.9% 0.9% 0.7% 0.7%
Developed Europe 55.8% 55.1% 55.6% 55.4% 57.1% 57.5% 56.3% 50.9% 52.5% 53.9% 54.3% 54.1% 53.9% 54.6%
Middle East 0.6% 0.5% 0.9% 1.1% 1.1% 1.0% 1.4% 1.3% 1.1% 1.1% 0.9% 0.9% 0.8% 0.7%
Africa 0.8% 0.8% 0.9% 0.7% 0.6% 0.6% 0.5% 0.6% 0.5% 0.5% 0.4% 0.4% 0.5% 0.4%
North America 3.1% 4.4% 3.7% 4.6% 4.7% 5.5% 5.3% 6.3% 5.7% 4.6% 4.5% 4.6% 4.9% 5.2%
Source: EPFR, BTG Pactual Estimates
181
182
LatAm Weighted Funds
35.000 35.000
70% 70%
30.000 30.000
65% 65%
25.000 25.000
60% 60%
20.000 20.000
55% 55% 15.000 15.000
50% 50%
10.000 10.000
45% 45%
5.000 5.000 00 13-Dec-11 6-Dec-11
13-Dec-12 6-Dec-12
13-Dec-13 6-Dec-13
13-Dec-14 6-Dec-14 AuM
13-Dec-15 6-Dec-15
13-Dec-16 6-Dec-16
13-Dec-17 6-Dec-17
Allocation (%) Brazil (%) in Brazil Allocation in
Equity mn) (USD mn) AuM (USD Equity AuM
AuM and Allocations - LatAm Weighted Funds
40% 40% 13-Dec-18 6-Dec-18
Allocation in Brazil
Evolution of allocations among Latin America countries LatAm Dez-09 Dez-10 Dez-11 Dez-12 Dez-13 Dez-14 Dez-15 Dec-16 May-17 Dec-17 Apr-18 May-18 Sep-18 Oct-18
Argentina 1.0% 1.1% 0.9% 0.9% 1.3% 1.3% 1.1% 1.5% 2.5% 3.5% 3.6% 3.2% 2.7% 2.5%
Brazil 67.2% 65.5% 65.4% 57.8% 53.6% 50.5% 43.1% 56.0% 53.7% 56.4% 56.5% 54.6% 53.3% 60.3%
Chile 4.4% 5.3% 6.5% 7.8% 8.4% 8.9% 9.8% 8.0% 8.4% 8.8% 7.1% 7.8% 7.3% 6.5%
Colombia 0.6% 1.0% 1.9% 2.7% 3.9% 3.8% 2.3% 2.0% 2.3% 1.8% 1.8% 2.0% 1.9% 1.6%
Mexico 20.2% 20.0% 17.9% 22.2% 23.6% 25.8% 35.9% 23.9% 25.4% 22.0% 22.9% 23.6% 26.7% 21.1%
Panama 0.6% 0.5% 0.7% 1.0% 1.2% 0.7% 0.4% 0.5% 0.4% 0.4% 0.4% 0.4% 0.3% 0.2%
Peru 2.1% 2.7% 2.9% 4.0% 4.2% 4.6% 3.5% 4.1% 3.1% 3.4% 3.3% 3.6% 3.7% 3.6% Source: EPFR, BTG Pactual Estimates
182
183
BRIC Weighted Funds AuM and Allocations - BRIC Weighted Funds 40%
35%
25.000
30% 20.000
25%
15.000
20% 15%
10.000
10% 5.000 0 6-Dec-12 13-Dec-12
5% 6-Dec-13 13-Dec-13
6-Dec-14 13-Dec-14
6-Dec-15 13-Dec-15 AuM (mn)
6-Dec-16 13-Dec-16
6-Dec-17 13-Dec-17
Allocation in Brazil (%)
Equity AuM (USD mn)
30.000
0% 6-Dec-18 13-Dec-18
Allocation in Brazil
Evolution of allocations among BRIC countries BRIC Dez-09 Dez-10 Dez-11 Dez-12 Dez-13 Dez-14 Dez-15 Dec-16 May-17 Dec-17 Apr-18 May-18 Sep-18 Oct-18
China 30.6% 32.0% 35.1% 37.3% 36.3% 43.8% 53.2% 44.8% 50.8% 50.9% 49.9% 51.5% 56.6% 52.2%
India 16.5% 16.3% 12.0% 14.9% 16.6% 19.9% 19.0% 17.2% 17.8% 18.0% 17.0% 16.7% 15.1% 15.4%
Russia 16.2% 14.8% 15.6% 16.2% 18.8% 9.1% 10.5% 14.4% 12.5% 13.5% 13.9% 13.9% 10.7% 11.0%
Brazil 31.4% 35.0% 33.3% 27.6% 22.5% 20.7% 12.6% 17.5% 16.5% 14.7% 16.5% 13.9% 13.4% 17.0%
Source: EPFR, BTG Pactual Estimates
183
184
Domestic inflow into equities Equity Evolution in the Brazilian Mutual Fund Industry vs. Domestic Interest Rates
4,122 22.0%
4000
18.0% 18.3%
AuM (R$bn)
14.8%
2500 15.5% 11.3% 9.9% 854
10.6%
717 893 11.1% 940
11.6%11.4% 1,420 981
1,651
1,500
2,246
2,362
2,557
1,950 1,858
2,104
17%
14.3% 14.0%
1,167
13%
8.7%
11.9% 9.1%
500 362
0
19%
2,803
15%
14.9%
2000
1000
21%
3,269
3000
1500
23%
3,776
3500
25%
334
356
311
321
331
303
9.8%
11% 9%
8.5%
7% 330
Equity Share of Mutual Funds, Selic Rate (% )
4500
405
255 278 224 88 97 113 133 221 80 99 5% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Oct-18 Fixed Income AuM (R$bn)
Equity AuM (R$bn)
Equity Share
End of Period Selic Rate
Source: Anbima, BTG Pactual estimates * One-off launchings: Oct/05 – launching of PIBB (IBrX50) rising R$1.3bn; Jan/06 – launching of FIA Fundamentalista with R$1.0bn.
184
185
Ibovespa ADTV ✓ So far in December, daily Bovespa volumes averaged R$15.8bn, 63% above December 2017.
18.0 18,0 16.0 16,0 14.0 14,0 12.0 12,0 10.0 10,0 8.0 8,0 6.0 6,0 4.0 4,0 2.0 2,0 0.0 0,0 Jul-11 Aug-11
Mar-12 Apr-12
Nov-12 Dec-12
Jul-13 Aug-13
Mar-14 Apr-14
Nov-14 Dec-14
Jul-15 Aug-15
Mar-16 Apr-16
Nov-16 Dec-16
Jul-17 Aug-17
Mar-18 Apr-18
Nov-18 Dec-18
Source: Bovespa, Bloomberg, BTG Pactual
185
Ibovespa: Looks attractive, and under-owned
Ibovespa trading below its historical average ✓ The Ibovespa is now trading at 11.7x 12-month forward P/E, below its historical average.
19x
Brazil’s 12-month forward P/E
17x 15x 13x 11.7
11x 9x
Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 Jan-18 May-18 Sep-18
7x
Average
+1 Std Dev
-1 Std Dev
Source: Economática, BTG Pactual estimates
P/E 12MF (ex-Petro & Vale)
187
The premium to hold equities should grow, as interest rates fall ✓ The premium to hold equities stands at 5.5%, above its historical average, with real interest rates hovering around 3%.
Brazil’s premium to hold equities 10% 8% 6%
5.5%
4% 2%
1.9%
0% -2% -4% -6% Sep-06 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 Jan-18 May-18 Sep-18
-8%
Real Earnings Yield (Ex-Petro & Vale)
AVERAGE
Source: Economática, BTG Pactual estimates
+1 Std Dev
-1 Std Dev
188
The Ibovespa looks cheap in USD terms ✓ In spite of last two years rally, in USD terms the Ibovespa is trading at quite depressed levels.
4.50 78000
4.00
68000
3.50 3.00
58000
2.50 48000
29,000
4.4
27,000
4.2
4
25,000
3.8 23,000 3.6
2.00 38000
1.50
28000
1.00
18000
0.50
8000
0.00
IBOV Index (USD)
IBOV Index (BRL)
USD/BRL
21,000
3.4
19,000
3.2
17,000
3
IBOV Index (USD)
USD/BRL
189
Long positive cycles can yield outstanding performances ✓ We looked at an Ibovespa series (in USD) dating back to the 1980s (chart 1 below) and identified lengthy rallies, usually triggered by key political events that drove the Ibovespa to post outstanding performances.
✓ The impeachment of President Dilma may have started a new cycle. 100,000
+19x
10,000
+30x
Impeachment of President Dilma
Election of President Lula + Letter to Brazilians
+16x 1,000
Impeachment of President Collor End of Dictatorship+ Plano Cruzado
Source: BTG Pactual and Bloomberg
01/01/2018
01/01/2017
01/01/2016
01/01/2015
01/01/2014
01/01/2013
01/01/2012
01/01/2011
01/01/2010
01/01/2009
01/01/2008
01/01/2007
01/01/2006
01/01/2005
01/01/2004
01/01/2003
01/01/2002
01/01/2001
01/01/2000
01/01/1999
01/01/1998
01/01/1997
01/01/1996
01/01/1995
01/01/1994
01/01/1993
01/01/1992
01/01/1991
01/01/1990
01/01/1989
01/01/1988
01/01/1987
01/01/1986
01/01/1985
01/01/1984
01/01/1983
01/01/1982
01/01/1981
01/01/1980
100
190
Ibovespa recent performance
In 2018, IBOV performed better than other LatAm indexes Ibovespa performance 2018 29,000
Stock market performance YTD (in US$)
Dow Jones
-2.4%
27,000
S&P 500
-2.5%
25,000
IBOV
-2.7%
23,000
Colombia IGBC
21,000
Peru SPBLPGPT
19,000
Chile IPSA MEXBOL
17,000
-6.0% -7.5% -16.6% -18.3%
Argentina MERVAL -49.5%
-60% -50% -40% -30% -20% -10% Ibovespa performance (2008 – 2018)
0%
Stock market performance in 2017 (in US$)
S&P 500
7.7%
40,000
Dow Jones
7.1%
35,000
Colombia IGBC
6.2%
30,000
MEXBOL
50,000 45,000
25,000
IBOV
20,000 15,000 10,000 5,000 0
1.3%
Peru SPBLPGPT Chile IPSA
-0.8% -5.6% -13.3%
Argentina MERVAL-49.2%
-60% -50% -40% -30% -20% -10% 0% 10% 20% Source: BTG Pactual, Bloomberg and Economatica
192
Source: BTG Pactual, Bloomberg and Economatica
Education
Healthcare
-30.0
Airlines & Mileage
-20.0
Food & Beverage
-1.7
Real Estate
-0.1
Telco & Tech
-10.0
Infrastructure
4.9
Agribusiness
10.0
Capital Goods
15.0
Retail
50.0
Steel
18.6
Ibrx-50
20.0
IBOV
23.1
Oil, Gas & Chemicals
24.4
Utilities
30.0
Financials ex-Banks
39.1
Mining
40.4
Car Rental & Logistics
40.0
Banks
Pulp, Paper & Wood
Performance by sector YTD in 2018 YTD (%)
37.8 30.8
14.5 9.8
4.3
0.0
-5.6 -11.8
-21.5 -23.7
-40.0 -30.0
-50.0 -39.8
193
Brazilian stocks performances YTD in 2018 Name Irbbrasil Re Magaz Luiza Eletropaulo Suzano Papel Cemig SLC Agricola B2W Digital Locamerica Banrisul Cesp Sul America Petrobras Celesc Porto Seguro Fibria Gol Direcional Somos Educa Linx Petrobras Brasil Santander BR Petrobras BR CPFL Energia Tegma Copasa Copel ItauUnibanco Natura Engie Brasil Brasilagro Vale Duratex Randon Part
Ticker YTD Performance (%) IRBR3 134.5 MGLU3 109.4 ELPL3 104.3 SUZB3 102 CMIG4 97.7 SLCE3 82.9 BTOW3 81.2 LCAM3 79.1 BRSR6 66 CESP6 59.4 SULA11 58.9 PETR3 58.1 CLSC4 57.7 PSSA3 57.6 FIBR3 50.9 GOLL4 50.7 DIRR3 49.4 SEDU3 47.6 LINX3 47.1 PETR4 46.3 BBAS3 44.5 SANB11 43.6 BRDT3 42.6 CPFE3 41.6 TGMA3 37.8 CSMG3 36.1 CPLE6 35.7 ITUB4 34.5 NATU3 34.4 EGIE3 33.1 AGRO3 30.9 VALE3 30.8 DTEX3 29.9 RAPT4 29.6
Name Cvc Brasil Bradesco Localiza Tupy Gerdau Met Gerdau Rumo S.A. Taesa Santos Brp B3 JBS Tran Paulist Cyrela Realt Qgep Part Braskem Lojas Americ Eztec Ibovespa Ibrx 50 Eneva Lojas Renner Movida Equatorial Cia Hering Usiminas Sid Nacional BBSeguridade Usiminas P.Acucar-Cbd Telef Brasil Even Wilson Sons Abc Brasil CPFL Renovav
Ticker YTD Performance (%) CVCB3 28.2 BBDC4 28 RENT3 27.7 TUPY3 27.2 GOAU4 27 GGBR4 26.9 RAIL3 26.4 TAEE11 24.6 STBP3 24.6 B3SA3 24.4 JBSS3 23 TRPL4 21.5 CYRE3 19.7 QGEP3 18.6 BRKM5 18.4 LAME4 17.6 EZTC3 17 IBOV 15 IBXL 14.5 ENEV3 13.7 LREN3 13 MOVI3 11.6 EQTL3 11.4 HGTX3 9.8 USIM3 9.8 CSNA3 8.2 BBSE3 7.3 USIM5 6.5 PCAR4 6.4 VIVT4 6.3 EVEN3 5.9 WSON33 5.8 ABCB4 5.2 CPRE3 4.9
Name Bk Brasil Embraer Aliansce Energias BR Marcopolo Iochp-Maxion BR Malls Par Alupar Multiplan Iguatemi Valid Sao Martinho Arezzo Co Klabin S/A Sanepar Weg Light S/A Klabin S/A Omega Ger Totvs Tim Part S/A Sabesp Hypera Mills Le Lis Blanc Lopes Brasil Alliar AES Tiete E Odontoprev MRV Ecorodovias BR Propert M.Diasbranco Cosan
Source: BTG Pactual, Bloomberg and Economatica
Ticker YTD Performance (%) BKBR3 4.9 EMBR3 4.6 ALSC3 4.2 ENBR3 4 POMO4 4 MYPK3 4 BRML3 3.9 ALUP11 3.2 MULT3 2.4 IGTA3 2.3 VLID3 0.4 SMTO3 -0.1 ARZZ3 -1 KLBN4 -2.6 SAPR4 -3.6 WEGE3 -5 LIGT3 -5.2 KLBN11 -5.2 OMGE3 -5.5 TOTS3 -5.6 TIMP3 -6.2 SBSP3 -6.4 HYPE3 -8.3 MILS3 -9.2 LLIS3 -10.6 LPSB3 -11.8 AALR3 -12.2 TIET11 -12.7 ODPV3 -13.7 MRVE3 -16.4 ECOR3 -16.5 BRPR3 -16.7 MDIA3 -16.9 CSAN3 -17.2
Name Cosan Helbor CCR SA Estacio Part Marfrig Imc S/A Gafisa Ambev S/A Multiplus Lojas Marisa JSL Vulcabras Biosev BR Brokers Rossi Resid Fleury RaiaDrogasil Sao Carlos Ultrapar Tecnisa Technos Wiz S.A BRF SA Smiles Anima Oi Kroton Ser Educa Oi Minerva Qualicorp Cielo Biotoscana
Ticker YTD Performance (%) CSAN3 -17.2 HBOR3 -18.9 CCRO3 -20.2 ESTC3 -20.6 MRFG3 -20.6 MEAL3 -20.7 GFSA3 -20.8 ABEV3 -22.4 MPLU3 -23.7 AMAR3 -25.1 JSLG3 -25.6 VULC3 -27.4 BSEV3 -27.9 BBRK3 -29.3 RSID3 -29.5 FLRY3 -30 RADL3 -30.8 SCAR3 -30.9 UGPA3 -32.6 TCSA3 -33.5 TECN3 -35.2 WIZS3 -36.3 BRFS3 -38 SMLS3 -39.6 ANIM3 -39.8 OIBR4 -46.3 KROT3 -46.3 SEER3 -47.3 OIBR3 -51.3 BEEF3 -51.7 QUAL3 -53.4 CIEL3 -57.9 GBIO33 -59.6
194
Source: BTG Pactual, Bloomberg and Economatica
20.0 14.2 8.2
Utilities
0.0 8.3
Oil, Gas & Chemicals
11.6
Food & Beverage
21.1
Agribusiness
26.8
Financials ex-Banks
26.9
Steel
29.1
Ibrx-50
32.1
IBOV
36.8
Telco & Tech
37.2
Banks
41.2
Pulp, Paper & Wood
40.0
Real Estate
Infrastructure
60.0
Retail
63.7
Capital Goods
69.0
Mining
Healthcare
80.0
Education
120.0
Airlines & Mileage
180.0
Car Rental & Logistics
Performance by sector in 2017 2017 (%)
165.7
160.0
140.0
114.7
100.0
79.5 61.0
51.3
0.4
195
Brazilian stocks performances in 2017 Name
Ticker
2017 Performance (%)
Name
Ticker
2017 Performance (%)
Ticker
2017 Performance (%)
Name
Ticker
2017 Performance (%)
Magaz Luiza
MGLU3
511
Even
EVEN3
55.1
Name Embraer
EMBR3
27.3
Engie Brasil
EGIE3
9.6
Locamerica
LCAM3
230.8
Hypermarcas
HYPE3
54.8
Ibovespa
IBOV
26.9
Petrobras
PETR4
8.3
Gol
GOLL4
216
Oi
OIBR4
54.2
Ibrx 50
IBXL
26.8
Tran Paulist
TRPL4
8.2
Rossi Resid
RSID3
166.3
Fibria
FIBR3
53.7
Totvs
TOTS3
25.8
BBSeguridade
BBSE3
6.9
Tegma
TGMA3
165.7
RaiaDrogasil
RADL3
51.3
Linx
LINX3
25
Energias BR
ENBR3
5.4
Arezzo Co
ARZZ3
129.8
Banrisul
BRSR6
51.1
Copasa
CSMG3
25
Mills
MILS3
5.4
Usiminas
USIM5
122
Iguatemi
IGTA3
50.7
Wilson Sons
WSON33
24.9
Cielo
CIEL3
4.9
Estacio Part
ESTC3
111.3
Terra Santa
TESA3
48.9
Aliansce
ALSC3
24.8
CCR SA
CCRO3
4.8
Rumo S.A.
RAIL3
109.8
Le Lis Blanc
LLIS3
46.9
Direcional
DIRR3
23.9
Sao Martinho
SMTO3
0.6
Randon Part
RAPT4
109.6
Marcopolo
POMO4
46.3
Sabesp
SBSP3
23.8
Cesp
CESP6
0.5
Cvc Brasil
CVCB3
107
Natura
NATU3
45.2
BR Malls Par
BRML3
23.1
Lojas Americ
LAME4
0.4
Qgep Part
QGEP3
106.8
P.Acucar-Cbd
PCAR4
44.8
Multiplan
MULT3
22.1
Unicasa
UCAS3
0
Localiza
RENT3
106.1
MRV
MRVE3
43.7
Equatorial
EQTL3
21.9
Petrobras
PETR3
-0.2
B2W Digital
BTOW3
105.8
Lopes Brasil
LPSB3
43.3
Lojas Marisa
AMAR3
21.6
Technos
TECN3
-1.4
SLC Agricola
SLCE3
102.7
Kroton
KROT3
41.8
Sul America
SULA11
21.4
Copel
CPLE6
-2.3
Iochp-Maxion
MYPK3
101.7
BR Propert
BRPR3
41.7
Gerdau Met
GOAU4
21.1
AES Tiete E
TIET11
-3.3
PDG Realt
PDGR3
90.8
Porto Seguro
PSSA3
41.3
Telef Brasil
VIVT4
17.5
Light S/A
LIGT3
-3.9
Cia Hering
HGTX3
81.6
Santos Brp
STBP3
41.2
Brasil
BBAS3
16.8
Tecnisa
TCSA3
-4
Imc S/A
MEAL3
80.1
B3
BVMF3
41
Eneva
ENEV3
16.8
Cemig
CMIG4
-5.6
Sao Carlos
SCAR3
75.1
Oi
OIBR3
38
Sanepar
SAPR4
15.6
JSL
JSLG3
-8.1
Ser Educa
SEER3
71
M.Diasbranco
MDIA3
37.5
Brasilagro
AGRO3
15.4
Profarma
PFRM3
-9.1
Lojas Renner
LREN3
70.8
Duratex
DTEX3
36.8
Gerdau
GGBR4
15.2
Wiz S.A
WIZS3
-9.6
Celesc
CLSC4
70.5
Abc Brasil
ABCB4
34.7
Klabin S/A
KLBN4
14.4
Minerva
BEEF3
-9.9
Tim Part S/A
TIMP3
69.5
Bradesco
BBDC4
33.5
Santander BR
SANB11
14.3
JBS
JBSS3
-13.7
Qualicorp
QUAL3
69.3
Ambev S/A
ABEV3
33.4
CPFL Renovav
CPRE3
14.2
Valid
VLID3
-15.6
Fleury
FLRY3
69
Helbor
HBOR3
32.7
Multiplus
MPLU3
13.4
CPFL Energia
CPFE3
-22.6
Eztec
EZTC3
64.4
Odontoprev
ODPV3
31.5
Ultrapar
UGPA3
12.4
Sid Nacional
CSNA3
-22.8
Vale
VALE3
63.7
Usiminas
USIM3
31.1
Positivo Tec
POSI3
12.3
BRF SA
BRFS3
-24.1
Tupy
TUPY3
63.4
Gafisa
GFSA3
30.7
Cosan
CSAN3
11.6
OGX Petroleo
OGXP3
-28.4
Weg
WEGE3
58.5
ItauUnibanco
ITUB4
30.6
Taesa
TAEE11
11.5
BR Brokers
BBRK3
-32.9
Dasa
DASA3
56.1
Cyrela Realt
CYRE3
29.6
Alupar
ALUP11
10.8
BR Insurance
BRIN3
-39.3
Ecorodovias
ECOR3
55.5
Braskem
BRKM5
28.7
Marfrig
MRFG3
10.7
Biosev
BSEV3
-39.4
Source: BTG Pactual, Bloomberg and Economatica
196
Valuation maps
Valuation Summary
Company Company Company
Ticker Ticker
Ticker Rating Rating ShareShare Rating ShareShareShare TargetTarget Upside ShareUpsideMkt Cap Target Mkt CapADTV Upside ADTV Performance MktPerformance Capin USD inADTV USD Currency Currency PricePrice Currency
Price
EV/EBITDAEV/EBITDA EV/EBITDA
(USD bn) (USD bn) (USD mn) (USD mn)1day 1day (USD 1month bn)1month(USD YTD mn) YTD2018E 2018E 2018E 2019E
P/E
P/E P/E Div. Yield Div. Yield Div.P/BV Yield
P/BV Net Debt (USDP/BV bn) Net Debt (USD Net bn) Debt/EBITDA Net Debt/EBITDA Net Debt/EBITDA Origin
2019E 2019E 2018E
2018E 2019E 2018E 2019E 2018E2019E2018E 2019E 2018E 2018E 2019E
2019E 2019E 2018E
2018E 2019E 2018E 2019E 2018E2019E2018E 2019E 2018E 2019E2018E
2019E 2019E
Oil Oil YPF YPF
YPFYPFUSUS YPF NeutUS Neutral ral
USDUSD Neutral 14,3614,36 USD18,5 18,5 14,36 29% 29% 5,6 18,55,6 14,46 14,46 29% 0%
0% 5,6 -7%
-7% -36%14,46-36%3,4x 3,4x 3,4x3,7x
3,7x 3,7x 21,0x
21,0x n.a. 21,0x
n.a. 0,8% n.a. 0,8% 0,8%
0,8%0,8% 0,7x
0,8x 0,8% 0,7x
7,90,8x0,7x
8,17,9 0,8x 2,0x8,1
2,0x 2,2x2,0x
Argent 2,2x 2,2x ina
Ecopetrol Ecopetrol Ecopetrol
ECECUSUS
USDUSDSell 18,6918,69 USD14,5 14,5 18,69 -22% -22% 38,4 14,5 38,4 30,85 30,85 -22%-2%
-2%38,4 -8%
-8% 34%30,8534%4,4x 4,4x 4,4x4,8x
4,8x 4,8x 9,1x
9,1x 10,0x9,1x 10,0x 3,3% 10,0x 3,3% 7,6%
3,3%7,6% 2,0x
1,9x 7,6% 2,0x
9,81,9x2,0x
9,09,8 1,9x 0,9x9,0
0,9x 0,9x0,9x
Col0,9x ombi 0,9xa
Canacol CanacolEnergy Energy Energy
CNECNECNCN CNEBuyCN Buy
CADCAD Buy 4,16 4,16 CAD5,5 5,5
0% 0,5 5%
5% -13%0,86 -13%5,8x 5,8x 5,8x3,9x
3,9x 3,9x 13,2x
13,2x 6,5x 13,2x
0,0%0,0% 1,9x
1,5x 0,0% 1,9x
0,31,5x1,9x
0,30,3 1,5x 2,0x0,3
2,0x 1,3x2,0x
Col1,3x ombi 1,3xa
-0,3% -0,3%-7,5% -7,5%-12,6% -12,6%4,4x 4,4x 4,4x3,9x
3,9x 3,9x 13,2x
13,2x 8,3x 13,2x 8,3x 8,3x
1,9x
1,5x 1,9x
1,5x1,9x
2,0x 1,3x2,0x
1,3x 1,3x
ECSelUSlSell
32% 4,16 32% 0,5 5,50,5 0,86 0,86 32% 0%
Median Median Median
6,5x 0,0% 6,5x 0,0% 0,0%
1,5x 2,0x
Chemicals Chemicals Chemicals Ultrapar Ultrapar Alpek Alpek MEXICHEM MEXICHEM MEXICHEM
UGPA3 SellSell
BRLBRLSell 49,3049,30 BRL44,0 44,0 49,30 -11% -11% 7,1 44,07,1 30,37 30,37 -11%-2%
-2% 7,1 16%
16% -43%30,37-43%12,2x 12,2x 12,2x9,9x
9,9x 9,9x 28,4x
28,4x 22,6x 28,4x 22,6x 1,1% 22,6x 1,1% 2,2%
1,1%2,2% 2,8x
2,6x 2,2% 2,8x
2,32,6x2,8x
2,42,3 2,6x 3,0x2,4
3,0x 2,5x3,0x
Brazi 2,5x 2,5xl
ALPEKA ALPEKAMMMMALPEKA BuyBuy MM
UGPA3 UGPA3
MXNMXN Buy 23,9923,99MXN37,0 37,0 23,99 54% 54% 2,5 37,02,5 3,38 3,38 54% 1%
1% 2,5 -10% -10% 1%3,38 1% 5,6x 5,6x 5,6x6,0x
6,0x 6,0x 8,1x
8,1x 10,8x8,1x 10,8x 1,0% 10,8x 1,0% 3,0%
1,0%3,0% 1,6x
1,5x 3,0% 1,6x
1,51,5x1,6x
1,21,5 1,5x 2,0x1,2
2,0x 1,8x2,0x
Mexi 1,8x 1,8x co
1% 5,3 0%
0% 3%11,11 3% 6,8x 6,8x 6,8x6,3x
6,3x 6,3x 21,8x
21,8x 13,0x 21,8x 13,0x 3,9% 13,0x 3,9% 7,9%
3,9%7,9% 2,0x
2,0x 7,9% 2,0x
2,52,0x2,0x
2,32,5 2,0x 1,9x2,3
1,9x 1,7x1,9x
Mexi 1,7x 1,7x co
-0,8% -0,8%2,7% 2,7%-20,9% -20,9%8,9x 8,9x 8,9x7,9x
7,9x 7,9x 18,3x
18,3x 16,7x 18,3x 16,7x 16,7x
2,2x
2,1x 2,2x
2,1x2,2x
2,5x 2,2x2,5x
2,2x 2,2x
MEXCHEM* MEXCHEM*MMMEXCHEM* MM BuyBuyMM MXNMXN Buy 51,5851,58MXN75,7 75,7 51,58 47% 47% 5,3 75,75,3 11,11 11,11 47% 1%
Median Median Median
2,1x 2,5x
Agribusiness Agribusiness Agribusiness SLC SLCAgrícola Agrícola Agrícola
SLCE3 SLCE3
SLCE3 NeutNeutral ral
BRLBRL Neutral 46,4646,46 BRL52,0 52,0 46,46 12% 12% 1,1 52,01,1 9,95 9,95 12% -5%
-5% 1,1 -15% -15%56%9,95 56%9,2x 9,2x 9,2x7,2x
7,2x 7,2x 11,5x
11,5x 11,1x 11,5x 11,1x 4,6% 11,1x 4,6% 5,4%
4,6%5,4% 1,7x
1,6x 5,4% 1,7x
0,21,6x1,7x
0,20,2 1,6x 1,2x0,2
1,2x 1,0x1,2x
Brazi 1,0x 1,0xl
São SãoMartinho Martinho Martinho
SMTO3 SMTO3
SMTO3 BuyBuy
BRLBRLBuy 18,8018,80 BRL27,0 27,0 18,80 44% 44% 1,7 27,01,7 4,22 4,22 44% -1%
-1% 1,7 -4%
-4% -15%4,22 -15%5,3x 5,3x 5,3x4,6x
4,6x 4,6x 13,2x
13,2x 9,7x 13,2x
9,7x 2,2% 9,7x 2,2% 5,7%
2,2%5,7% 2,0x
1,8x 5,7% 2,0x
0,61,8x2,0x
0,50,6 1,8x 1,4x0,5
1,4x 1,1x1,4x
Brazi 1,1x 1,1xl
Cosan Cosan
CSAN3 CSAN3
CSAN3 BuyBuy
BRLBRLBuy 33,4233,42 BRL54,0 54,0 33,42 62% 62% 3,5 54,03,5 14,84 14,84 62% 0%
0% 3,5 -3%
-3% -29%14,84-29%6,1x 6,1x 6,1x4,9x
4,9x 4,9x 12,4x
12,4x 9,9x 12,4x
9,9x -5,0% 9,9x -5,0% 7,5%
-5,0% 7,5% 0,6x
0,6x 7,5% 0,6x
3,60,6x0,6x
3,43,6 0,6x 3,1x3,4
3,1x 2,4x3,1x
Brazi 2,4x 2,4xl
Adecoagro Adecoagro Adecoagro
AGRO AGROUSUS AGRO BuyUS Buy
USDUSD Buy 7,09 7,09 USD12,0 12,0 69% 7,09 69% 0,8 12,00,8 3,17 3,17 69% -1%
-1% 0,8 -1%
-1% -32%3,17 -32%4,9x 4,9x 4,9x4,8x
4,8x 4,8x 13,9x
13,9x 10,3x 13,9x 10,3x n.a. 10,3x n.a. n.a.
n.a.1,2x n.a.
1,1x n.a. 1,2x
0,61,1x1,2x
0,60,6 1,1x 2,1x0,6
2,1x 2,1x2,1x
Argent 2,1x 2,1x ina
BRLBRLBuy 3,25 3,25 BRL17,0 17,0 423% 3,25 423% 0,2 17,00,2
-2% 0,2 -14% -14%-39%
-25,2% 0,4x 0,7x
1,00,4x0,7x
0,91,0 0,4x 1,9x0,9
1,9x 1,6x1,9x
Brazi 1,6x 1,6xl
1,1x 1,2x
1,1x1,2x
1,9x 1,6x1,9x
1,6x 1,6x
Biosev Biosev Median Median Median
BSEV3 BSEV3
BSEV3 BuyBuy
423%-2%
-39%2,2x 2,2x 2,2x1,9x
1,9x 1,9x 1,3x
1,3x1,0x1,3x
-1,0% -1,0%-4,1% -4,1%-29,5% -29,5%5,3x 5,3x 5,3x4,8x
4,8x 4,8x 12,4x
12,4x 9,9x 12,4x 9,9x 9,9x
Source: BTG Pactual estimates
1,0x -19,3% 1,0x -19,3% -25,2% -19,3% -25,2% 0,7x 1,2x
1,1x 1,9x
198
Valuation Summary
Company Company Company
Ticker Ticker
Ticker Rating Rating
Share Share Rating ShareShareShare TargetTarget Upside Share UpsideMkt Cap Target Mkt CapADTV Upside ADTV Currency Currency PricePrice Currency
Price
(USD bn) (USD bn) (USD mn) (USD mn)1day
Performance MktPerformance Capin USD inADTV USD
EV/EBITDA EV/EBITDA EV/EBITDA
1day (USD 1month bn)1month (USD YTD mn) YTD2018E 2018E 2018E 2019E
2019E 2019E 2018E
P/E
P/E P/E Div. Yield
Div. Yield Div.P/BV Yield
2018E 2019E 2018E 2019E 2018E2019E2018E 2019E
2018E 2018E 2019E
2019E 2019E 2018E
P/BV Net Debt (USDP/BV bn) Net Debt (USD Net bn) Debt/EBITDA Net Debt/EBITDA Net Debt/EBITDA Origin 2018E 2019E 2018E 2019E 2018E2019E2018E 2019E 2018E 2019E 2018E
2019E 2019E
Utilities Utilities Utilities TRPL TRPL
TRPL4 TRPL4
TRPL4 BuyBuy
BRL BRL Buy 67,8767,87 BRL70,0 70,0
67,87 3% 3%
2,9 70,0 2,9
11,70 11,70 3% 0%
0% 2,9 4%
4% 3%11,70 3% 7,1x
7,1x 7,1x7,7x
7,7x 7,7x 9,8x
9,8x 9,8x 9,8x
9,8x 16,7% 9,8x 16,7% 10,2%
16,7% 10,2% 1,1x
10,2% 1,1x 1,1x
0,3 1,1x1,1x
0,20,3 1,1x 0,6x0,2
0,6x 0,6x0,6x
Brazil 0,6x 0,6x
Engie Engie
EGIE3 EGIE3
EGIE3 Neutral Neutral
BRL BRL Neutral 34,2534,25 BRL37,0 37,0
34,25 8% 8%
5,7 37,0 5,7
12,25 12,25 8% -1%
-1% 5,7 2%
2% 13%12,2513%7,4x
7,4x 7,4x6,5x
6,5x 6,5x 10,6x
10,6x 10,0x 10,6x
10,0x 17,9% 10,0x 17,9% 10,5%
17,9% 10,5% 4,5x
10,5% 4,6x 4,5x
2,2 4,6x4,5x
2,32,2 4,6x 2,1x2,3
2,1x 1,9x2,1x
Brazil 1,9x 1,9x
Taesa Taesa
TAEE11 TAEE11
TAEE11 BuyBuy
BRL BRL Buy 23,7123,71 BRL24,0 24,0
23,71 1% 1%
2,1 24,0 2,1
12,68 12,68 1% 0%
0% 2,1 3%
3% 6%12,68 6%10,7x 10,7x 10,7x 11,1x
11,1x 11,1x 9,2x
9,2x 11,8x 9,2x
11,8x 10,4% 11,8x 10,4% 7,7%
10,4% 7,7% 1,8x
1,8x 7,7% 1,8x
0,6 1,8x1,8x
0,70,6 1,8x 2,5x0,7
2,5x 2,8x2,5x
Brazil 2,8x 2,8x
Sabesp Sabesp Sabesp
SBSP3 SBSP3
SBSP3 BuyBuy
BRL BRL Buy 31,2231,22 BRL36,0 36,0
31,22 15% 15%
5,5 36,0 5,5
17,82 17,82 15% 0%
0% 5,5 10%
10% -20%17,82-20%5,0x
5,0x 5,0x4,5x
4,5x 4,5x 8,2x
8,2x 6,0x 8,2x
6,0x 3,1% 6,0x 3,1% 4,1%
3,1% 4,1% 1,1x
1,0x 4,1% 1,1x
2,0 1,0x1,1x
1,92,0 1,0x 1,4x1,9
1,4x 1,2x1,4x
Brazil 1,2x 1,2x
Light Light
LIGT3 LIGT3
LIGT3 BuyBuy
BRL BRL Buy 15,7015,70 BRL18,0 18,0
15,70 15% 15%
0,8 18,0 0,8
6,43
6,43 15% 1%
1% 0,8 -2%
-2% -19%6,43 -19%6,5x
6,5x 6,5x5,1x
5,1x 5,1x 15,3x
15,3x 6,3x 15,3x
6,3x 1,6% 6,3x 1,6% 4,0%
1,6% 4,0% 0,9x
0,8x 4,0% 0,9x
2,0 0,8x0,9x
1,92,0 0,8x 4,6x1,9
4,6x 3,6x4,6x
Brazil 3,6x 3,6x
MXNMXN Buy 73,2973,29MXN 107,0 107,0
73,29 46% 46%
5,6107,0 5,6
7,97
7,97 46% -1%
-1% 5,6 -3%
-3% -23%7,97 -23%10,8x 10,8x 10,8x 10,4x
10,4x 10,4x 12,8x
12,8x 11,6x 12,8x
11,6x 0,0% 11,6x 0,0% 0,0%
0,0% 0,0% 1,2x
1,1x 0,0% 1,2x
2,5 1,1x1,2x
2,72,5 1,1x 3,4x2,7
3,4x 3,4x3,4x
Mexico 3,4x 3,4x
IEnova IEnova IEnova
IENOVA* IENOVA* MMMM IENOVA* BuyBuy MM
Equatorial Equatorial Equatorial
EQTL3 EQTL3
EQTL3 BuyBuy
BRL BRL Buy 71,9171,91 BRL71,0 71,0
71,91 -1% -1%
3,7 71,0 3,7
20,76 20,76 -1% 0%
0% 3,7 0%
0% -5%20,76 -5%11,6x 11,6x 11,6x 12,3x
12,3x 12,3x 21,1x
21,1x 18,7x 21,1x
18,7x 1,2% 18,7x 1,2% 1,3%
1,2% 1,3% 2,7x
2,4x 1,3% 2,7x
1,1 2,4x2,7x
1,81,1 2,4x 2,6x1,8
2,6x 3,8x2,6x
Brazil 3,8x 3,8x
Energias Energias Energias do dodo Brasil Brasil Brasil
ENBR3 ENBR3
ENBR3 BuyBuy
BRL BRL Buy 14,0314,03 BRL16,0 16,0
14,03 14% 14%
2,2 16,0 2,2
15,07 15,07 14% 2%
2% 2,2 1%
1% -11%15,07-11%5,9x
5,9x 5,9x6,7x
6,7x 6,7x 9,2x
9,2x 14,8x 9,2x
14,8x n.a. 14,8x n.a. n.a.
n.a.1,1x n.a.
1,1x n.a. 1,1x
1,2 1,1x1,1x
1,31,2 1,1x 1,9x1,3
1,9x 2,2x1,9x
Brazil 2,2x 2,2x
Eletropaulo Eletropaulo Eletropaulo
ELPL3 ELPL3
ELPL3 BuyBuy
BRL BRL Buy 33,4033,40 BRL25,0 25,0
33,40 -25% -25%
1,4 25,0 1,4
0,16
0,16 -25%-4%
-4% 1,4 2%
2% 74%0,16 74%13,9x 13,9x 13,9x 11,4x
11,4x 11,4x n.a.
n.a. n.a.n.a.
n.a. 0,0% n.a. 0,0% 0,0%
0,0% 0,0% 3,3x
3,3x 0,0% 3,3x
1,9 3,3x3,3x
1,91,9 3,3x 7,8x1,9
7,8x 6,5x7,8x
Brazil 6,5x 6,5x
Sanepar Sanepar Sanepar
SAPR11 SAPR11
SAPR11 BuyBuy
BRL BRL Buy 56,6556,65 BRL86,0 86,0
56,65 52% 52%
1,5 86,0 1,5
6,28
6,28 52% -2%
-2% 1,5 3%
3% -14%6,28 -14%5,9x
5,9x 5,9x5,3x
5,3x 5,3x 6,8x
6,8x 5,7x 6,8x
5,7x 10,2% 5,7x 10,2% 8,8%
10,2% 8,8% 1,1x
1,0x 8,8% 1,1x
0,9 1,0x1,1x
1,00,9 1,0x 2,3x1,0
2,3x 2,1x2,3x
Brazil 2,1x 2,1x
Inversiones Inversiones Inversiones Aguas Aguas Aguas Metropolitanas Metropolitanas Metropolitanas
IAMIAM CI CI
IAM Neutral Neutral CI
CLP CLP Neutral1010,00 1010,00CLP 1.059,01.059,0 1010,00 5% 5%
1,51.059,0 1,5 1,34
1,34 5% -1%
-1% 1,5 2%
2% -17%1,34 -17%6,2x
6,2x 6,2x5,9x
5,9x 5,9x 13,2x
13,2x 12,3x 13,2x
12,3x 7,6% 12,3x 7,6% 8,2%
7,6% 8,2% 1,7x
1,7x 8,2% 1,7x
1,4 1,7x1,7x
1,41,4 1,7x 3,0x1,4
3,0x 2,9x3,0x
Chile 2,9x 2,9x
Copel Copel Copel
CPLE6 CPLE6
CPLE6 Neutral Neutral
BRL BRL Neutral 32,3432,34 BRL34,0 34,0
32,34 5% 5%
2,3 34,0 2,3
6,78
6,78 5% 2%
2% 2,3 12%
12% 16%6,78 16%6,0x
6,0x 6,0x4,7x
4,7x 4,7x 6,7x
6,7x 4,3x 6,7x
4,3x 7,4% 4,3x 11,7% 7,4%
7,4% 11,7% 0,6x
11,7% 0,5x 0,6x
2,2 0,5x0,6x
2,12,2 0,5x 2,9x2,1
2,9x 2,2x2,9x
Brazil 2,2x 2,2x
CSMG3 CSMG3
CSMG3 BuyBuy
BRL BRL Buy 54,1754,17 BRL51,0 51,0
Brazil 1,9x 1,9x
Copasa Copasa Copasa Colbun Colbun Colbun CESP CESP
54,17 -6% -6%
1,8 51,0 1,8
8,91
8,91 -6% -2%
-2% 1,8 5%
5% 16%8,91 16%6,6x
6,6x 6,6x5,8x
5,8x 5,8x 12,4x
12,4x 10,1x 12,4x
10,1x 8,5% 10,1x 8,5% 9,9%
8,5% 9,9% 1,1x
1,1x 9,9% 1,1x
0,8 1,1x1,1x
0,80,8 1,1x 2,1x0,8
2,1x 1,9x2,1x
CLP CLP Neutral140,94140,94CLP 163,0 163,0 140,94 16% 16%
3,6163,0 3,6
1,80
1,80 16% 2%
2% 3,6 4%
4% -3%1,80 -3%7,4x
7,4x 7,4x6,3x
6,3x 6,3x 17,2x
17,2x 15,6x 17,2x
15,6x 5,8% 15,6x 5,8% 2,9%
5,8% 2,9% 1,0x
0,9x 2,9% 1,0x
0,7 0,9x1,0x
0,40,7 0,9x 1,2x0,4
1,2x 0,7x1,2x
Chile 0,7x 0,7x
CESP6 BuyBuy
BRL BRL Buy 21,0021,00 BRL20,0 20,0
21,00 -5% -5%
1,8 20,0 1,8
8,16
8,16 -5% -1%
-1% 1,8 10%
10% 36%8,16 36%10,3x 10,3x 10,3x7,7x
7,7x 7,7x 20,0x
20,0x 21,0x 20,0x
21,0x 1,3% 21,0x 1,3% 1,2%
1,3% 1,2% 0,9x
0,9x 1,2% 0,9x
(0,0) 0,9x0,9x
(0,2) (0,0) 0,9x -0,1x(0,2)
-0,1x -0,8x-0,1x
-0,8x Brazil -0,8x
COLBUN COLBUN CI CICOLBUN Neutral Neutral CI CESP6 CESP6
Cemig Cemig Cemig
CMIG4 CMIG4
CMIG4 BuyBuy
BRL BRL Buy 12,7812,78 BRL10,0 10,0
12,78 -22% -22%
4,8 10,0 4,8
49,40 49,40 -22% 1%
1% 4,8 9%
9% 68%49,4068%10,5x 10,5x 10,5x9,1x
9,1x 9,1x 12,0x
12,0x 9,3x 12,0x
9,3x 2,1% 9,3x 2,1% 2,7%
2,1% 2,7% 1,2x
1,1x 2,7% 1,2x
4,4 1,1x1,2x
4,14,4 1,1x 5,0x4,1
5,0x 4,2x5,0x
Brazil 4,2x 4,2x
Alupar Alupar Alupar
ALUP11 ALUP11
ALUP11 BuyBuy
BRL BRL Buy 18,3018,30 BRL20,0 20,0
18,30 9% 9%
1,4 20,0 1,4
3,21
3,21 9% -1%
-1% 1,4 -1%
-1% -12%3,21 -12%n.a.
n.a. n.a.n.a.
n.a. n.a. n.a.
n.a. n.a.n.a.
n.a. 2,9% n.a. 2,9% 7,8%
2,9% 7,8% 1,3x
1,2x 7,8% 1,3x
0,8 1,2x1,3x
0,90,8 1,2x 2,6x0,9
2,6x 2,6x2,6x
Brazil 2,6x 2,6x
Aes AesTiete Tiete Tiete
TIET11 TIET11
TIET11 Neutral Neutral
BRL BRL Neutral 10,3410,34 BRL12,0 12,0
10,34 16% 16%
1,0 12,0 1,0
2,69
2,69 16% -1%
-1% 1,0 0%
0% -26%2,69 -26%6,9x
6,9x 6,9x4,8x
4,8x 4,8x 14,8x
14,8x 9,1x 14,8x
9,1x 7,6% 9,1x 10,9% 7,6%
7,6% 10,9% 2,7x
10,9% 2,7x 2,7x
0,8 2,7x2,7x
0,70,8 2,7x 3,0x0,7
3,0x 1,9x3,0x
Brazil 1,9x 1,9x
CLP CLP Neutral186,73186,73CLP 221,7 221,7 186,73 19% 19%
2,2221,7 2,2
1,80
1,80 19% 0%
0% 2,2 2%
2% -11%1,80 -11%7,1x
7,1x 7,1x7,8x
7,8x 7,8x 6,6x
6,6x 8,6x 6,6x
8,6x 8,0% 8,6x 8,0% 5,4%
8,0% 5,4% 0,9x
0,8x 5,4% 0,9x
3,5 0,8x0,9x
3,63,5 0,8x 4,3x3,6
4,3x 4,7x4,3x
Chile 4,7x 4,7x
AES AESGENER GENER GENER Eneva Eneva Eneva
AESGENER AESGENER CIAESGENER CI Neutral Neutral CI ENEV3 ENEV3
ENEV3 BuyBuy
BRL BRL Buy 15,8015,80 BRL16,0 16,0
15,80 1% 1%
1,3 16,0 1,3
1,87
1,87 1% 0%
0% 1,3 9%
9% -3%1,87 -3%5,1x
5,1x 5,1x5,7x
5,7x 5,7x 8,0x
8,0x 11,2x 8,0x
11,2x 0,0% 11,2x 0,0% 0,0%
0,0% 0,0% 0,8x
0,8x 0,0% 0,8x
1,0 0,8x0,8x
0,91,0 0,8x 2,3x0,9
2,3x 2,4x2,3x
Brazil 2,4x 2,4x
Omega Omega OmegaEnergia Energia Energia
OMGE3 OMGE3
OMGE3 BuyBuy
BRL BRL Buy 16,4516,45 BRL20,0 20,0
16,45 22% 22%
0,5 20,0 0,5
1,07
1,07 22% -1%
-1% 0,5 1%
1% -20%1,07 -20%8,2x
8,2x 8,2x8,9x
8,9x 8,9x 29,8x
29,8x 19,6x 29,8x
19,6x 3,2% 19,6x 3,2% 5,1%
3,2% 5,1% 1,1x
1,0x 5,1% 1,1x
0,4 1,0x1,1x
0,30,4 1,0x 3,5x0,3
3,5x 3,5x3,5x
Brazil 3,5x 3,5x
Enel EnelChile Chile Chile
ENIC ENIC USUS ENIC Neutral Neutral US
USDUSD Neutral 4,84 4,84 USD6,0 6,0
24% 4,84 24%
4,8 6,04,8
2,52
2,52 24% 0%
0% 4,8 8%
8% -13%2,52 -13%8,0x
8,0x 8,0x7,1x
7,1x 7,1x 12,9x
12,9x 10,7x 12,9x
10,7x 4,6% 10,7x 4,6% 5,0%
4,6% 5,0% 1,3x
1,2x 5,0% 1,3x
0,0 1,2x1,3x
0,00,0 1,2x 2,3x0,0
2,3x 1,9x2,3x
Chile 1,9x 1,9x
Engie EngieEnergia Energia Energia Chile Chile Chile
ECLECL CI CI
CLP CLP Buy 1293,80 1293,80CLP 1.328,01.328,0 1293,80 3% 3%
2,01.328,0 2,0 2,54
2,54 3% -1%
-1% 2,0 3%
3% -10%2,54 -10%8,3x
8,3x 8,3x5,7x
5,7x 5,7x 13,3x
13,3x 8,8x 13,3x
8,8x 3,0% 8,8x 3,0% 4,5%
3,0% 4,5% 1,0x
0,9x 4,5% 1,0x
0,9 0,9x1,0x
0,70,9 0,9x 2,5x0,7
2,5x 1,5x2,5x
Chile 1,5x 1,5x
CLP CLP Neutral377,76377,76CLP 482,0 482,0 377,76 28% 28%
3,4482,0 3,4
2,82
2,82 28% -1%
-1% 3,4 2%
2% -11%2,82 -11%9,9x
9,9x 9,9x9,6x
9,6x 9,6x 15,4x
15,4x 15,1x 15,4x
15,1x 6,5% 15,1x 6,5% 6,6%
6,5% 6,6% 3,6x
3,6x 6,6% 3,6x
1,3 3,6x3,6x
1,41,3 3,6x 2,8x1,4
2,8x 2,8x2,8x
Chile 2,8x 2,8x
3,3 35,0 3,3
6,61
6,61 -6% -1%
-1% 3,3 2%
2% 19%6,61 19%5,3x
5,3x 5,3x5,3x
5,3x 5,3x 20,4x
20,4x 18,3x 20,4x
18,3x 2,5% 18,3x 2,5% 2,7%
2,5% 2,7% 3,1x
2,9x 2,7% 3,1x
0,2 2,9x3,1x
0,20,2 2,9x 0,3x0,2
0,3x 0,4x0,3x
Brazil 0,4x 0,4x
4,8 17.700,0 4,8 1,17
1,17 28% 0%
0% 4,8 7%
7% -5%1,17 -5%8,6x
8,6x 8,6x8,1x
8,1x 8,1x 10,8x
10,8x 9,8x 10,8x
9,8x 3,9% 9,8x 3,9% 6,5%
3,9% 6,5% 1,4x
1,4x 6,5% 1,4x
0,0 1,4x1,4x
0,00,0 1,4x 3,3x0,0
3,3x 3,0x3,3x
Colombia 3,0x 3,0x
2,4%-9,9%
7,2x 7,2x6,6x
6,6x 6,6x 12,8x
12,8x 10,7x 12,8x
10,7x 10,7x
1,1x 1,1x
1,1x1,1x
2,5x 2,2x2,5x
2,2x 2,2x
Aguas Aguas AguasAndinas Andinas Andinas
ECL BuyCI Buy
AGUAS/A AGUAS/A CI CIAGUAS/A Neutral Neutral CI
Energisa Energisa Energisa
ENGI11 ENGI11
ENGI11 BuyBuy
BRL BRL Buy 37,2437,24 BRL35,0 35,0
Interconexión Interconexión Interconexión Eléctrica Eléctrica Eléctrica
ISAISA CBCB
ISABuy CB Buy
COPCOP Buy 13780,00 13780,00COP 17.700,0 17.700,013780,00 28% 28%
Median Median Median
37,24 -6% -6%
-0,5% -0,5% 2,4%
-9,9%7,2x
Source: BTG Pactual estimates
1,1x
1,1x 2,5x
199
Valuation Summary
Company Company Company
Ticker Ticker
Ticker Rating Rating
ShareShare Rating ShareShareShare TargetTarget Upside Share UpsideMkt Cap Target Mkt CapADTV Upside ADTV Currency Currency PricePrice Currency
Price
Performance MktPerformance Capin USD inADTV USD
EV/EBITDA EV/EBITDA EV/EBITDA
(USD bn) (USD bn) (USD mn) (USD mn)1day 1day (USD 1month bn)1month(USD YTD mn) YTD2018E 2018E 2018E 2019E
P/E
P/E P/E Div. Yield Div. Yield Div.P/BV Yield
2019E 2019E 2018E
2018E 2019E 2018E 2019E 2018E2019E2018E 2019E
2018E 2018E 2019E
2019E 2019E 2018E
P/BV Net Debt (USDP/BV bn) Net Debt (USD Net bn) Debt/EBITDA Net Debt/EBITDA Net Debt/EBITDA Origin 2018E 2019E 2018E 2019E 2018E2019E2018E 2019E 2018E 2019E 2018E
2019E 2019E
Mining Mining Mining Volcan Volcan Volcan
VOLCABC1 VOLCABC1 PEVOLCABC1 PE BuyBuyPE
PENPEN Buy 0,77 0,77 PEN1,6 1,6
113% 0,77 113% 0,9 1,60,9
0,48 0,48 113% 2%
2% 0,9 8%
8% -42%0,48 -42%5,2x
5,2x 5,2x4,3x
4,3x 4,3x 15,5x
15,5x 8,6x 15,5x
8,6x 2,7% 8,6x 2,7% 3,0%
2,7% 3,0% 1,4x
1,3x 3,0% 1,4x
0,7 1,3x1,4x
0,70,7 1,3x 2,3x0,7
2,3x 1,8x2,3x
1,8x Peru 1,8x
VALE VALE USUS VALEBuyUS Buy
USDUSD Buy 13,0413,04 USD 20,0 20,0
13,04 53% 53% 67,8 20,0 67,8 336,78 336,78 53% 0%
0% 67,8 -10%
-10%11% 336,7811%4,9x
4,9x 4,9x4,2x
4,2x 4,2x 8,5x
8,5x 5,7x8,5x
5,7x 5,1% 5,7x 11,8% 5,1%
5,1% 11,8% 1,5x
11,8% 1,4x 1,5x
14,5 1,4x1,5x
12,1 14,5 1,4x 0,9x12,1
0,9x 0,6x0,9x
Brazil 0,6x 0,6x
SQM SQM
SQM SQM USUS SQMBuyUS Buy
USDUSD Buy 43,3443,34 USD 57,1 57,1
43,34 32% 32% 11,4 57,1 11,4 32,70 32,70 32% 0%
0% 11,4 -1%
-1% -21%32,70-21%12,5x 12,5x 12,5x 11,2x
11,2x 11,2x 23,4x
23,4x 20,3x 23,4x
20,3x 4,2% 20,3x 4,2% 2,4%
4,2% 2,4% 5,2x
4,6x 2,4% 5,2x
0,4 4,6x5,2x
0,20,4 4,6x 0,4x0,2
0,4x 0,2x0,4x
Chile 0,2x 0,2x
Southern Southern Southern Copper Copper Copper
SCCO SCCO USUS SCCO SellUS Sell
USDUSD Sell 32,0832,08 USD 30,0 30,0
32,08 -6% -6% 24,8 30,0 24,8 37,87 37,87 -6% 0%
0% 24,8 -13%
-13%-31%37,87-31%8,1x
8,1x 8,1x8,6x
8,6x 8,6x 14,8x
14,8x 16,3x 14,8x
16,3x 3,7% 16,3x 3,7% 1,8%
3,7% 1,8% 3,7x
3,2x 1,8% 3,7x
4,9 3,2x3,7x
5,04,9 3,2x 1,3x5,0
1,3x 1,5x1,3x
1,5x Peru 1,5x
6,1x 6,1x 11,6x
11,6x 9,1x 11,6x
9,1x 6,4% 9,1x 6,4% 4,4%
6,4% 4,4% 1,3x
1,2x 4,4% 1,3x
8,4 1,2x1,3x
8,18,4 1,2x 1,7x8,1
1,7x 1,6x1,7x
Mexico 1,6x 1,6x 0,1x Peru 0,1x
Vale Vale
Grupo GrupoMexico Mexico Mexico
GMEXICOB GMEXICOB MMGMEXICOB MM Neutral Neutral MM MXNMXN Neutral 40,7840,78MXN 43,0 43,0
40,78 5% 5%
15,7 43,0 15,7 21,91 21,91 5% -1%
-1%15,7 -6%
-6% -34%21,91-34%6,1x
6,1x 6,1x6,1x
Cerro CerroVerde Verde Verde
CVERDEC1 CVERDEC1 PECVERDEC1 PE Neutral Neutral PE
USDUSD Neutral 21,3021,30 USD 31,0 31,0
21,30 46% 46%
7,5 31,0 7,5
0,06 0,06 46% 0%
0% 7,5 -1%
-1% -27%0,06 -27%5,5x
5,5x 5,5x4,5x
4,5x 4,5x 13,1x
13,1x 9,8x 13,1x
9,8x 3,8% 9,8x 3,8% 8,1%
3,8% 8,1% 1,4x
1,3x 8,1% 1,4x
0,6 1,3x1,4x
0,20,6 1,3x 0,4x0,2
0,4x 0,1x0,4x
Buenaventura Buenaventura Buenaventura
BVNBVN USUS
BVNBuyUS Buy
USDUSD Buy 15,1915,19 USD 16,9 16,9
15,19 11% 11%
3,9 16,9 3,9 17,10 17,10 11% 0%
0% 3,9 9%
9% 9%17,10 9%14,3x 14,3x 14,3x 12,4x
12,4x 12,4x 44,6x
44,6x 19,9x 44,6x
19,9x 0,4% 19,9x 0,4% 0,3%
0,4% 0,3% 1,3x
1,2x 0,3% 1,3x
0,3 1,2x1,3x
0,20,3 1,2x 1,0x0,2
1,0x 0,5x1,0x
0,5x Peru 0,5x
Bradespar Bradespar Bradespar
BRAP4 BRAP4
BRAP4 Neutral Neutral
BRL BRL Neutral 30,0030,00 BRL12,0 12,0
30,00 -60% -60% n.a. 12,0 n.a. 20,60 20,60 -60%-1%
-1% n.a. -14%
-14% -8%20,60 -8% n.a.
n.a. n.a.n.a.
n.a. n.a. n.a.
n.a.n.a.n.a.
n.a. n.a. n.a. n.a. n.a.
n.a.n.a.
n.a. n.a. n.a.
n.a. n.a.n.a.
n.a.n.a. n.a. n.a.n.a.
n.a. n.a. n.a.
Brazil n.a. n.a.
GBPGBP Buy 8,41 8,41 GBP12,4 12,4
47% 8,41 47%
2% 7,8 0%
0% -42%18,73-42%7,0x
7,0x 7,0x6,2x
6,2x 6,2x 17,2x
17,2x 15,1x 17,2x
15,1x 3,8% 15,1x 3,8% 1,9%
3,8% 1,9% 2,5x
2,2x 1,9% 2,5x
(0,1) 2,2x2,5x
(0,3) (0,1) 2,2x -0,1x(0,3)
-0,1x -0,2x-0,1x
Mexico -0,2x -0,2x
0,2% 0,2%-0,9% -0,9%-27,2% -27,2%6,6x
6,6x 6,6x6,2x
6,2x 6,2x 15,2x
15,2x 12,4x 15,2x
12,4x 12,4x
1,5x
1,3x 1,5x
1,3x1,5x
1,1x 1,0x1,1x
1,0x 1,0x
Fresnillo Fresnillo Fresnillo
FRES FRES LN LN FRES BuyLN Buy
7,8 12,4 7,8 18,73 18,73 47% 2%
Median Median Median
1,3x 1,1x
Metals Metals Usiminas Usiminas Usiminas
USIM5 USIM5
USIM5 BuyBuy
BRL BRL Buy 9,65 9,65 BRL14,0 14,0
45% 9,65 45%
3,1 14,0 3,1 44,49 44,49 45% 2%
2% 3,1 3%
3% -9%44,49 -9%5,4x
5,4x 5,4x4,5x
4,5x 4,5x 15,3x
15,3x 10,9x 15,3x
10,9x 0,0% 10,9x 0,0% 0,0%
0,0% 0,0% 0,8x
0,8x 0,0% 0,8x
0,8 0,8x0,8x
0,60,8 0,8x 1,3x0,6
1,3x 0,8x1,3x
Brazil 0,8x 0,8x
Ternium Ternium Ternium
TXTX USUS
TXBuy USBuy
USDUSD Buy 28,6828,68 USD 36,0 36,0
28,68 26% 26%
5,6 36,0 5,6 14,50 14,50 26% 3%
3% 5,6 -6%
-6% -6%14,50 -6%2,9x
2,9x 2,9x3,6x
3,6x 3,6x 4,4x
4,4x 5,7x4,4x
5,7x 0,0% 5,7x 0,0% 4,4%
0,0% 4,4% 1,0x
0,9x 4,4% 1,0x
2,0 0,9x1,0x
1,82,0 0,9x 0,7x1,8
0,7x 0,8x0,7x
Argentina 0,8x 0,8x
Gerdau Gerdau Gerdau
GGBR4 GGBR4
GGBR4 BuyBuy
BRL BRL Buy 15,3415,34 BRL23,0 23,0
15,34 50% 50%
6,7 23,0 6,7 59,78 59,78 50% -1%
-1% 6,7 -1%
-1% 8%59,78 8% 5,1x
5,1x 5,1x4,4x
4,4x 4,4x 10,4x
10,4x 7,6x 10,4x
7,6x 2,0% 7,6x 2,0% 1,9%
2,0% 1,9% 1,0x
0,9x 1,9% 1,0x
2,5 0,9x1,0x
1,72,5 0,9x 1,5x1,7
1,5x 0,9x1,5x
Brazil 0,9x 0,9x
CSN CSN
CSNA3 CSNA3
CSNA3 Neutral Neutral
BRL BRL Neutral 9,07 9,07 BRL11,0 11,0
21% 9,07 21%
3,2 11,0 3,2 18,66 18,66 21% -1%
-1% 3,2 -4%
-4% -8%18,66 -8%5,0x
5,0x 5,0x6,4x
6,4x 6,4x 4,5x
4,5x 5,6x4,5x
5,6x 0,0% 5,6x 0,0% 0,0%
0,0% 0,0% 1,6x
1,2x 0,0% 1,6x
6,7 1,2x1,6x
6,06,7 1,2x 3,3x6,0
3,3x 4,0x3,3x
Brazil 4,0x 4,0x
-7,0%5,1x
5,1x 5,1x4,5x
4,5x 4,5x 7,5x
7,5x 6,7x 7,5x
6,7x 6,7x
1,0x
0,9x 1,0x
0,9x1,0x
1,4x 0,9x1,4x
0,9x 0,9x
Median Median Median
0,4% 0,4%-2,5% -2,5%-7,0%
0,9x 1,4x
Pulp Pulpand and and paper paper paper &&Forestry Forestry & Forestry Suzano Suzano SuzanoPapel Papel Papel eeCelulose Celulose e Celulose
SUZB3 SUZB3
SUZB3 BuyBuy
BRL BRL Buy 37,5737,57 BRL65,0 65,0
37,57 73% 73% 13,0 65,0 13,0 59,57 59,57 73% 3%
3% 13,0 -7%
-7% 72%59,5772%8,2x
8,2x 8,2x3,8x
3,8x 3,8x 46,0x
46,0x 3,5x 46,0x
3,5x 1,3% 3,5x 1,3% 1,3%
1,3% 1,3% 4,0x
1,9x 1,3% 4,0x
2,3 1,9x4,0x
9,02,3 1,9x 1,3x9,0
1,3x 1,6x1,3x
Brazil 1,6x 1,6x
Klabin Klabin
KLBN11 KLBN11
KLBN11 BuyBuy
BRL BRL Buy 16,0016,00 BRL27,0 27,0
16,00 69% 69%
4,4 27,0 4,4 20,37 20,37 69% 0%
0% 4,4 -12%
-12%-19%20,37-19%7,5x
7,5x 7,5x6,0x
6,0x 6,0x n.a.
n.a. 8,4xn.a.
8,4x 4,2% 8,4x 4,2% 4,6%
4,2% 4,6% 2,8x
2,3x 4,6% 2,8x
3,2 2,3x2,8x
2,83,2 2,3x 3,1x2,8
3,1x 2,3x3,1x
Brazil 2,3x 2,3x
Fibria Fibria
FIBR3 FIBR3
FIBR3 BuyBuy
BRL BRL Buy 66,8466,84 BRL71,0 71,0
66,84 6% 6%
9,5 71,0 9,5 33,66 33,66 6% 0%
0% 9,5 -3%
-3% 29%33,6629%6,1x
6,1x 6,1x5,3x
5,3x 5,3x 7,3x
7,3x 7,6x7,3x
7,6x 0,0% 7,6x 0,0% 0,0%
0,0% 0,0% 1,9x
1,7x 0,0% 1,9x
2,5 1,7x1,9x
1,82,5 1,7x 1,3x1,8
1,3x 0,9x1,3x
Brazil 0,9x 0,9x
Duratex Duratex Duratex
DTEX3 DTEX3
DTEX3 BuyBuy
BRL BRL Buy 11,9511,95 BRL13,0 13,0
11,95 9% 9%
2,1 13,0 2,1
4,45 4,45 9% 2%
2% 2,1 -6%
-6% 11%4,45 11%8,4x
8,4x 8,4x8,2x
8,2x 8,2x 24,4x
24,4x 17,1x 24,4x
17,1x 1,5% 17,1x 1,5% 2,0%
1,5% 2,0% 1,6x
1,5x 2,0% 1,6x
0,4 1,5x1,6x
0,30,4 1,5x 1,3x0,3
1,3x 0,8x1,3x
Brazil 0,8x 0,8x
Copec Copec
COPEC COPEC CI CI COPEC BuyBuy CI
CLP CLP Buy 8848,90 8848,90CLP 12.000,0 12.000,0 8848,90 36% 36% 16,9 12.000,0 16,9 9,22 9,22 36% 1%
1% 16,9 -8%
-8% -17%9,22 -17%7,9x
7,9x 7,9x7,2x
7,2x 7,2x 13,4x
13,4x 11,7x 13,4x
11,7x 2,4% 11,7x 2,4% 3,1%
2,4% 3,1% 1,5x
1,4x 3,1% 1,5x
6,4 1,4x1,5x
6,46,4 1,4x 2,1x6,4
2,1x 1,9x2,1x
Chile 1,9x 1,9x
CMPC CMPC
CMPC CMPC CCCC CMPC Neutral Neutral CC
CLP CLP Neutral2256,40 2256,40CLP 2.786,02.786,0 2256,40 23% 23%
1% 8,3 -7%
-7% -1%6,71 -1%6,0x
6,0x 6,0x5,9x
5,9x 5,9x 14,8x
14,8x 11,9x 14,8x
11,9x 2,6% 11,9x 2,6% 2,4%
2,6% 2,4% 1,0x
0,9x 2,4% 1,0x
2,8 0,9x1,0x
2,22,8 0,9x 1,5x2,2
1,5x 1,2x1,5x
Chile 1,2x 1,2x
7,7x 7,7x6,0x
6,0x 6,0x 14,8x
14,8x 10,1x 14,8x
10,1x 10,1x
1,8x
1,6x 1,8x
1,6x1,8x
1,4x 1,4x1,4x
1,4x 1,4x
Median Median Median
8,32.786,0 8,3 6,71 6,71 23% 1%
1,0% 1,0%-6,9% -6,9%4,9%
4,9%7,7x
Source: BTG Pactual estimates
1,6x 1,4x
200
Valuation Summary Company Company Company
Ticker Ticker
Ticker Rating Rating
Share Share Rating ShareShareShare TargetTarget Upside Share UpsideMkt Cap Target Mkt CapADTV Upside ADTV Currency Currency PricePrice Currency
Price
(USD bn) (USD bn) (USD mn) (USD mn)1day
Performance MktPerformance Capin USD inADTV USD
EV/EBITDA EV/EBITDA EV/EBITDA
P/E
P/E P/E Div. Yield
Div. Yield Div.P/BV Yield
1day (USD 1month bn)1month (USD YTD mn) YTD2018E 2018E 2018E 2019E
2019E 2019E 2018E
2018E 2019E 2018E 2019E 2018E2019E2018E 2019E
2018E 2018E 2019E
2019E 2019E 2018E
P/BV Net Debt (USDP/BV bn) Net Debt (USD Net bn) Debt/EBITDA Net Debt/EBITDA Net Debt/EBITDA Origin 2018E 2019E 2018E 2019E 2018E2019E2018E 2019E 2018E 2019E 2018E
2019E 2019E
Industrials, Industrials, Industrials, Cement Cement Cement and andHeavy Heavy and Contruction Heavy Contruction Contruction Grupo Grupo GrupoArgos Argos Argos
GRUPOARG GRUPOARG CB GRUPOARG CB Neutral NeutralCB COPCOP Neutral16440,00 16440,00COP 19.900,0 19.900,016440,00 21% 21%
Cemex Cemex CemexLatAm LatAm LatAm Holdings Holdings Holdings
CLHCLH CBCB
CLHBuyCB Buy
COPCOP Buy 4000,00 4000,00COP 7.000,07.000,0 4000,00 75% 75%
Cemex Cemex Cemex
CXCX USUS
CXBuy USBuy
USDUSD Buy 4,62 4,62 USD9,5 9,5
Cementos Cementos Cementos Argos Argos Argos Graña Grañayy Montero yMontero Montero
USDUSD Buy 3,13 3,13 USD7,4 7,4
2,97 21% 0%
0% 4,4 6%
6% -25%2,97 -25%8,8x
8,8x 8,8x7,1x
7,1x 7,1x 15,0x
15,0x 9,3x 15,0x
9,3x 2,1% 9,3x 2,1% 2,2%
2,1% 2,2% 0,8x
0,8x 2,2% 0,8x
4,2 0,8x0,8x
3,94,2 0,8x 3,3x3,9
3,3x 2,8x3,3x
Colombia 2,8x 2,8x
0,77.000,0 0,7 0,57
0,57 75% -4%
-4% 0,7 -26%
-26%-66%0,57 -66%5,9x
5,9x 5,9x5,6x
5,6x 5,6x 8,7x
8,7x 9,4x 8,7x
9,4x n.a. 9,4x n.a. n.a.
n.a.0,4x n.a.
0,4x n.a. 0,4x
0,8 0,4x0,4x
0,80,8 0,4x 3,1x0,8
3,1x 3,0x3,1x
Colombia 3,0x 3,0x
52,23 52,23 106%-2%
-2% 6,8 -7%
-7% -38%52,23-38%5,6x
5,6x 5,6x4,7x
4,7x 4,7x 8,1x
8,1x 7,0x 8,1x
7,0x 0,0% 7,0x 0,0% 2,1%
0,0% 2,1% 0,7x
0,6x 2,1% 0,7x
9,6 0,6x0,7x
8,69,6 0,6x 3,6x8,6
3,6x 2,9x3,6x
Mexico 2,9x 2,9x
1,21 43% -1%
-1% 3,0 0%
0% -42%1,21 -42%11,1x 11,1x 11,1x9,1x
9,1x 9,1x 70,2x
70,2x 26,0x 70,2x
26,0x 3,8% 26,0x 3,8% 1,3%
3,8% 1,3% 1,3x
1,2x 1,3% 1,3x
2,1 1,2x1,3x
2,02,1 1,2x 4,4x2,0
4,4x 3,4x4,4x
Colombia 3,4x 3,4x
0,33 136%-2%
-2% 0,4 2%
1,9% 0,4% 0,6x
0,6x 0,4% 0,6x
0,5 0,6x0,6x
0,50,5 0,6x 2,2x0,5
2,2x 3,0x2,2x
3,0x Peru 3,0x
0,7x 0,8x
0,7x0,8x
3,4x 2,9x3,4x
2,9x 2,9x Brazil 1,0x 1,0x
106% 4,62 106% 6,8 9,56,8
CEMARGOS CEMARGOS CB CEMARGOS CB Neutral NeutralCB COPCOP Neutral6980,00 6980,00COP 10.000,0 10.000,0 6980,00 43% 43% GRAM GRAM USUS GRAM BuyUS Buy
4,4 19.900,0 4,4 2,97
3,0 10.000,0 3,0 1,21
136% 3,13 136% 0,4 7,40,4
0,33
Median Median Median
-1,2% -1,2%-3,4%
2% 13%0,33 13%4,7x
4,7x 4,7x6,1x
6,1x 6,1x 22,8x
22,8x 8,1x 22,8x
8,1x 1,9% 8,1x 1,9% 0,4%
-3,4%-40,0% -40,0% 7,4x
7,4x 7,4x6,4x
6,4x 6,4x 11,8x
11,8x 9,4x 11,8x
9,4x 9,4x
0,8x
0,7x 3,4x
Telecom Telecom Telecom and andand media media media Valid Valid
VLID3 VLID3
VLID3 BuyBuy
BRL BRL Buy 18,1218,12 BRL26,0 26,0
18,12 43% 43%
0,3 26,0 0,3
2,28
2,28 43% -1%
-1% 0,3 10%
10% -15%2,28 -15%5,4x
5,4x 5,4x5,1x
5,1x 5,1x 12,9x
12,9x 9,0x 12,9x
9,0x 3,2% 9,0x 3,2% 6,4%
3,2% 6,4% 1,2x
1,2x 6,4% 1,2x
0,1 1,2x1,2x
0,10,1 1,2x 1,3x0,1
1,3x 1,0x1,3x
Totvs Totvs
TOTS3 TOTS3
TOTS3 Neutral Neutral
BRL BRL Neutral 28,0028,00 BRL30,0 30,0
28,00 7% 7%
1,2 30,0 1,2
5,04
5,04 7% -3%
-3% 1,2 8%
8% -20%5,04 -20%13,1x 13,1x 13,1x 11,8x
11,8x 11,8x 21,7x
21,7x 18,4x 21,7x
18,4x 1,1% 18,4x 1,1% 2,3%
1,1% 2,3% 3,3x
3,1x 2,3% 3,3x
0,0 3,1x3,3x
0,00,0 3,1x 0,4x0,0
0,4x 0,1x0,4x
Brazil 0,1x 0,1x
Time TimeFor For For Fun FunFun (T4F) (T4F)(T4F)
SHOW3 SHOW3
SHOW3 BuyBuy
BRL BRL Buy 7,00 7,00 BRL15,0 15,0
114% 7,00 114% 0,1 15,0 0,1
0,31
0,31 114%-1%
-1% 0,1 1%
1% -16%0,31 -16%2,8x
2,8x 2,8x2,0x
2,0x 2,0x 7,2x
7,2x 6,3x 7,2x
6,3x 0,0% 6,3x 0,0% 0,0%
0,0% 0,0% 1,3x
1,1x 0,0% 1,3x
(0,1) 1,1x1,3x
(0,1) (0,1) 1,1x -2,5x(0,1)
-2,5x -2,8x-2,5x
-2,8x Brazil -2,8x
TIM TIMPart Part Part
TIMP3 TIMP3
TIMP3 BuyBuy
BRL BRL Buy 12,0812,08 BRL16,0 16,0
12,08 32% 32%
14,79 14,79 32% 0%
0% 7,5 -1%
-1% -20%14,79-20%4,7x
4,7x 4,7x4,3x
4,3x 4,3x 16,8x
16,8x 12,6x 16,8x
12,6x 0,4% 12,6x 0,4% 3,6%
0,4% 3,6% 1,5x
1,4x 3,6% 1,5x
0,3 1,4x1,5x
0,00,3 1,4x 0,2x0,0
0,2x 0,0x0,2x
Brazil 0,0x 0,0x
Oi OiS.A. S.A. S.A.
OIBR3 OIBR3
OIBR3 BuyBuy
BRL BRL Buy 1,32 1,32 BRL3,9 3,9
195% 1,32 195% 0,2 3,90,2
6,04
6,04 195%-2%
-2% 0,2 -24%
-24%-59%6,04 -59%3,5x
3,5x 3,5x3,8x
3,8x 3,8x n.a.
n.a. n.a.n.a.
n.a. n.a. n.a. n.a. n.a.
n.a.0,1x n.a.
0,2x n.a. 0,1x
5,0 0,2x0,1x
4,55,0 0,2x 3,0x4,5
3,0x 2,6x3,0x
Brazil 2,6x 2,6x
Telefonica Telefonica Telefonica Brasil Brasil Brasil
VIVT4 VIVT4
VIVT4 BuyBuy
BRL BRL Buy 47,9047,90 BRL60,0 60,0
47,90 25% 25%
20,8 60,0 20,8 22,28 22,28 25% 1%
1% 20,8 4%
4% -9%22,28 -9%5,5x
5,5x 5,5x5,3x
5,3x 5,3x 16,1x
16,1x 15,3x 16,1x
15,3x 5,6% 15,3x 5,6% 6,1%
5,6% 6,1% 1,2x
1,2x 6,1% 1,2x
1,3 1,2x1,2x
1,21,3 1,2x 0,3x1,2
0,3x 0,3x0,3x
Brazil 0,3x 0,3x
AXTELCPO AXTELCPO MMAXTELCPO MM Neutral Neutral MM MXNMXN Neutral n/a n/a MXN4,0 4,0
n.a. n/a n.a.
n.a. 4,0n.a.
n.a. n.a.
n.a. n.a. n.a.
n.a. n.a.
n.a. n.a.n.a.
n.a. n.a. n.a.
n.a. n.a.n.a.
n.a. n.a. n.a. n.a. n.a.
n.a.n.a. n.a.
n.a. n.a. n.a.
0,3n.a.n.a.
n.a.0,3 n.a. 2,1xn.a.
2,1x n.a.2,1x
Mexico n.a. n.a.
31,14 16% 16%
1,3 36,0 1,3
10,07 10,07 16% -3%
-1,5x Brazil -1,5x
Axtel*** Axtel*** Axtel*** Linx Linx
-3% 1,3 22%
22% 25%10,07 25%29,9x 29,9x 29,9x 25,3x
25,3x 25,3x 42,0x
42,0x 43,4x 42,0x
43,4x 0,4% 43,4x 0,4% 0,8%
0,4% 0,8% 4,3x
4,1x 0,8% 4,3x
(0,1) 4,1x4,3x
(0,1) (0,1) 4,1x -1,4x(0,1)
-1,4x -1,5x-1,4x
SONDA SONDA CI CI SONDA Neutral Neutral CI
CLP CLP Neutral1074,00 1074,00CLP 1.341,01.341,0 1074,00 25% 25%
1,41.341,0 1,4 1,42
1,42 25% -2%
-2% 1,4 5%
5% -18%1,42 -18%8,3x
8,3x 8,3x7,4x
7,4x 7,4x 18,0x
18,0x 15,5x 18,0x
15,5x 2,6% 15,5x 2,6% 3,1%
2,6% 3,1% 1,7x
1,6x 3,1% 1,7x
0,1 1,6x1,7x
0,00,1 1,6x 0,4x0,0
0,4x 0,1x0,4x
Chile 0,1x 0,1x
America America America Movil Movil Movil
AMXL AMXL MMMM AMXL Neutral Neutral MM
MXNMXN Neutral 14,3714,37MXN 13,5 13,5
46,7 13,5 46,7 32,73 32,73 -6% 4%
4% 46,7 6%
6% -16%32,73-16%5,1x
5,1x 5,1x4,8x
4,8x 4,8x 16,8x
16,8x 14,1x 16,8x
14,1x 2,2% 14,1x 2,2% 2,4%
2,2% 2,4% 2,8x
2,6x 2,4% 2,8x
27,0 2,6x2,8x
25,4 27,0 2,6x 1,9x25,4
1,9x 1,8x1,9x
Mexico 1,8x 1,8x
CLP CLP Neutral5576,20 5576,20CLP 7.300,07.300,0 5576,20 31% 31%
2,57.300,0 2,5 2,10
2,10 31% 0%
0% 2,5 2%
2% -27%2,10 -27%6,6x
6,6x 6,6x5,6x
5,6x 5,6x 34,9x
34,9x 16,7x 34,9x
16,7x 0,6% 16,7x 0,6% 0,6%
0,6% 0,6% 1,2x
1,2x 0,6% 1,2x
2,4 1,2x1,2x
2,42,4 1,2x 3,3x2,4
3,3x 2,8x3,3x
Chile 2,8x 2,8x
MXNMXN Neutral 54,1154,11MXN 75,0 75,0
7,8 75,0 7,8
9,97 39% 3%
3% 7,8 -6%
-6% -28%9,97 -28%6,5x
6,5x 6,5x6,1x
6,1x 6,1x 25,3x
25,3x 27,4x 25,3x
27,4x 1,0% 27,4x 1,0% 0,6%
1,0% 0,6% 1,7x
1,6x 0,6% 1,7x
4,1 1,6x1,7x
3,74,1 1,6x 2,3x3,7
2,3x 2,0x2,3x
Mexico 2,0x 2,0x
-1,0% -1,0% 4,2%
4,2%-18,5% -18,5% 5,5x
5,5x 5,5x5,3x
5,3x 5,3x 17,4x
17,4x 15,4x 17,4x
15,4x 15,4x
1,4x 1,5x
1,4x1,5x
0,9x 0,3x0,9x
0,3x 0,3x
Televisa Televisa Televisa
LINX3 BuyBuy
ENTEL ENTEL CI CI ENTEL Neutral Neutral CI TLEVICPO TLEVICPO MMMM TLEVICPO Neutral Neutral MM
BRL BRL Buy 31,1431,14 BRL36,0 36,0
n.a. n.a.
SONDA SONDA SONDA Entel Entel
LINX3 LINX3
7,5 16,0 7,5
14,37 -6% -6% 54,11 39% 39%
9,97
Median Median Median
1,5x
1,4x 0,9x
Airlines Airlines Airlines && Mileage & Mileage Mileage Multiplus Multiplus Multiplus
MPLU3 MPLU3
MPLU3 No No Rating Rating
BRLNo BRLRating24,8624,86 BRLn/a n/a
24,86 n.a. n.a.
1,0 n/a1,0
2,54
2,54 n.a. -1%
-1% 1,0 -3%
-3% -35%2,54 -35%5,0x
5,0x 5,0x5,0x
5,0x 5,0x 11,1x
11,1x 11,2x 11,1x
11,2x 9,4% 11,2x 9,4% 8,9%
9,4% 18,6x 8,9%
18,6x 8,9% 18,6x
(0,5) 18,6x 18,6x
(0,5) (0,5) 18,6x-3,9x(0,5)
-3,9x -4,4x-3,9x
-4,4x Brazil -4,4x
Smiles Smiles Smiles
SMLS3 SMLS3
SMLS3 Neutral Neutral
BRL BRL Neutral 43,5543,55 BRL50,0 50,0
43,55 15% 15%
1,4 50,0 1,4
13,79 13,79 15% -2%
-2% 1,4 15%
15% -49%13,79-49%5,9x
5,9x 5,9x4,5x
4,5x 4,5x 9,2x
9,2x 8,2x 9,2x
8,2x 2,7% 8,2x 2,7% 3,1%
2,7% 3,1% 5,3x
3,6x 3,1% 5,3x
(0,5) 3,6x5,3x
(0,6) (0,5) 3,6x -2,5x(0,6)
-2,5x -2,7x-2,5x
-2,7x Brazil -2,7x
LATAM** LATAM** LATAM**
LTMLTM USUS
LTMBuyUS Buy
USDUSD Buy 10,4310,43 USD 14,0 14,0
10,43 34% 34%
6,4 14,0 6,4
5,07
5,07 34% 1%
1% 6,4 13%
13% -25%5,07 -25%7,0x
7,0x 7,0x5,9x
5,9x 5,9x 30,7x
30,7x 14,2x 30,7x
14,2x 2,1% 14,2x 2,1% 2,1%
2,1% 2,1% 1,7x
1,6x 2,1% 1,7x
9,6 1,6x1,7x
9,49,6 1,6x 4,2x9,4
4,2x 3,7x4,2x
Chile 3,7x 3,7x
GOL** GOL** GOL**
GOLL4 GOLL4
GOLL4 BuyBuy
BRL BRL Buy 22,0022,00 BRL24,0 24,0
22,00 9% 9%
2,0 24,0 2,0
31,38 31,38 9% 4%
4% 2,0 6%
6% 28%31,38 28%9,1x
9,1x 9,1x6,4x
6,4x 6,4x n.a.
n.a. 15,5x n.a.
15,5x 0,0% 15,5x 0,0% 0,0%
0,0% -1,5x 0,0%
-1,7x 0,0% -1,5x
3,6 -1,7x -1,5x
3,53,6 -1,7x 5,2x3,5
5,2x 4,2x5,2x
Brazil 4,2x 4,2x
Copa** Copa** Copa**
CPA CPA USUS
CPABuyUS Buy
USDUSD Buy 77,4077,40 USD 125,0 125,0
77,40 61% 61%
3,3125,0 3,3
43,40 43,40 61% -3%
-3% 3,3 -4%
-4% -41%43,40-41%6,5x
6,5x 6,5x5,6x
5,6x 5,6x 8,8x
8,8x 8,2x 8,8x
8,2x 4,5% 8,2x 4,5% 4,9%
4,5% 4,9% 1,4x
1,3x 4,9% 1,4x
1,1 1,3x1,4x
0,91,1 1,3x 1,5x0,9
1,5x 1,2x1,5x
1,2x Peru 1,2x
Avianca Avianca Avianca Holdings Holdings Holdings
AVHAVH USUS
AVHBuyUS Buy
USDUSD Buy 4,47 4,47 USD 10,0 10,0
124% 4,47 124% 0,6 10,0 0,6
0,42
-7% 0,6 -15%
-15%-41%0,42 -41%7,5x
7,5x 7,5x7,8x
7,8x 7,8x n.a.
n.a. 5,7xn.a.
5,7x 1,0% 5,7x 1,0% 2,6%
1,0% 2,6% 0,5x
0,4x 2,6% 0,5x
4,0 0,4x0,5x
4,34,0 0,4x 4,6x4,3
4,6x 4,8x4,6x
Colombia 4,8x 4,8x
-1,3% -1,3% 1,5%
1,5%-37,9% -37,9% 6,7x
6,7x 6,7x5,8x
5,8x 5,8x 10,1x
10,1x 9,7x 10,1x
9,7x 9,7x
1,4x 1,5x
1,4x1,5x
2,8x 2,4x2,8x
2,4x 2,4x
Median Median Median
0,42 124%-7%
1,5x
1,4x 2,8x
Capital Capital CapitalGoods Goods Goods Randon Randon Randon
RAPT4 RAPT4
RAPT4 Neutral Neutral
BRL BRL Neutral 9,17 9,17 BRL9,0 9,0
9,17 -2% -2%
0,8 9,00,8
5,01
5,01 -2% -2%
-2% 0,8 4%
4% 10%5,01 10%10,9x 10,9x 10,9x9,3x
9,3x 9,3x 19,9x
19,9x 13,4x 19,9x
13,4x 1,1% 13,4x 1,1% 3,4%
1,1% 3,4% 2,1x
1,9x 3,4% 2,1x
0,3 1,9x2,1x
0,20,3 1,9x 2,3x0,2
2,3x 1,9x2,3x
Brazil 1,9x 1,9x
Marcopolo Marcopolo Marcopolo
POMO4 POMO4
POMO4 BuyBuy
BRL BRL Buy 4,13 4,13 BRL5,5 5,5
33% 4,13 33%
1,0 5,51,0
2,83
2,83 33% -2%
-2% 1,0 -1%
-1% -11%2,83 -11%18,5x 18,5x 18,5x 13,2x
13,2x 13,2x 25,8x
25,8x 14,0x 25,8x
14,0x 1,1% 14,0x 1,1% 3,6%
1,1% 3,6% 1,8x
1,7x 3,6% 1,8x
0,1 1,7x1,8x
0,10,1 1,7x 2,0x0,1
2,0x 1,1x2,0x
Brazil 1,1x 1,1x
Iochpe-Maxion Iochpe-Maxion Iochpe-Maxion
MYPK3 MYPK3
MYPK3 BuyBuy
BRL BRL Buy 22,8722,87 BRL33,0 33,0
22,87 44% 44%
0,9 33,0 0,9
5,28
5,28 44% -4%
-4% 0,9 0%
0% -11%5,28 -11%5,0x
5,0x 5,0x4,1x
4,1x 4,1x 19,8x
19,8x 8,7x 19,8x
8,7x 2,0% 8,7x 2,0% 2,0%
2,0% 2,0% 1,3x
1,1x 2,0% 1,3x
0,5 1,1x1,3x
0,40,5 1,1x 1,7x0,4
1,7x 1,3x1,7x
Brazil 1,3x 1,3x
Embraer Embraer Embraer
ERJERJ USUS
ERJBuyUS Buy
USDUSD Buy 21,3321,33 USD 26,0 26,0
21,33 22% 22%
3,9 26,0 3,9
21,24 21,24 22% -2%
-2% 3,9 -1%
-1% -11%21,24-11%6,2x
6,2x 6,2x5,1x
5,1x 5,1x 19,1x
19,1x 12,1x 19,1x
12,1x 2,2% 12,1x 2,2% 3,5%
2,2% 3,5% 0,9x
0,9x 3,5% 0,9x
1,3 0,9x0,9x
1,21,3 0,9x 1,9x1,2
1,9x 1,4x1,9x
Brazil 1,4x 1,4x
TUPY TUPY
TUPY3 TUPY3
TUPY3 BuyBuy
BRL BRL Buy 21,8021,80 BRL25,0 25,0
21,80 15% 15%
0,8 25,0 0,8
3,10
3,10 15% -1%
-1% 0,8 5%
5% 8%3,10 8% 5,9x
5,9x 5,9x5,3x
5,3x 5,3x 10,8x
10,8x 8,9x 10,8x
8,9x 6,2% 8,9x 10,2% 6,2%
6,2% 10,2% 1,7x
10,2% 1,8x 1,7x
0,2 1,8x1,7x
0,30,2 1,8x 1,4x0,3
1,4x 1,4x1,4x
Brazil 1,4x 1,4x
WEG WEG
WEGE3 WEGE3
WEGE3 Neutral Neutral
BRL BRL Neutral 17,3717,37 BRL21,0 21,0
17,37 21% 21%
9,4 21,0 9,4
15,54 15,54 21% -1%
-1% 9,4 -8%
-8% -19%15,54-19%20,4x 20,4x 20,4x 17,6x
17,6x 17,6x 27,7x
27,7x 24,5x 27,7x
24,5x 1,8% 24,5x 1,8% 2,0%
1,8% 2,0% 5,0x
4,5x 2,0% 5,0x
(0,1) 4,5x5,0x
(0,1) (0,1) 4,5x -0,2x(0,1)
-0,2x -0,1x-0,2x
-0,1x Brazil -0,1x
0,2%-11,3% -11,3% 6,2x
5,3x 5,3x 19,8x
19,8x 12,1x 19,8x
12,1x 12,1x
1,7x 1,7x
1,7x1,7x
1,9x 1,4x1,9x
1,4x 1,4x
Median Median Median
-1,9% -1,9% 0,2%
Source: BTG Pactual estimates
6,2x 6,2x5,3x
1,7x
1,7x 1,9x
201
Valuation Summary Com pany
Ticker
Rating
Share
Share
Currency
Price
Target
Upside
Mkt Cap
ADTV
(USD bn)
(USD m n)
EV/EBITDA 2018E
P/E
Div. Yield
P/BV
Net Debt/EBITDA
2019E
2018E
2019E
2018E
2019E
2018E
2019E
2018E
2019E
Car Rental & Logistics Tegm a
TGMA3
Buy
BRL
24.80 25,92
29.0 29,0
17% 12%
0.4 0,4
2.19 2,33
8.9x 9,2x
7.8x 8,1x
14.8x 15,4x
12.8x 13,4x
4.7% 4,5%
5.4% 5,1%
3.3x 3,5x
3.1x 3,2x
0.2x 0,2x
0.5x 0,5x
Localiza
RENT3
Buy
BRL
27.83 27,95
30.0 35,0
25% 8%
4.9 4,8
33.31 36,52
14.6x 14,9x
12.5x 12,7x
26.1x 28,7x
19.9x 21,8x
0.7% 0,9%
1.1% 1,0%
5.8x 6,0x
4.8x 5,0x
2.6x 3,0x
2.6x 3,2x
Unidas
LCAM3
Buy
BRL
29.25 33,40
38.0 38,0
30% 14%
0.9 1,0
1.06 1,43
7.1x 7,6x
6.2x 6,6x
17.6x 20,1x
10.6x 12,1x
1.4% 1,2%
1.4% 1,2%
2.1x 2,3x
1.8x 2,0x
3.4x 3,4x
3.3x 3,3x
Movida
MOVI3
Buy
BRL
8.03 7,62
8.0 8,0
0% 5%
0.6 0,5
1.36 1,75
7.6x 7,3x
6.8x 6,6x
20.9x 19,8x
14.7x 13,9x
1.2% 1,3%
1.7% 1,8%
1.6x 1,5x
1.5x 1,4x
n.a.
n.a.
11.7x 12,1x
10.2x 10,4x
20.4x 22,0x
16.4x 17,6x
4.6x 4,8x
3.9x 4,1x
1.4x 1,6x
1.5x 1,8x n.a.
Median Infrastructure RUMO
RAIL3
Buy
BRL
17.74 16,40
21.0 21,0
18% 28%
7.3 6,6
28.87 34,51
11.2x 10,6x
9.4x 8,8x
n.a.
36.4x 33,7x
0.0% 0,0%
0.0% 0,0%
3.4x 3,1x
3.2x 2,9x
n.a.
Mills
MILS3
Neutral
BRL
3.25 3,74
7.0 7,0
115% 87%
0.2 0,2
0.71 0,86
3.6x 4,1x
2.8x 3,2x
26.5x 30,5x
10,5x 9.1x
-2.3% -2,0%
2.3% 2,0%
0.5x 0,6x
0.5x 0,6x
n.a.
n.a.
Ferreycorp
FERREYC1 PE
Buy
PEN
2.38 2,30
3.1 3,1
30% 35%
0.7 0,7
0.52 0,55
5.8x 6,7x
5.2x 5,1x
8.2x 8,9x
7.2x 6,9x
5.6% 5,8%
4.9% 4,5%
1.0x 1,0x
1.0x 0,9x
1.9x 2,8x
1.6x 1,6x
EcoRodovias
ECOR3
Buy
BRL
9.14 9,52
12.0 12,0
31% 26%
1.3 1,4
6.87 7,44
4.8x 4,9x
4.4x 4,5x
9.1x 9,5x
7.1x 7,4x
6.6% 6,3%
14.2% 13,6%
5.0x 5,2x
5.0x 5,2x
2.2x 2,2x
2.0x 2,0x
CCR
CCRO3
Buy
BRL
11.22 12,22
21.0 21,0
87% 72%
6.0 6,3
21.63 25,72
5.4x 5,8x
4.5x 4,8x
10,7x 9.8x
8.0x 8,7x
7.1% 6,5%
10.0% 9,2%
2.3x 2,5x
2.2x 2,4x
1.6x 1,6x
1.3x 1,3x
5.4x 5,8x
4.5x 4,8x
10,1x 9.5x
8.0x 8,7x
2.3x 2,5x
2.2x 2,4x
1.9x 2,2x
1.6x 1,6x
16.4x 17,9x
10,8x 9.9x
n.a.
29.2x 31,8x
-0.1% -0,1%
0.9% 0,8%
1.9x 2,1x
1.8x 2,0x
0.3x 0,3x
0.2x 0,2x
6.4x 5,7x
5.9x 5,3x
12.8x 11,2x
10.8x 9,5x
3.9% 4,5%
4.6% 5,3%
1.5x 1,3x
1.4x 1,2x
-1.3x -1,3x
-1.2x -1,2x
4.6x 4,5x
4.3x 4,3x
16.1x 15,9x
15.0x 14,8x
3.1% 3,1%
3.3% 3,4%
0.8x 0,8x
0.8x 0,8x
-1.1x -1,1x
-0.9x -0,9x
5.4x 5,8x
4.5x 4,8x
11.3x 11,0x
10.8x 9,5x
1.9x 2,1x
1.8x 2,0x
0.3x 0,3x
0.2x 0,2x
3.5x 3,5x
2.7x 2,6x
7.0x 7,0x
5.8x 5,7x
5.3% 5,3%
7.8% 7,9%
1.2x 1,2x
1.1x 1,1x
-1.5x -1,5x
-1.5x -1,5x
Median Ports Santos Brasil Wilson Sons
STBP3
Buy
BRL
3.88 4,22
4.6 4,6
19% 9%
0.7 0,7
1.00 1,18
WSON33
Buy
BRL
44.99 40,25
47.0 47,0
17% 4%
0.8 0,7
SMSAAM CI
Neutral
CLP
57.60 58,00
67.0 67,0
16%
0.8 0,8
0.35 0,34
SER
SEER3
Buy
BRL
16.15 16,07
36.5 36,5
126% 127%
0.5 0,5
2.98 3,13
Qualicorp
QUAL3
Neutral
BRL
13.90 13,95
17.0 17,0
22%
1.0 1,0
13.78 13,75
3.0x 3,0x
2.7x 2,7x
5.9x 5,9x
5.4x 5,4x
15.1% 15,0%
16.8% 16,7%
1.7x 1,7x
1.7x 1,7x
-1.2x -1,2x
-1.2x -1,2x
OdontoPrev
ODPV3
Neutral
BRL
14.64 13,58
15.0 15,0
10% 2%
2.0 1,9
5.22 8,13
17.7x 16,3x
15.4x 14,2x
28.0x 25,9x
22.3x 20,7x
3.4% 3,7%
4.6% 5,0%
7.4x 6,9x
8.0x 7,4x
-1.1x -1,1x
-0.8x -0,8x
Hapvida
HAPV3
Buy
BRL
27.00 29,63
32.0 32,0
19% 8%
4.8 5,1
7.87 8,68
18.5x 20,3x
16.1x 17,7x
22.6x 24,8x
19.6x 21,5x
1.2% 1,1%
1.2% 1,1%
5.0x 5,5x
4.2x 4,6x
0.0x 0,0x
0.0x 0,0x -1.0x -1,0x
SAAM Median Healthcare and Education
Kroton
KROT3
Neutral
BRL
10.86 9,54
17.5 17,5
61% 83%
4.6 4,0
22.73 26,86
6.9x 5,9x
6.6x 5,7x
9.4x 8,3x
9.2x 8,0x
n.a.
n.a.
1.1x 0,9x
1.0x 0,9x
-0.9x -0,9x
LABB MM
Neutral
MXN
11.71 11,62
23.4 23,4
100% 101%
0.6 0,6
2.47 2,34
5.7x 5,7x
5.2x 5,2x
7.4x 7,3x
7.1x 7,0x
0.0% 0,0%
0.0% 0,0%
1.5x 1,5x
1.3x 1,3x
1.4x 1,4x
Fleury
FLRY3
Buy
BRL
20.23 20,03
29.0 29,0
43% 45%
1.7 1,6
10.60 10,43
9.9x 9,8x
9.0x 8,9x
17.4x 17,2x
16.6x 16,4x
n.a.
n.a.
3.7x 3,7x
3.7x 3,7x
0.8x 0,8x
0.8x 0,8x
Estácio
ESTC3
Buy
BRL
23.36 24,32
41.0 41,0
76% 69%
1.9 1,9
21.04 22,22
6.1x 6,4x
5.1x 5,4x
8.6x 9,0x
7.3x 7,6x
2.1% 2,1%
2.9% 2,8%
2.1x 2,2x
1.7x 1,8x
-0.5x -0,5x
-1.0x -1,0x
Ânim a Educação
ANIM3
Neutral
BRL
17.50 16,85
29.0 29,0
66% 72%
0.4 0,4
1.20 1,21
6.6x 6,4x
5.5x 5,3x
10.0x 9,6x
8.3x 8,0x
6.9% 7,2%
8.0% 8,3%
1.9x 1,8x
1.8x 1,7x
0.5x 0,5x
Alliar
AALR3
Buy
BRL
11.93 13,00
19.5 19,5
63% 50%
0.4 0,4
0.72 0,78
6.8x 7,3x
5.9x 6,3x
15.3x 16,7x
11.9x 13,0x
n.a.
n.a.
1.0x 1,1x
1.0x 1,1x
1.9x 1,9x
1.6x 1,6x
Grupo Biotoscana
GBIO33
Buy
BRL
9.06 8,33
33.0 33,0
264% 296%
0.3 0,2
0.57 0,58
3.7x 3,4x
2.8x 2,5x
6.2x 5,7x
4.9x 4,5x
n.a.
n.a.
1.2x 1,1x
1.0x 1,0x
-0.1x -0,1x
-0.4x -0,4x
6.6x 6,4x
5.5x 5,4x
9.4x 9,0x
8.3x 8,0x
1.9x 1,8x
1.7x 1,7x
-0.5x -0,5x
-0.8x -0,8x -0.1x -0,1x
Genom m a Lab
Median
1.3x 1,3x
0.4x 0,4x
Retail Walm ex
WALMEX* MM
Neutral
MXN
50.77 50,00
49.0 49,0
-3% -2%
43.7 43,1
37.29 41,91
14.3x 14,1x
13.4x 13,2x
25.9x 25,5x
24.0x 23,7x
3.2% 3,2%
2.6% 2,7%
5.3x 5,3x
4.9x 4,9x
-0.2x -0,2x
VVAR11
Neutral
BRL
14.75 14,58
25.0 25,0
69% 71%
1.7 1,6
17.95 19,35
6.6x 6,5x
5.1x 5,1x
97.7x 96,6x
21.6x 21,3x
0.0% 0,0%
0.0% 0,0%
2.2x 2,2x
2.0x 2,0x
1.4x 1,4x
Technos
TECN3
Neutral
BRL
2.21 2,30
6.0 6,0
171% 161%
0.0 0,0
0.05 0,06
6.8x 7,0x
6.0x 6,1x
9.3x 9,6x
9.5x 9,9x
0.0% 0,0%
0.0% 0,0%
0.4x 0,4x
0.3x 0,4x
3.1x 3,1x
2.7x 2,7x
Soriana
SORIANAB MM
Neutral
MXN
n/a
46.0 46,0
n.a.
n.a.
0.15 0,15
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
-0.7x -0,7x
-0.8x -0,8x
RADL3
Buy
BRL
63.20 63,14
80.0 80,0
27%
5.5 5,4
23.20 24,26
17.0x 17,0x
14.1x 14,1x
36.4x 36,3x
28.2x 28,2x
1.1% 1,1%
1.2% 1,2%
6.0x 6,0x
5.3x 5,3x
0.4x 0,4x
0.3x 0,3x
NATU3
Neutral
BRL
38.37 43,99
29.0 29,0
-24% -34%
4.3 4,9
16.68 19,67
10.8x 12,2x
10,2x 9.0x
23.1x 26,4x
16.9x 19,4x
3.0% 2,6%
4.1% 3,6%
11.5x 13,2x
10,9x 9.5x
1.3x 1,3x
1.0x 1,0x
MELI US
Buy
USD
319.00 333,51
390.0 390,0
22% 17%
14.1 14,7
256.19 233,14
n.a.
n.a.
n.a.
n.a.
0.0% 0,0%
0.0% 0,0%
100,3x 95.9x
111.4x 116,5x
-4.4x -4,4x
Via Varejo
Raia Drogasil Natura MercadoLibre
1.3x 1,3x
2.6x 2,6x
Marisa
AMAR3
Sell
BRL
5.89 5,43
8.0 8,0
36% 47%
0.3 0,3
1.21 1,36
7.3x 6,9x
5.4x 5,1x
n.a.
23.8x 21,9x
0.0% 0,0%
0.0% 0,0%
1.3x 1,2x
1.2x 1,1x
2.1x 2,1x
1.4x 1,4x
Magazine Luiza
MGLU3
Buy
BRL
160.00 167,50
151.0 151,0
-10% -6%
8.0 8,2
57.11 58,67
22.9x 24,0x
19.4x 20,3x
49.8x 52,1x
42.3x 44,3x
0.7% 0,7%
0.9% 0,8%
12.8x 13,4x
10.7x 11,2x
-0.8x -0,8x
-1.0x -1,0x
Lojas Renner
LREN3
Buy
BRL
38.80 39,66
35.0 35,0
-10% -12%
7.3 7,3
34.53 38,70
17.1x 17,5x
13.7x 14,0x
30.3x 31,0x
23.7x 24,2x
1.0% 1,0%
1.6% 1,6%
7.2x 7,4x
6.1x 6,2x
0.4x 0,4x
0.2x 0,2x 1.3x 1,3x
Lojas Am ericanas Liverpool Le Lis Blanc SMU InRetail
LAME4
Buy
BRL
18.13 19,95
23.0 23,0
27% 15%
7.6 8,2
20.80 22,62
10.8x 11,8x
8.1x 8,8x
40.7x 44,8x
23.0x 25,3x
0.4% 0,4%
1.2% 1,1%
5.5x 6,1x
4.7x 5,2x
1.8x 1,8x
LIVEPOLC MM
Neutral
MXN
127.36 124,98
155.0 155,0
22% 24%
n.a.
3.53 3,64
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
LLIS3
Buy
BRL
27.18 27,26
44.0 44,0
62% 61%
0.4 0,4
0.03 0,04
5.0x 5,0x
4.1x 4,1x
10.7x 10,7x
9.7x 9,7x
1.1% 1,1%
3.5% 3,5%
0.6x 0,6x
0.6x 0,6x
1.2x 1,2x
0.7x 0,7x
SMU CI
Buy
CLP
186.90 189,90
209.0 230,0
12% 21%
1.5 1,5
0.68 0,62
11.1x 10,9x
9.7x 9,9x
41.1x 29,5x
23.3x 22,8x
0.0% 0,0%
0.0% 0,0%
1.6x 1,5x
1.5x 1,5x
3.7x 3,8x
3.0x 3,2x
0.77 0,79
12.3x 12,2x
INRETC1 PE
Buy
USD
28.32 28,90
26.0 35,0
21% -8%
2.9 3,0
11.3x 10,3x
28.8x 41,8x
22.6x 19,2x
-0.7% 0,0%
-0.9% -0,8%
2.2x 2,3x
2.1x 2,1x
3.9x 3,9x
3.6x 3,3x
IMC
MEAL3
Buy
BRL
7.27 6,89
13.0 13,0
79% 89%
0.3 0,3
1.91 1,90
6.5x 6,1x
4.9x 4,6x
17.2x 16,3x
11.6x 11,0x
1.5% 1,5%
2.2% 2,3%
1.1x 1,0x
1.0x 1,0x
-1.0x -1,0x
-1.3x -1,3x
Hyperm arcas
HYPE3
Buy
BRL
30.56 31,53
29.0 29,0
-5% -8%
5.1 5,1
12.72 14,84
12.3x 12,8x
10.5x 10,9x
18.0x 18,5x
15.5x 16,0x
1.8% 1,7%
2.0% 2,0%
1.7x 1,8x
1.6x 1,7x
-1.1x -1,1x
-1.4x -1,4x
HGTX3
7.91 9,53
14.0x 15,0x
12.5x 13,4x
15.5x 16,6x
14.1x 15,1x
5.8% 5,4%
6.4% 6,0%
3.3x 3,5x
3.2x 3,4x
-0.5x -0,5x
-0.4x -0,4x
Hering Grupo Sanborns Grupo Pão de Açúcar Forus Falabella
Neutral
BRL
25.31 27,15
26.0 26,0
-4% 3%
1.1 1,1
GSANBOB1 MM
Sell
MXN
n/a
22.0 22,0
n.a.
n.a.
0.04 0,04
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
PCAR4
Buy
BRL
81.39 82,50
80.0 80,0
-2% -3%
5.7 5,6
31.63 34,73
8.2x 8,3x
7.2x 7,3x
29.3x 29,7x
23.7x 24,0x
0.9% 0,8%
2.1% 2,1%
2.0x 2,0x
1.9x 2,0x
-0.1x -0,1x
-0.3x -0,3x
FORUS CI
Neutral
CLP
1880.20 1880,00
2,300.0 2.300,0
22%
0.7 0,7
0.87 0,78
12.0x 12,0x
10.8x 10,8x
18.2x 18,2x
16.0x 16,0x
2.1% 2,1%
2.3% 2,3%
2.2x 2,2x
2.0x 2,0x
0.1x 0,1x
0.1x 0,1x
CLP
5221.70 5060,70
5,300.0 5.300,0
1% 5%
19.0 18,1
23.00 24,35
13.9x 13,6x
12.8x 12,5x
25.6x 24,9x
21.5x 20,8x
1.0% 1,0%
1.2% 1,2%
2.8x 2,7x
2.6x 2,5x
CVCB3
Buy
BRL
57.76 61,65
60.0 60,0
-3% 4%
2.2 2,3
15.28 16,93
13.4x 14,3x
10.5x 11,1x
28.9x 30,9x
20.1x 21,4x
0.8% 0,8%
1.7% 1,6%
8.2x 8,7x
6.5x 6,9x
0.9x 0,9x
0.5x 0,5x
Chedraui
CHDRAUIB MM
No Rating
MXN
39.01 37,39
n/a
n.a.
1.9 1,8
0.82 0,70
2.6x 2,5x
1.9x 1,8x
6.0x 5,7x
5.1x 4,9x
0.0% 0,0%
0.0% 0,0%
0.8x 0,8x
0.7x 0,7x
-0.9x -0,9x
-1.1x -1,1x
Cencosud
CENCOSUD CI
Neutral
CLP
1338.20 1231,00
1,850.0 1.850,0
38% 50%
5.7 5,1
6.44 6,26
8.1x 7,8x
7.8x 7,4x
16.3x 15,0x
14.9x 13,7x
3.0% 3,2%
3.0% 3,2%
0.9x 0,9x
0.9x 0,8x
3.4x 3,4x
3.2x 3,2x
B2W Digital
BTOW3
Buy
BRL
36.08 37,15
34.0 34,0
-6% -8%
4.3 4,3
23.77 30,12
40.0x 41,1x
25.1x 25,8x
n.a.
n.a.
0.0% 0,0%
0.0% 0,0%
4.5x 4,6x
4.6x 4,7x
4.1x 4,1x
2.2x 2,2x
Arezzo
ARZZ3
Buy
BRL
49.59 52,89
58.0 58,0
17% 10%
1.2 1,2
3.67 4,24
18.6x 19,9x
15.3x 16,4x
26.6x 28,4x
21.8x 23,2x
1.6% 1,5%
2.3% 2,1%
5.8x 6,2x
5.1x 5,4x
-1.0x -1,0x
-1.1x -1,1x
Burger King Brasil
BKBR3
Buy
BRL
17.97 18,35
21.0 21,0
17% 14%
1.0 1,0
3.89 4,61
11.1x 11,4x
8.5x 8,7x
38.2x 39,0x
21.7x 22,2x
0.5% 0,5%
1.2% 1,1%
2.4x 2,4x
2.2x 2,3x
-0.7x -0,7x
-0.6x -0,6x
VULC3
Buy
BRL
6.60 6,61
14.0 14,0
112%
0.4 0,4
0.78 0,84
EXITO CB
Buy
COP
13760.00 12200,00
17,000.0 17.000,0
24% 39%
1.9 1,7
1.13 1,56
CVC
Vulcabras Alm acenes Exito
FALAB CI
Neutral
Median
Source: BTG Pactual estimates
4.8x 4,8x
2.7x 2,7x
2.6x 2,6x
4.1x 4,1x
7.4x 7,4x
6.0x 6,0x
0.0% 0,0%
4.2% 4,2%
1.6x 1,6x
1.3x 1,3x
-0.5x -0,5x
-0.6x -0,6x
7.0x 6,8x
7.2x 7,0x
19.2x 17,1x
15.2x 13,4x
1.8% 2,0%
2.6% 2,9%
1.2x 1,1x
1.5x 1,3x
1.4x 1,4x
1.3x 1,3x
11.1x 11,9x
10,0x 9.4x
25.8x 26,0x
21.5x 20,8x
2.2x 2,3x
2.1x 2,1x
0.4x 0,4x
0.4x 0,4x
202
Valuation Summary
Company
Ticker
Rating
Share
Share
Currency
Price
Target
Upside
Mkt Cap
ADTV
(USD bn)
(USD mn)
2018E
EV/EBITDA 2019E
2018E
P/E 2019E
2018E
Div. Yield 2019E
2018E
P/BV 2019E
2018E
Net Debt/EBITDA 2019E
Food and Beverage Vina Concha y Toro
CONCHA CI
Buy
CLP
1331.30 1372,90
1,500.0 1.500,0
13% 9%
1.5 1,5
1.60 1,70
13.8x 14,1x
10.7x 10,9x
21.6x 22,3x
15.4x 15,9x
1.9% 1,8%
2.6% 2,5%
1.8x 1,9x
1.8x 1,8x
2.8x 2,8x
2.1x 2,1x
Arca Continental
AC* MM
Buy
MXN
105.24 104,84
145.0 145,0
38%
9.1 9,0
6.37 6,73
8.5x 8,9x
7.8x 7,6x
14.5x 20,7x
13.1x 16,0x
2.6% 2,1%
3.3% 2,3%
2.0x 1,7x
1.8x 1,6x
0.9x 1,3x
0.7x 1,0x
Minerva
BEEF3
Buy
BRL
5.71 5,14
14.0 14,0
145% 172%
0.3 0,3
3.23 3,01
5.0x 5,0x
4.7x 4,7x
4.2x 3,8x
4.6x 4,1x
0.8% 0,9%
3.7% 4,1%
13.8x 12,4x
12.8x 11,5x
4.1x 4,1x
3.9x 3,9x
Marfrig
MRFG3
Buy
BRL
6.38 5,81
8.5 8,5
33% 46%
1.0 0,9
5.93 5,29
5.9x 5,8x
2.9x 3,1x
n.a.
6.4x 8,1x
-2.4% -4,1%
3.8% 2,4%
3.8x 7,0x
2.4x 4,2x
3.8x 4,0x
1.8x 2,1x
M. Dias Branco
MDIA3
Neutral
BRL
43.00 43,30
45.0 45,0
5% 4%
3.8 3,8
5.54 6,11
15.3x 15,4x
11.1x 11,2x
25.2x 25,5x
19.3x 19,5x
1.1% 1,1%
1.3% 1,3%
2.5x 2,6x
2.4x 2,5x
0.7x 0,7x
0.6x 0,6x
JBS
JBSS3
Neutral Buy
BRL
11.15 12,00
10.0 15,0
-10% 25%
8.0 8,2
25.26 27,39
5.6x 5,4x
5.8x 5,0x
8.6x 6,6x
9.2x 5,9x
2.9% 3,8%
2.7% 4,2%
1.0x 1,1x
1.0x 1,1x
3.0x 3,2x
3.1x 3,0x
HERDEZ* MM
Buy
MXN
39.65 41,33
46.0 46,0
16% 11%
0.8 0,9
0.72 0,74
4.9x 5,1x
8.6x 8,9x
14.3x 14,9x
11.9x 12,4x
4.6% 4,4%
2.5% 2,4%
2.0x 2,1x
1.1x 1,1x
2.5x 2,5x
-2.6x -2,6x
Grupo Bimbo
BIMBOA MM
Buy
MXN
38.12 38,45
55.0 55,0
44% 43%
8.8 8,9
5.46 5,70
7.7x 7,7x
n.a.
18.8x 18,9x
16.3x 16,4x
5.3% 5,3%
6.1% 6,1%
2.4x 2,5x
2.2x 2,2x
2.2x 2,2x
n.a.
Gruma
GRUMAB MM
Buy
MXN
229.37 217,90
305.0 305,0
33% 40%
4.9 4,7
8.57 8,94
9.6x 9,2x
9.1x 8,7x
17.6x 16,7x
16.5x 15,7x
2.2% 2,4%
2.6% 2,8%
3.6x 3,4x
3.2x 3,0x
1.5x 1,5x
1.3x 1,3x
FEMSA
FMX US
No Rating
USD
86.80 84,61
n/a
n.a.
n.a.
38.61 44,22
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
Coca-Cola FEMSA
KOF US
Neutral
USD
60.58 60,63
90.0 90,0
49% 48%
126.4 126,5
6.79 6,72
63.3x 63,3x
60.4x 60,3x
n.a.
n.a.
-0.3% -0,3%
-0.3% -0,3%
19.9x 19,9x
18.7x 18,7x
1.4x 1,4x
1.2x 1,2x
CCU
CCU CI
Sell
CLP
8800.00 8762,40
9,000.0 9.000,0
2% 3%
4.9 4,7
5.42 4,81
5.8x 5,8x
8.7x 8,7x
10.9x 10,8x
18.4x 18,3x
4.6% 4,6%
2.7% 2,7%
2.6x 2,6x
2.4x 2,4x
-0.1x -0,1x
-0.1x -0,1x
BRF
BRFS3
Neutral
BRL
22.50 22,68
21.0 25,0
10% -7%
4.8 4,7
27.37 32,06
17,1x 9.9x
8.0x 7,6x
n.a.
52,4x n.a.
-2.2% -2,8%
0.2% 0,5%
1.9x 2,0x
1.9x 2,0x
3.6x 6,5x
2.9x 2,9x
Andina
ANDINAB CI
Neutral
CLP
2357.20 2552,10
3,400.0 3.400,0
44% 33%
3.3 3,5
2.48 3,09
8.1x 8,7x
7.2x 7,7x
17.3x 18,7x
14.8x 16,0x
3.5% 3,2%
4.0% 3,7%
2.8x 3,0x
2.8x 3,0x
1.6x 1,6x
1.4x 1,4x
Ambev
ABEV3
Neutral
BRL
16.50 16,32
17.0 17,0
3% 4%
68.2 65,9
79.58 84,39
11.6x 11,4x
10.7x 10,6x
20.1x 19,9x
17.4x 17,2x
4.5% 4,5%
6.1% 6,2%
4.8x 4,7x
4.9x 4,8x
-0.3x -0,3x
-0.3x -0,3x
Nutresa
NUTRESA CB
Neutral
COP
23400.00 23500,00
29,000.0 29.000,0
24% 23%
3.4 3,4
0.75 0,70
11.7x 11,7x
10.2x 10,2x
21.2x 21,3x
18.1x 18,2x
2.4% 2,4%
2.5% 2,5%
1.2x 1,2x
1.1x 1,1x
2.2x 2,2x
1.7x 1,7x
Alicorp
ALICORC1 PE
Buy
PEN
n/a
13.0 13,0
n.a.
n.a.
1.14 1,15
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
2.1x 2,1x
1.6x 1,6x
Andina
ANDINAB CI
Neutral
CLP
2357.20 2552,10
3,400.0 3.400,0
44% 33%
3.3 3,5
2.48 3,09
8.1x 8,7x
7.2x 7,7x
17.3x 18,7x
14.8x 16,0x
3.5% 3,2%
4.0% 3,7%
2.8x 3,0x
2.8x 3,0x
1.6x 1,6x
1.4x 1,4x
Alsea
ALSEA* MM
Buy
MXN
48.96 51,21
70.0 70,0
43% 37%
2.0 2,1
7.47 8,05
9.1x 9,4x
8.2x 8,5x
37.2x 38,9x
28.5x 29,8x
0.9% 0,8%
2.0% 1,9%
3.7x 3,9x
3.5x 3,7x
2.6x 2,6x
2.3x 2,3x
Lala
LALAB MM
Neutral
MXN
17.00 20,18
24.5 24,5
44% 21%
2.1 2,5
1.36 1,39
8.0x 8,9x
7.0x 7,8x
19.6x 23,3x
14.0x 16,6x
3.6% 3,0%
3.6% 3,0%
1.6x 1,9x
1.5x 1,8x
3.2x 3,2x
2.7x 2,7x
8.5x 8,9x
8.4x 8,6x
17.4x 18,8x
15.4x 16,0x
2.6x 2,6x
2.4x 2,5x
2.1x 2,1x
1.4x 1,4x
Herdez
Median
Source: BTG Pactual estimates
203
Valuation Summary
Company
Ticker
Rating
Share
Share
Currency
Price
Target
Upside
Mkt Cap
ADTV
(USD bn)
(USD mn)
2018E
EV/EBITDA 2019E
P/E 2018E
Div. Yield
P/BV
Net Debt/EBITDA
2019E
2018E
2019E
2018E
2019E
2018E
2019E
Banks Santander Mexico
BSMXB MM
Buy
MXN
24.62 25,32
39.0 31,0
58% 22%
8.2 8,5
7.81 9,25
n.a.
n.a.
8.5x 8,8x
8.7x 8,9x
5.5% 5,4%
5.8% 5,6%
1.4x 1,4x
1.3x 1,3x
n.a.
n.a.
Santander Chile
BSAN CI
Neutral
CLP
51.43 52,44
52.0 52,0
-1% 1%
14.5 14,5
7.79 7,77
n.a.
n.a.
15.8x 16,2x
14.8x 15,1x
4.1% 4,0%
4.4% 4,3%
3.0x 3,0x
2.8x 2,8x
n.a.
n.a.
Santander Brasil
SANB11
Neutral
BRL
41.78 43,42
37.5 47,0
-10% 8%
41.5 42,2
17.52 18,69
n.a.
n.a.
12.8x 13,3x
11.6x 12,1x
3.0% 2,9%
3.2% 3,1%
1881.6x 1917,1x
1665.9x 1697,4x
n.a.
n.a.
Itau Unibanco
ITUB4
Buy
BRL
34.61 35,78
52.0 42,0
50% 17%
59.2 89,7
171.06 184,99
n.a.
n.a.
13,7x 8.8x
11,9x 7.7x
7.9% 5,1%
7.8% 5,0%
2.1x 3,3x
2.1x 3,3x
n.a.
n.a.
Intercorp Financial Services
IFS PE
Buy
USD
39.00 41,36
48.0 48,0
23% 16%
4.4 4,7
0.58 0,70
n.a.
n.a.
12.2x 12,9x
10,3x 9.7x
3.6% 3,4%
4.1% 3,8%
2.0x 2,2x
1.8x 1,9x
n.a.
n.a.
GFINBURO MM
Neutral
MXN
26.67 27,01
35.0 28,0
31% 4%
8.8 8,9
4.69 4,84
n.a.
n.a.
10.5x 10,6x
10,0x 9.9x
1.8% 1,8%
2.0% 1,9%
1.2x 1,2x
1.1x 1,1x
n.a.
n.a.
GGAL AR
Buy
ARS
104,85 93.20
163.0 163,0
75% 55%
3.7 4,0
4.60 4,05
n.a.
n.a.
11.1x 12,5x
8.6x 9,7x
0.3% 0,3%
0.9% 0,8%
2.5x 2,8x
2.0x 2,2x
n.a.
n.a.
Gentera
GENTERA* MM
Buy
MXN
13.87 14,14
24.0 19,0
73% 34%
1.1 1,1
3.34 3,67
n.a.
n.a.
7.7x 7,9x
7.1x 7,2x
6.4% 6,3%
7.4% 7,3%
1.3x 1,4x
1.2x 1,3x
n.a.
n.a.
Davivienda
PFDAVVND CB
Buy
COP
32780.00 33400,00
38,000.0 38.000,0
16% 14%
4.7 4,8
1.14 0,89
n.a.
n.a.
10,0x 9.8x
8.3x 8,5x
2.4% 2,4%
3.1% 3,0%
1.3x 1,4x
1.2x 1,2x
n.a.
n.a.
Credicorp
BAP US
Buy
USD
223.67 218,54
238.0 238,0
6% 9%
17.8 17,4
37.22 37,08
n.a.
n.a.
14.0x 13,7x
12.2x 11,9x
2.0% 2,0%
2.5% 2,6%
2.4x 2,4x
2.1x 2,1x
n.a.
n.a.
ITAUCORP CI
Neutral
CLP
6.32 6,46
7.5 7,5
19% 16%
4.8 4,9
3.69 3,50
n.a.
n.a.
16.5x 16,9x
13.3x 13,6x
0.7% 0,7%
2.4% 2,4%
1.0x 1,0x
0.9x 0,9x
n.a.
n.a.
Bradesco
BBDC4
Buy
BRL
36.80 38,84
38.0 48,0
24% 3%
64.8 66,8
131.15 145,01
n.a.
n.a.
12.8x 13,5x
10.5x 11,1x
3.8% 3,6%
4.4% 4,2%
2.1x 2,2x
1.9x 2,0x
n.a.
n.a.
Banrisul
BRSR6
Neutral
BRL
20.90 22,05
19.0 23,0
-9% 4%
2.2 2,3
6.24 7,81
n.a.
n.a.
8.1x 8,2x
7.3x 7,5x
4.9% 8,8%
5.5% 5,4%
1.2x 1,3x
1.1x 1,2x
n.a.
n.a.
Regional
RA MM
Neutral
MXN
88.88 87,60
134.0 109,0
51% 24%
1.4 1,4
3.12 3,09
n.a.
n.a.
9.3x 9,2x
8.4x 8,3x
1.9% 1,9%
3.2% 3,3%
1.7x 1,6x
1.5x 1,4x
n.a.
n.a.
BanBajio
BBAJIOO MM
Buy
MXN
38.04 36,92
51.0 43,0
34% 16%
2.2 2,2
5.34 5,52
n.a.
n.a.
9.0x 8,8x
8.7x 8,4x
1.7% 1,8%
3.3% 3,4%
1.6x 1,5x
1.4x 1,4x
n.a.
n.a.
Banorte
GFNORTEO MM
Buy
MXN
97.00 91,68
163.0 122,0
68% 33%
13.3 12,6
56.18 62,94
n.a.
n.a.
8.8x 8,4x
7.3x 6,9x
4.5% 4,8%
5.7% 6,0%
1.6x 1,5x
1.4x 1,3x
n.a.
n.a.
PFBCOLO CB
Neutral
COP
33320.00 32420,00
32,500.0 32.500,0
-2% 0%
10.0 9,8
5.50 4,79
n.a.
n.a.
11.1x 10,8x
8.8x 8,6x
3.1% 3,2%
3.6% 3,7%
1.3x 1,3x
1.2x 1,2x
n.a.
n.a.
PINE4
Neutral
BRL
2.45 2,30
4.0 4,0
63% 74%
0.1 0,1
0.03 0,04
n.a.
n.a.
3.3x 3,1x
n.a.
16.9% 18,0%
n.a.
0.2x 0,2x
n.a.
n.a.
n.a.
Banco Macro
BMA AR
Buy
ARS
170.00 159,25
312.0 312,0
84% 96%
3.1 2,8
2.62 1,59
n.a.
n.a.
8.4x 7,9x
6.7x 6,2x
1.5% 1,6%
2.4% 2,5%
1.9x 1,8x
1.6x 1,5x
n.a.
n.a.
Banco do Brasil
BBAS3
Neutral
BRL
44.45 44,08
39.0 52,0
-12% 18%
33.1 32,1
138.56 148,97
n.a.
n.a.
9.3x 9,3x
6.4x 6,4x
4.1% 4,1%
5.2% 5,2%
1.2x 1,2x
1.1x 1,1x
n.a.
n.a.
Banco ABC
ABCB4
Buy
BRL
16.00 16,64
19.0 22,0
19% 32%
0.8 0,8
1.31 1,67
n.a.
n.a.
6.8x 7,0x
6.1x 6,0x
6.6% 6,4%
7.4% 7,5%
0.9x 0,9x
0.8x 0,8x
n.a.
n.a.
10,0x 9.3x
8.6x 8,7x
1.6x 1,5x
1.4x 1,4x n.a.
Inbursa Grupo Galicia
ItauCorpbanca
Bancolombia Banco Pine
Median Financials ex-banks SulAmerica
SULA11
Neutral
BRL
25.38 28,86
24.5 30,0
-3% 4%
2.6 2,9
7.54 9,93
n.a.
n.a.
11.4x 12,2x
10.0x 11,1x
2.2% 2,1%
2.5% 2,2%
1.6x 1,8x
1.4x 1,6x
n.a.
Porto Seguro
PSSA3
Neutral
BRL
53.58 52,50
52.0 52,0
-3% -1%
4.6 4,4
11.01 10,87
n.a.
n.a.
14.4x 14,1x
12.6x 12,3x
6.4% 6,5%
4.8% 4,9%
2.4x 2,3x
2.2x 2,2x
n.a.
n.a.
Cielo
CIEL3
Neutral
BRL
9.27 9,26
11.0 11,0
19%
6.6 6,5
32.01 38,13
4.6x 4,6x
5.7x 5,7x
7.1x 7,1x
9.4x 9,4x
13.9% 13,9%
9.9% 9,9%
1.6x 1,6x
1.6x 1,6x
0.6x 0,6x
0.6x 0,6x
Grupo Aval
PFAVAL CB
Neutral
COP
1060.00 1000,00
1,260.0 1.260,0
19% 26%
7.4 7,0
1.77 1,87
n.a.
n.a.
11.0x 10,4x
9.4x 8,8x
5.3% 5,6%
5.9% 6,2%
1.4x 1,3x
1.3x 1,2x
n.a.
n.a.
Grupo Sura
GRUPOSUR CB
Neutral
COP
32500.00 32880,00
41,900.0 41.900,0
29% 27%
5.9 6,0
5.58 5,53
n.a.
n.a.
10,0x 9.9x
8.2x 8,3x
1.6% 1,6%
1.7% 1,7%
0.7x 0,7x
0.7x 0,7x
n.a.
n.a.
B3SA3
Buy
BRL
26.59 27,70
27.0 32,0
16% 2%
14.3 14,5
66.04 72,84
16.0x 16,1x
14.0x 14,5x
17.6x 18,6x
16.3x 16,6x
2.9% 2,9%
3.7% 3,6%
2.2x 2,3x
2.1x 2,2x
-0.7x -0,7x
-0.8x -0,8x
IRB Brasil RE
IRBR3
Neutral
BRL
73.89 76,00
65.0 72,0
-12% -5%
6.1 6,1
14.30 16,10
n.a.
n.a.
20.0x 19,7x
16.9x 16,4x
3.7% 3,8%
4.4% 4,6%
7.1x 7,2x
6.4x 6,5x
n.a.
n.a.
BB Seguridade
BBSE3
Buy
BRL
26.83 27,29
33.0 33,0
23% 21%
14.1 14,0
25.61 30,83
n.a.
n.a.
13.5x 13,9x
13.3x 13,7x
10,1% 5.7%
6.1% 6,0%
5.5x 7,6x
5.1x 6,9x
n.a.
n.a.
Wiz
WIZS3
Neutral
BRL
7.30 7,11
10.0 10,0
37% 41%
0.3 0,3
1.21 1,23
0.0x 0,0x
0.0x 0,0x
0.0x 0,0x
0.0x 0,0x
13.7% 14,0%
14.2% 14,5%
31.6x 30,8x
26.6x 25,9x
n.a.
n.a.
4.6x 4,6x
5.7x 5,7x
11.4x 12,2x
10.0x 11,1x
2.2x 2,3x
2.1x 2,2x
-0.1x 0,0x
-0.1x -0,1x
B3
Median
Source: BTG Pactual estimates
204
Valuation Summary
Company
Ticker
Rating
Share
Share
Currency
Price
Target
Upside
Mkt Cap
ADTV
(USD bn)
(USD mn)
EV/EBITDA 2018E
2019E
P/E 2018E
Div. Yield 2019E
2018E
P/BV
Net Debt/EBITDA
2019E
2018E
2019E
2018E
2019E -5.7x -5,7x
Housing Tecnisa
TCSA3
Neutral
BRL
1.26 1,37
2.1 2,1
67% 53%
0.1 0,1
0.63 0,77
n.a.
n.a.
n.a.
n.a.
0.0% 0,0%
0.0% 0,0%
0.5x 0,5x
0.5x 0,6x
-2.8x -2,8x
MRV
MRVE3
Buy
BRL
12.25 11,96
18.0 18,0
47% 51%
1.4 1,4
13.57 15,02
7.9x 7,7x
5.8x 5,7x
7.9x 7,7x
5.7x 5,6x
6.3% 6,5%
12.3% 12,6%
0.9x 0,9x
0.9x 0,9x
0.5x 0,5x
0.0x 0,0x
Lopes
LPSB3
Neutral Buy
BRL
4.29 4,93
3.6 6,7
-16% 36%
0.1 0,2
0.40 0,48
3.5x n.a.
14,0x 2.8x
17.4x n.a.
11.2x n.a.
-0.3% 0,0%
6.1% 0,0%
10,2x 0.7x
0.7x 8,9x
-0.8x -2,2x
-0.9x -0,5x
Helbor
HBOR3
Neutral
BRL
1.36 1,59
2.0 2,0
47% 26%
0.2 0,2
0.48 0,69
n.a.
33.5x 35,2x
n.a.
25.1x 29,4x
0.0% 0,0%
0.0% 0,0%
0.5x 0,6x
0.5x 0,5x
-35.4x -35,4x
17.8x 17,8x
Javer
JAVER* MM
Buy
MXN
16.90 16,90
20.2 20,2
19%
0.2 0,2
0.02 0,03
6.7x 6,7x
5.7x 5,7x
12.1x 12,1x
9.1x 9,1x
0.0% 0,0%
3.4% 3,4%
2.1x 2,1x
1.8x 1,8x
2.1x 2,1x
1.6x 1,6x
Gafisa
GFSA3
Neutral
BRL
13.96 16,20
17.0 17,0
22% 5%
0.2 0,2
4.24 5,13
n.a.
14.3x 15,5x
n.a.
24.8x 28,7x
0.0% 0,0%
0.0% 0,0%
0.5x 0,6x
0.5x 0,6x
-17.5x -17,5x
7.1x 7,1x
Eztec
EZTC3
Neutral
BRL
23.46 24,69
23.0 23,0
-2% -7%
1.0 1,0
2.71 3,02
n.a.
21.7x 23,1x
31.5x 33,2x
15.4x 16,2x
4.8% 4,6%
7.1% 6,8%
1.5x 1,6x
1.5x 1,6x
-16.4x -16,4x
-4.8x -4,8x
Even
EVEN3
Buy
BRL
5.37 6,08
7.0 7,0
30% 15%
0.3 0,3
1.06 1,45
n.a.
45.2x 48,6x
n.a.
18.2x 20,6x
0.0% 0,0%
3.9% 3,4%
0.6x 0,7x
0.6x 0,7x
-14.5x -14,5x
13.1x 13,1x
Direcional
DIRR3
Buy
BRL
7.31 7,68
7.5 7,5
-2% 3%
0.3 0,3
1.53 1,75
59.5x 61,6x
14.6x 15,2x
n.a.
13.4x 14,1x
3.9% 3,7%
5.2% 5,0%
0.7x 0,8x
0.7x 0,7x
13.4x 13,4x
2.5x 2,5x
Cyrela
CYRE3
Buy
BRL
14.34 15,21
16.0 16,0
12% 5%
1.4 1,5
11.04 12,82
37.2x 39,1x
12.9x 13,6x
29.5x 31,2x
10.5x 11,2x
8.0% 7,5%
16.8% 15,8%
1.0x 1,0x
1.1x 1,1x
4.8x 4,8x
1.1x 1,1x
Consorcio ARA
ARA* MM
Neutral
MXN
n/a
7.0 7,0
n.a.
n.a.
0.25 0,25
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
-0.1x -0,1x
0.0x 0,0x
Brasil Brokers
BBRK3
Neutral
BRL
5.40 7,00
2.1 2,1
-61% -70%
0.3 0,3
0.35 0,32
12.4x 16,4x
12,8x 9.7x
24.8x 32,1x
17.4x 22,6x
2.9% 2,3%
5.0% 3,8%
1.9x 2,4x
1.8x 2,4x
-1.5x -1,5x
-1.3x -1,3x
10.1x 16,4x
13.6x 14,6x
21.1x 31,2x
14.4x 16,2x
0.7x 0,9x
0.7x 0,9x
-1.2x -1,9x
0.5x 0,5x
Median Commercial Properties Parque Arauco
PARAUCO CI
Buy
CLP
1565.10 1602,40
n.a
n.a.
2.1 2,1
1.71 1,73
16.9x 17,2x
15.2x 15,4x
17.7x 18,1x
15.7x 16,0x
1.4% 1,4%
3.2% 3,1%
1.6x 1,7x
1.6x 1,6x
5.6x 5,6x
4.9x 4,9x
Multiplan
MULT3
Buy
BRL
23.05 23,79
23.3 23,3
-2% 1%
1.2 1,2
13.59 15,74
5.6x 5,8x
4.9x 5,0x
10.0x 10,3x
8.8x 9,1x
5.0% 4,9%
5.7% 5,5%
0.8x 0,9x
0.8x 0,8x
0.7x 0,7x
0.3x 0,3x
Iguatemi
IGTA3
Buy
BRL
39.36 39,55
42.0 42,0
7% 6%
1.8 1,8
10.81 12,62
15.3x 15,4x
13.5x 13,5x
25.8x 25,9x
22.3x 22,4x
1.7% 1,7%
2.1% 2,1%
2.4x 2,4x
2.3x 2,3x
2.6x 2,6x
2.0x 2,0x
Fibra Uno
FUNO11 MM
Buy
MXN
21.36 21,94
36.5 36,5
71% 66%
4.0 4,1
14.50 14,00
10.8x 11,0x
10.1x 10,2x
10.1x 10,3x
9.0x 9,2x
10.3% 10,0%
11.9% 11,6%
0.6x 0,6x
0.6x 0,6x
4.6x 4,6x
4.3x 4,3x
IRSA IyR
IRS US
Buy
USD
12.99 13,04
27.7 27,7
113% 112%
0.0 0,0
1.64 1,41
5.5x 5,5x
3.4x 3,4x
0.0x 0,0x
0.0x 0,0x
0.4% 0,4%
0.4% 0,4%
1.0x 1,1x
0.8x 0,9x
6.9x 6,9x
4.5x 4,5x
IRSA Propiedades Comerciales
IRCP US
Buy
USD
20.80 19,47
47.0 47,0
126% 141%
0.7 0,6
0.19 0,18
43.7x 42,4x
25.7x 25,0x
36.1x 35,0x
52.4x 50,9x
0.1% 0,1%
0.1% 0,1%
2.6x 2,6x
2.2x 2,2x
2.9x 2,9x
2.1x 2,1x
FIBRAMQ MM
Buy
MXN
19.12 17,61
30.0 30,0
57% 70%
0.5 0,5
1.42 1,50
8.7x 8,4x
8.3x 8,0x
4.0x 3,7x
7.0x 6,4x
8.4% 9,1%
8.9% 9,7%
0.4x 0,4x
0.4x 0,4x
5.0x 5,0x
4.7x 4,7x
CCPR3
Neutral
BRL
8.90 8,43
15.0 15,0
69% 78%
0.2 0,2
0.11 0,15
9.6x 9,5x
8.8x 8,7x
12.1x 11,4x
8.3x 7,8x
2.1% 2,2%
2.8% 2,9%
0.8x 0,8x
0.8x 0,7x
5.5x 5,5x
5.0x 5,0x
Terrafina
TERRA13 MM
Buy
MXN
24.13 25,41
n.a
n.a.
0.7 0,8
1.78 1,82
11.8x 12,3x
n.a.
n.a.
n.a.
9.2% 8,7%
n.a.
0.7x 0,8x
n.a.
3.3x 3,3x
n.a.
BR Malls
BRML3
Buy
BRL
12.22 13,14
13.0 13,0
-1% 6%
2.7 2,9
19.67 23,13
13.0x 13,9x
11.9x 12,6x
18.0x 19,4x
15.6x 16,8x
1.4% 1,3%
3.0% 2,8%
1.0x 1,1x
1.0x 1,0x
1.8x 1,8x
1.5x 1,5x
CELSIA CB
Neutral
COP
4000.00 3930,00
5,050.0 5.050,0
26% 28%
0.9 0,9
0.44 0,36
7.8x 7,7x
7.8x 7,7x
23.6x 23,1x
23.7x 23,3x
4.3% 4,3%
4.6% 4,7%
0.9x 0,9x
0.9x 0,9x
2.7x 2,7x
2.7x 2,7x
ALSC3
Buy
BRL
17.55 18,67
19.0 19,0
8% 2%
0.9 1,0
2.51 2,75
13.3x 13,9x
12.0x 12,6x
30.8x 32,8x
22.4x 23,8x
1.5% 1,4%
2.2% 2,1%
1.4x 1,5x
1.4x 1,4x
3.8x 3,8x
3.2x 3,2x
Fibra Shop
FSHOP13 MM
Buy
MXN
8.45 8,32
16.0 16,0
89% 92%
0.2 0,2
0.17 0,14
12.5x 12,5x
12.0x 12,0x
9.5x 9,3x
8.2x 8,1x
10.7% 10,8%
11.7% 11,9%
0.4x 0,4x
0.4x 0,4x
8.0x 8,0x
7.8x 7,8x
Vesta
VESTA* MM
Buy
MXN
24.49 26,33
33.0 33,0
35% 25%
0.7 0,8
2.11 2,12
13.5x 14,1x
13.0x 13,5x
n.a.
n.a.
4.6% 4,3%
5.7% 5,3%
0.7x 0,8x
0.7x 0,8x
5.6x 5,6x
6.1x 6,1x
11.8x 12,3x
11.0x 11,1x
14.9x 14,8x
12.3x 12,6x
0.9x 0,9x
0.9x 0,9x
3.8x 3,8x
3.7x 3,7x
Fibra MQ CCP
Celsia Aliansce
Median
Source: BTG Pactual estimates
205
Disclaimer
206
2019 Brazil Equity Strategy Outlook Promising prospects December 2018 Carlos E. Sequeira, CFA [email protected] +1 646 924-2479 Bernardo Teixeira [email protected] +55 11 3383-3315 LEGAL DISCLAIMERS & DISCLOSURES: www.btgpactual.com/research/Disclaimers/Overview.aspx
Claudio Ferraz, BTG’s Brazil Chief Economist [email protected] +55 21 3262-9758
We are bullish Brazilian equities We see a combination of factors that could drive Brazilian equities up in 2019 ✓ The Ibovespa is relatively cheap – Trading below its historical average (at 11.7x 12-month forward P/E), there is clear upside potential for the Ibovespa.
✓ Earnings should continue to grow strongly in 2019 − Earnings of companies that sell basically domestically are expected to grow 23% in 2018 and 17% in 2019.
✓ Brazilians stocks are under-owned by locals and foreigners − Allocations to Brazilian equities, both by foreign and local investors, are at quite reduced levels.
✓ We expect the economic recovery to accelerate in 2019 – After a massive recession in 2015/2016 and a couple of years of mediocre growth, our economic team expects Brazil’s GDP to grow 2.8% in 2019. Privatizations, concessions and a more pro-business stance by the new government should help fuel Brazil’s economic growth.
✓ Fiscal gap needs to be addressed sooner, rather than later − The new administration must submit to congress a thorough pension reform in its early days in power and press hard to get it approved. .
3
The new administration Team & initial moves to drive markets ✓ This year’s presidential campaign was unique in the sense that the leading candidate and now president elect did not participate in most of the campaign debates and did not have to discuss its main economic proposals in details. – Bolsonaro’s strong, market friendly economic team indicates that the direction is right. A firm commitment to a deep pension reform is a necessary step to create the basis for a more sustained recovery. The initials signs are encouraging.
✓ As the new president’s economic policies are implemented, investors should feel more comfortable to invest in the country − Increased investors’ confidence in the government´s ability to deal with its fiscal problems should drive long-term real interest rates down, making stocks more attractive.
✓ Initial signs are encouraging; main question mark is on PSL’s support in congress – Bolsonaro’s PSL will have the second largest base in the lower house, with 52 congressmen (vs. 8 before). Maybe more importantly, we estimate Bolsonaro’s support base to reach some 168 congressmen, or close to 52% of the house — to reach constitutional quorum (308 votes) he would need the support of “independent” parties PSDB and MDB. – On the other hand, Bolsonaro should expect a fierce opposition from the PT party, which elected the largest base in the lower house and the most number of state governors.
4
Valuations are relatively attractive ✓ The Ibovespa is now trading at 11.7x 12-month forward P/E, below its historical average. − Trading below average (11.7x 12-month forward P/E), there is clear upside potential for the Ibovespa. We would expect it to quickly move back to its historical trading average, implying an Ibovespa close to 97,000 points and an upside of close to 10%. − The beginning of the new government and concrete moves towards privatization and the approval of a pension reform could cause the Ibovespa to trade at one-standard deviation above average, implying an Ibovespa trading close to 112,000 points and an upside close to 27%.
Brazil’s 12-month forward P/E
Brazil’s premium to hold equities
19x
10%
17x
8% 6%
15x
5.5%
4% 13x
2% 11.7
11x
1.9%
0% -2%
9x
-4% -6%
Average
+1 Std Dev
-1 Std Dev
P/E 12MF (ex-Petro & Vale)
-8% Sep-06 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 Jan-18 May-18 Sep-18
Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 Jan-18 May-18 Sep-18
7x
Real Earnings Yield (Ex-Petro & Vale)
AVERAGE
+1 Std Dev
-1 Std Dev
Source: Economática, BTG Pactual estimates
5
Earnings should continue to grow strongly in 2019 ✓ We are modeling for 2018 & 2019 domestic earnings to growth of 23% y/y and 17% y/y, respectively. Domestic earnings and revenue growth
Net revenues Growth Net income Growth
2014 595,933 111,532
2015 674,071 13.1% 114,921 3.0%
2016 698,859 3.7% 106,548 -7.3%
2017 713,524 2.1% 114,921 7.9%
2018E 795,552 11.5% 141,529 23.2%
2019E 873,411 9.8% 164,885 16.5%
Source: BTG Pactual estimates
✓ Consolidated earnings expected to grow 27% y/y and 31% in 2019 – When we include commodity exporters, we see consolidated earnings growing 27% in 2018 and 31% in 2019. A good part of the jump can be ascribed to the impact of a stronger USD on these companies’ revenues. Consolidated earnings and revenue growth
Net revenues Growth Net income Growth
2014 872,149 120,174
2015 2016 2017 2018E 2019E 966,665 1,006,512 1,037,637 1,196,040 1,301,590 10.8% 4.1% 3.1% 15.3% 8.8% 96,586 139,722 140,328 178,642 233,723 -19.6% 44.7% 0.4% 27.3% 30.8%
Source: BTG Pactual estimates
6
Brazilian equities are under-owned ✓ In September, Global and GEM funds were close to historical lows. Exposure levels rose slightly in October, but allocations are still way off levels seen in the recent past.
✓ Local investors’ equities allocations aren’t expiring either. GEM & Global funds allocations to Brazil
Locals allocations to equities
Global
16.7%
2.40%
15.9%
1.97%
16.4%
2.24%
11.9%
1.31%
11.0%
1.07%
9.1%
1.07%
6.0% 8.6%
0.52% 0.93%
7.2%
0.60%
7.6%
0.69%
7.5%
0.62%
6.0%
0.42%
6.4%
0.37%
8.0%
0.51%
4,122 22.0%
4000
18.0% 18.3% 14.8%
2500 15.5% 11.3% 9.9% 1000
854
10.6%
717 893 11.1% 940
11.6%11.4% 1,420 981
1,651
1,500
2,246
2,362
2,557
1,950 1,858
1,167
2,104
17%
14.3% 14.0%
13%
8.7%
11.9% 9.1%
500 362
0
19%
2,803
15%
14.9%
2000 1500
21%
3,269
3000
25% 23%
3,776
3500
AuM (R$bn)
Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Jan-18 Mar-18 Jun-18 Sep-18 Oct-18
G.E.M.
9.8%
8.5%
11% 9% 7%
Equity Share of Mutual Funds, Selic Rate (% )
4500
Allocation into Brazilian equities
224 334 356 311 321 331 303 255 278 330 405
97 88 80 99 113 133 221 5% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Oct-18 Fixed Income AuM (R$bn)
Equity AuM (R$bn)
Equity Share
End of Period Selic Rate
Source: EPFR and Anbima
7
Economic recovery to accelerate in 2019 ✓ All conditions are in place for the economy to accelerate in 2019 − A combination of significant idle capacity in industries, abundant human resources and improving business and consumer confidence can drive the economic recovery. − Privatizations, concessions and a more pro-business stance by the new government should help fuel Brazil’s economic growth Unemployment rate
Capacity Utilization in Industry (%)
14 13
12.1
12 11.7
11 10 9 8 7
s.a.
Jun-18
Oct-18
Feb-18
Jun-17
Oct-17
Feb-17
Jun-16
Oct-16
Feb-16
Jun-15
Oct-15
Feb-15
Jun-14
Oct-14
Feb-14
Jun-13
Oct-13
Feb-13
Jun-12
Oct-12
6
n.s.a.
Source: IBGE
Source: FGV
Real earnings (s.a.)
12-month accumulated inflation (%) 2.25
202
2.15
192
R$ thousands
R$ billions
2.20 197
2.10
187
Source: IBGE and BTG Pactual estimates
Jul-18
Nov-17
Mar-18
Jul-17
Mar-17
Jul-16
Nov-16
Mar-16
Jul-15
Wage bill
Nov-15
Nov-14
Mar-15
Jul-14
Mar-14
Nov-13
Jul-13
Mar-13
2.05
Nov-12
182
8
Average wages (rhs)
Source: Central Bank of Brazil and BTG Pactual
Households deleveraging process continues ✓ Leverage has fallen over the past years
Household debt (% of annual income)
Household debt service (% monthly income)
Source: IBGE
Source: IBGE
9
Bolsonaro’s election boosted confidence levels ✓ Both consumer and business confidence levels moved up after Bolsonaro’s election − Consumer confidence grew 7.3 points m/m in November (after +4.1 points m/m in October), standing at its highest level since the start of its recovery at the beginning of 2016. The increase was mostly driven by the expectations component of the index, which grew 10.5 points, while the component that measures the current perception grew 2.6 points. − Business confidence didn’t grow as much as the consumer confidence index, but it was the first month since the truck drivers’ strike that it moved up. The improvement was driven by the current situation component of the index (+1.3 points m/m).
Business confidence
Consumer confidence 120
120
110 110
100
100
90
90
Business confidence
Source: FGV
Expectation
Consumer confidence
Current Situation
Expectation
Source: FGV
10
Nov-18
Nov-17
May-18
Nov-16
May-17
Nov-15
May-16
May-15
Nov-14
Nov-13
May-14
Nov-12
May-13
Nov-11
May-12
Nov-10
May-11
May-10
Nov-09
Nov-08
May-09
Nov-07
May-07
Nov-18
Nov-17
May-18
May-17
Nov-16
Nov-15
May-16
Nov-14
Current Situation
May-15
Nov-13
May-14
Nov-12
May-13
Nov-11
May-12
Nov-10
May-11
Nov-09
May-10
Nov-08
May-09
60 May-08
70
Nov-07
70
May-07
80
May-08
80
A confidence boost improves the outlook for GDP growth ✓ More confidence, improved growth prospects
Business confidence trajectories
GDP growth (y/y) vs. business confidence scenarios
120
10 8
110
6 3.2% in 2019 2.8% in 2019
4
100
2
90
0 -2
80
-4
70
-6
2006
Average 2002-2006
Feb-19
Mar-18
Apr-17
May-16
Jun-15
Jul-14
Aug-13
Sep-12
Oct-11
Nov-10
Dec-09
Jan-09
Feb-08
Jul-19
Sep-18
Nov-17
Jan-17
Mar-16
May-15
Jul-14
Sep-13
Nov-12
Jan-12
Mar-11
May-10
Jul-09
Sep-08
Nov-07
Jan-07
Average 2002-2006
Mar-07
-8
60
2006
Source: IBGE, FGV and BTG Pactual
11
Top Picks, by sector ✓ Retail ￚ ￚ ￚ ￚ
B2W Lojas Renner Magazine Luiza CVC
✓ Financials, ex-banks ￚ B3
✓ Agribusiness ￚ São Martinho
✓ Banks
ￚ Banco do Brasil ￚ Bradesco
✓ Utilities
ￚ Cemig ￚ Equatorial ￚ Light
✓ Telecom, Media, Technology ￚ Linx ￚ Oi
✓ Oil & Gas ￚ Cosan
✓ Basic Materials ￚ Gerdau ￚ Suzano ￚ Vale
✓ Transportation, Infra, Capital Goods ￚ ￚ ￚ ￚ
Rumo Embraer Localiza Santos Brasil
✓ Food & Beverage ￚ JBS ￚ Marfrig
✓ Healthcare & Education ￚ Hapvida
✓ Homebuilders ￚ Even ￚ MRV
✓ Malls
ￚ Multiplan
12
BTG Pactual’s December 10SIM
Company
Ticker
Weight (%) ADTV (R$m) Mkt Cap (R$m)
Upside (%)
PE 2019E
Petrobras
PETR4
15%
2,230.6
348,276
-
-
Banco do Brasil
BBAS3
10%
615.1
126,017
15%
6.6x
B3
B3SA3
10%
293.9
58,560
12%
17.2x
BR Distribuidora
BRDT3
10%
126.6
28,496
-6%
18.6x
Lojas Renner
LREN3
10%
150.9
28,234
-11%
24.1x
Rumo
RAIL3
10%
139.5
27,439
19%
36.1x
Gerdau
GGBR4
10%
248.7
24,009
52%
7.5x
Localiza
RENT3
10%
141.8
18,414
8%
19.9x
Embraer
EMBR3
10%
68.2
15,972
15%
12.8x
Oi
OIBR3
5%
29.8
3,658
-
na.
13
BTG Pactual’s December Small Caps portfolio
Company
Ticker
Weight (%)
ADTV (R$m) Mkt Cap (R$m)
Upside (%)
PE 2019E
CVC
CVCB3
20%
64.9
8,784
-1%
23.0x
Marfrig
MRFG3
20%
23.0
3,848
37%
8.6x
Santos Brasil
STBP3
20%
5.3
2,584
18%
29.4x
Tegma
TGMA3
20%
8.6
1,627
18%
12.0x
Even
EVEN3
20%
6.7
1,128
35%
17.6x
14
Why we selected these stocks ✓ B3 ￚ With lower disbursements and banks more restrictive in corporate lending, we expect capital markets to continue to gain relevance going forward, and B3 is one of the most interesting stories to play in this environment. With a presence on all fronts – from cash equities trading to fixed income custody – the company is perfectly positioned to benefit from additional volumes in many different ways. October may be an “appetizer” of how high volumes could reach in a bull market – ADTV for cash equities was of R$17bn. Valuation is not demanding at this point, with the stock trading at ~18x P/E19. ✓ BR Distribuidora
ￚ We believe the combination of (i) improving macro outlook and sentiment, with obvious and direct impacts to the fuel market in the form of stronger volumes growth, and (ii) growing odds that BRDT could become part of a broader privatization program could easily tackle corporate governance concerns as well as lead the way for investors to be on improvements in SG&A front, which is by far the main reason BRDT margins are historically far lower than its peers. ✓ Gerdau ￚ We believe Gerdau is set to continue focusing on higher return assets, deleveraging and simplification of the business. Improving prospects for margin recovery in its US division, stronger pricing power and demand recovery in Brazil should drive the company’s EBITDA and profitability sustainably higher. We expect very strong results in the 3Q18, with the company delivering around R$2bn in EBITDA. We see leverage moving down below 1.5x by 2018YE and the stock trading at near 5.5x for 2018. However, we see fast multiple compression ahead, with numbers trending below ~5.0x EBITDA 2019. Overall, we see a very compelling case for the next 2-3 years. Reiterate our longheld Buy rating. Gerdau is our Top pick in the sector. ✓ Oi ￚ With the restructuring moving ahead as planned, Oi’s restructured debt will collapse, leaving hefty upside for equity holders. Even under our more conservative estimates for the NPV of its restructured net debt, we still see a huge upside for the stock. Our target price is based on a fair EV/EBITDA multiple of 5.5x (LatAm sector average). ✓ Embraer ￚ Following Bolsonaro’s election, we expect the Embraer-Boeing deal to be approved. We don’t believe Embraer shares are pricing-in upside from the deal. In our calculations, monetization of the Commercial Aviation stake + Embraer’s put option on the remaining 20% of Commercial Aviation would alone be worth, net of taxes, ~US$4bn, or US$22/ADR. There is also significant value from synergies. 15
Why we selected these stocks ✓ Petrobras ￚ We are adding Petrobras to the portfolio on the back of what we see as a strong top down call. In many ways, PBR risk is perceived as a Brazil sovereign risk, and we see the post-election macro environment, with an improving sentiment, as driving a Brazil de-risking as well as a PBR de-risking. ✓ Rumo ￚ Remains our Top Pick in Transportation. We see RAIL3 trading at 8x EV/EBITDA 2019, with strong earnings momentum (Q3 should be a positive catalyst), balance sheet derisking and the potential to become a strong FCF generator. The outlook remains bright, and we believe the company is well positioned to renegotiate long term contracts with clients and have its Malha Paulista concession renewed. We also believe there are relevant upside risks such as (1) the Sorriso project; (2) a strategic investment at Malha Sul and related Araucaria project; (3) improvements at Brado. ✓ Banco do Brasil ￚ Although we’ve been consistently (and positively) surprised by CEO Paulo Caffarelli's administration, which has accomplished a lot more than we initially expected, we were still cautious on BB’s ability to grow/recover ROE at a fast pace. At the end of the day, BB was deleveraging. But after Q2, with much better earnings power, we became more constructive on BB’s ability, on a fundamental basis, to keep improving profitability. ✓ Localiza ￚ The growth rates in car rental industry have been nothing short of stellar (especially Localiza, whose rent-a-car volumes grew at a 32% CAGR since 2015, accelerating year after year since then) despite a sluggish GDP scenario. ￚ With the corporate demand recovery, still low rental penetration in Brazil and potential for further market share gains, we expect strong growth rates to persist for longer. Also, given its capital intensiveness and strong growth, Localiza is one of the stocks we cover with the longest cash flow duration, which means it should outperform in a declining cost of capital scenario. ✓ Renner ￚ LREN consistent track record over a long period shows management’s execution discipline, leaving us more comfortable with the challenges ahead (push-and-pull for core and fashion items + e-commerce’s greater share of sales).
16
Why we selected these stocks ✓ CVC ￚ CVC combines a hybrid business model (franchise, own stores, independent agencies, student travel and online) with flawless execution, as well as diligent acquisitions, delivering solid numbers in recent quarters. Meanwhile, the company’s brand equity, coupled with the synergies from recent acquired assets (Trend and Visual), and a more positive economic outlook should enable CVC to cement its leadership in the coming years, while keeping ROIC at ~30%, well above the retail sector’s average. CVC currently trades at 21x PE 2018 (and 17x P/E 2019), being the cheapest premium retailer among our coverage universe. ✓ Tegma ￚ The company is highly exposed to the recovery trend of light vehicles sales in Brazil (which is still sub-normal levels). We view Tegma’s valuation as especially attractive, at only 12x P/E 2019 and a dividend yield above 5%, with improving earnings momentum: following costsaving initiatives and revenue growth, we expect profitability to reach historical highs in the near term. ✓ Santos Brasil ￚ Supply-demand has been consistently improving at the so-called Santos Cluster, with volumes improving and no (major) container capacity expansion at Port of Santos (Brazil´s #1 port). Our bullishness on this thesis is enhanced by (i) better growth prospects thanks to stronger economic activity; (ii) a better profitability outlook due to BRL appreciation (likely attracting more long-haul imported volumes, which are more valuable for terminals); (iii) stronger (longer-term) container flows on the back of potential new trade agreements and a more open economy; and (iv) more potential (international) interest in the company’s divestment process, plus better earnings momentum following the strong EBITDA recovery expected for Q3. ✓ Even ￚ In a scenario of lower long-term interest rates and rising consumer confidence, mid/high-income homebuilder Even benefits from stronger housing demand – selling its finished units in inventory faster and accelerating the pace of project launches. Even’s earnings outlook is admittedly weak, as the top line is shrinking (on less construction works) and margins are under pressure (cancellations remain high), leading us to forecast a loss in 2018. But as Even trades at a big discount to peers at 0.6x P/TBV, has comfortable leverage (39% ND/equity) and generates cash (22% FCF yield ‘19E), we see room for a re-rating, which is why the stock is joining our Small Caps 10SIM.
✓ Marfrig ￚ While we acknowledge Marfrig is far from an obvious macro call at a time investors are more likely to focus on domestic, discretionary consumer names, we believe there’s a strong argument here for investors looking for solid bottom-up names. Marfrig comes from a decadelong period of poor results, with high leverage pretty much consuming all of its cash flows, leaving little to equity holders. We believe the 17 company could e entering a new phase, underscored by the recently announced sale of Keystone, and the focus on the beef segment. The result is that Marfrig should now be the least leverage company in the sector, with pro-forma leverage ratio approaching a comfortable 2x.
BTG Pactual’s 10SIM Historical Performance 300
281.8
10SIM portfolio Ibovespa
250
IBX-50
200 172.3
150 145.5
100 50
Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18
0
Jan 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
-5.5% -2.2% 3.2% 6.1% -6.1% -6.3% -5.5% 11.2% 10.2%
Feb 0.3% 2.7% 10.3% -1.9% -0.7% 6.2% 3.2% 3.9% -0.4%
Mar 0.1% 1.6% -0.2% 1.4% 4.0% 3.6% 4.4% -5.6% 1.6%
Apr -1.1% 0.6% -0.8% 1.9% 1.5% 3.5% 7.2% 1.7% 1.5%
May -2.8% -1.4% -8.7% -2.1% 0.2% -3.1% -6.0% -4.2% -6.7%
Jun -2.4% -2.2% -0.1% -6.1% 5.6% -0.1% 6.8% -2.1% 0.1%
Jul 12.3% -4.6% 2.3% -0.5% 1.9% -5.5% 12.9% 5.7% 1.9%
Aug -1.4% -1.0% 5.1% 5.1% 6.4% -6.8% 0.9% 4.3% -2.7%
Sep
Oct
Nov
Dec
Year
Ibov.
8.6% -10.8% 6.9% 2.8% -10.8% 2.4% -0.2% 2.9% 2.5%
0.2% 4.8% 9.5% 3.0% 5.3% 6.8% 1.5% 10.9% -0.9% 5.0%
13.3% -2.4% 0.2% 2.1% -0.6% 0.8% 3.6% -6.5% -4.6% -0.7%
4.8% 2.3% 2.1% 8.1% -3.5% -8.6% -0.4% -2.5% 2.9%
19.1% 12.0% -6.5% 34.4% 7.3% -0.9% -2.4% 26.0% 14.7% 12.1%
11.5% 1.0% -18.1% 7.4% -15.5% -2.9% -13.3% 38.9% 26.9% 17.1%
Accum. Ibov Accum. 19.1% 33.4% 24.7% 67.6% 79.9% 78.3% 73.9% 119.1% 151.4% 181.8%
11.5% 12.7% -7.7% -0.9% -16.3% -18.7% -29.5% -2.1% 24.2% 45.5%
18
How high can the Ibovespa go?
Just how high can the Ibovespa go? ✓ Top-down approach to Ibovespa target price – We performed an exercise to gauge the Ibovespa’s theoretical upside potential using a top-down approach. Using a little algebra (more details below), Gordon’s Growth model and the sustainable growth rate formula, we can relate a given P/E to its Return on Equity (ROE), cost of equity (Ke) and expected growth rate
– We ran a few simulations (more details on the coming slides). In a scenario assuming key constitutional reforms are passed and the economy starts growing again, the upside could be big. Discussing real interest rates of ~3% may be a bit premature, but if the pension reform passes, the debate on how low real rates can go will take center stage.
𝑷 𝑬
=
𝑹𝑶𝑬𝒍𝒕 −𝒈𝒍𝒕 𝑹𝑶𝑬𝒍𝒕 𝑲𝒆,𝒍𝒕 −𝒈𝒍𝒕
20
One-stage model… ✓ Scenario 1 – current situation – For this scenario we are assuming a ROE of 13%, growth rate in nominal BRL of 6.5% and a Ke of 12.0%. – Under this scenario we would arrive at a target Ibov. of 66,836 points (22% of downside).
✓ Scenario 3 – slightly more positive – In this scenario we used slightly more optimistic assumptions: ROE of 15%, growth rate of 6.5% and Ke of 10%. – The implied upside potential now would be 38.4%, which would drive the Ibov. to trade at a P/E of 16.2x.
✓ Scenario 4 – if things move in the right direction the upside would be big – Assuming key constitutional reforms are passed and the economy starts growing again, the upside could be big. Discussing real interest rates of ~3% may be a bit premature, but if the pension reform passes, the debate on how low real rates can go will take center stage! – Our assumptions in this scenario: ROE of 15%, growth of 6.5% and a Ke of 9.5%, we would reach a P/E of 18.9x, implying a Ibov. trading at 138,870 points! Scenario 1
Scenario 2
Scenario 3
Scenario 4
Scenario 5
ROE
13.0%
15.0%
15.0%
15.0%
16.0%
Ke Inflation Real rates Interest Rates Premium
12.0% 4.0% 4.0% 8.0% 4.0%
11.0% 4.0% 3.5% 7.5% 3.5%
10.0% 3.5% 3.5% 7.0% 3.0%
9.5% 3.5% 3.0% 6.5% 3.0%
9.0% 3.0% 3.0% 6.0% 3.0%
Growth Inflation Real growth
6.5% 4.0% 2.5%
7.0% 4.0% 3.0%
6.5% 3.5% 3.0%
6.5% 3.5% 3.0%
6.0% 3.0% 3.0%
Target P/E Current P/E IBOV
9.1x 11.7x 86,018
13.3x 11.7x 86,018
16.2x 11.7x 86,018
18.9x 11.7x 86,018
20.8x 11.7x 86,018
IBOV Target
66,836
98,026
119,032
138,870
153,166
-22.3%
14.0%
38.4%
61.4%
78.1%
Upside
21
Two-stage model… ✓ Adding some complexity: using a two-stage model – For those willing to add some complexity to the analysis, we could move to a two-stage model. In the first stage we would use parameters closer to the current situation and in the second stage longer-term assumptions for the main variables. 𝑷 𝑹𝑶𝑬𝒔𝒕 − 𝒈𝒔𝒕 (𝟏 + 𝒈𝒔𝒕 )𝒏 𝑹𝑶𝑬𝒍𝒕 − 𝒈𝒍𝒕 (𝟏 + 𝒈𝒔𝒕 )𝒏 = 𝟏− + 𝑬 𝑹𝑶𝑬𝒔𝒕 (𝒌𝒆,𝒔𝒕 − 𝒈𝒔𝒕 ) (𝟏 + 𝒌𝒆,𝒔𝒕 )𝒏 𝑹𝑶𝑬𝒍𝒕 (𝑲𝒆,𝒍𝒕 − 𝒈𝒍𝒕 ) (𝟏 + 𝒌𝒆,𝒔𝒕 )𝒏
✓ Scenario 1 – 1st stage: current parameters & 2nd stage: key reforms approved scenario – 1st stage: ROE of 13%, growth rate in nominal BRL of 6.5%, and a Ke of 9.5% – 2nd stage: ROE of 15%, growth of 6.5% (3% real growth) and a Ke of 9.5% – Under these assumptions, the target P/E would be 18.0x, indicating a Ibovespa target of 131,969 points and an upside potential of 53.3%
✓ Scenario 2 – super bullish scenario in the second stage! – ROE of 16%, growth of 6% (3% real growth) and a Ke of 9% (real interest rates of 3%), the target P/E would reach 19.7x, indicating a target IBOV of 144,895, and an upside potential of 68.4%!
Scenario 1
Scenario 2
ROEst
13.0%
13.0%
Ke,st Inflation Real Interest Rates Premium
12.0% 4.0% 4.0% 8.0% 4.0%
12.0% 4.0% 4.0% 8.0% 4.0%
6.5% 4.0% 2.5%
6.5% 4.0% 2.5%
15.0%
16.0%
Ke,lt Inflation Real Interest Rates Premium
9.5% 3.5% 3.0% 6.5% 3.0%
9.0% 3.0% 3.0% 6.0% 3.0%
Growthlt Inflation Real
6.5% 3.5% 3.0%
6.0% 3.0% 3.0%
18.0x 11.7x 86,018
19.7x 11.7x 86,018
131,969
22 144,895
53.4%
68.4%
Growthst Inflation Real ROElt
Target P/E Current P/E IBOV IBOV Target Upside
Earnings have been growing fast; Trend to continue in 2019
Domestic-related companies’ earnings set to grow 16.5% in 2019 ✓ BTG Pactual´s equity research team is modeling for 2019 domestic earnings growth of 16.5% y/y, while revenues are forecasted to climb 9.8% in the same period Domestic earnings and revenue growth
Net revenues Growth Net income Growth
2014 595,933 111,532
2015 674,071 13.1% 114,921 3.0%
2016 698,859 3.7% 106,548 -7.3%
2017 713,524 2.1% 114,921 7.9%
2018E 795,552 11.5% 141,529 23.2%
2019E 873,411 9.8% 164,885 16.5%
Source: BTG Pactual estimates
✓ Consolidated earnings expected to grow 31% in 2019 – When we include commodity exporters, our team sees consolidated earnings growing 27.3% in 2018 and 30.8% in 2019, while revenues are forecasted to grow 15.3% and 8.8% in 2018 and 2019, respectively. – The reason behind the difference between 2019 consolidated and domestic earnings growth is the incredible growth that our team models for commodity exporters in 2019 – clearly a factor of the impact of a stronger USD vs. the BRL over these companies’ revenues. In an analysis excluding Vale, earnings would jump 23% in 2019. Consolidated earnings and revenue growth
Net revenues Growth Net income Growth
2014 872,149 120,174
2015 2016 2017 2018E 2019E 966,665 1,006,512 1,037,637 1,196,040 1,301,590 10.8% 4.1% 3.1% 15.3% 8.8% 96,586 139,722 140,328 178,642 233,723 -19.6% 44.7% 0.4% 27.3% 30.8%
Source: BTG Pactual estimates
24
Domestic-related companies’ earnings set to grow 16.5% in 2019 ✓ Net income is outgrowing revenues at a remarkable pace – We expect this trend to continue, as better operating margins, faster sales growth and better financial results (boosted by lower interest rates and deleveraging) continue to fuel earnings. – Leverage is falling fast. After net debt/EBITDA peaks at 1.7x in 2015, it fell to 1.5x in 2017 and we expect it to fall further to 1.4x in 2018 and 1.25x in 2019.
Domestic sales growth and margin
Leverage of domestic companies
14.0% 12.0%
17.8% 17.0%
15.2%
18.9%
18.0%
16.1%
16.0%
10.0%
14.0% 12.0%
8.0% 6.0%
20.0%
10.0%
13.1% 11.5% 9.8%
4.0%
8.0%
1.71 x
6.0%
1.57 x
4.0%
2.0%
3.7%
2.1%
0.0%
0.0% 2015
2016
2017 Sales growth
Source: BTG Pactual estimates
1.50 x
1.43 x
2.0% 2018E Net margin
1.32 x 1.25 x
2019E 2014
2015
2016
2017
2018E
2019E
Source: BTG Pactual estimates
25
Reduced Selic rates have a big impact on earnings ✓ Impact on earnings of lower Selic and reduced spread is big – The impact of a lower Selic rate and reduced spreads on companies’ earnings can be sizable. We ran a back-of-the-envelope calculation to show, in theory, what the impact it could have. – We considered three scenarios in our calculation, which correspond to situations from previous years (2015, 2017 and 2018E), and then simulated each scenario assuming a company with 3x Net Debt/EBITDA, a tax rate of 34%, Selic and spreads varying in line with previous years, and keeping all figures above the EBIT line constant. Lower interest rates and spreads = a potent combo!
Net Revenues COGS Gross profit SG&A EBITDA EBITDA mg.
D&A EBIT Financial result Taxes (34%) Net income Net mg.
Scenario 1 Selic - 14.25% (2015 levels) Spread - 2.3% (double A 2015) Net Debt/EBITDA - 3x 100 (40) 60 (30) 30
Scenario 2 Selic - 10% (2017 levels) Spread - 1.4% (double A 2017) Net Debt/EBITDA - 3x 100 (40) 60 (30) 30
Scenario 3 Selic - 6.75% (2018E level) Spread - 1.2% (double A 2012) Net Debt/EBITDA - 3x 100 (40) 60 (30) 30
30%
30%
30%
(10) 20 (14.9) (1.7) 3.4
(10) 20 (10.3) (3.3) 6.4
(10) 20 (7.2) (4.4) 8.5
3.4%
6.4%
8.5%
Source: BTG Pactual
26
Earnings/GDP growth multiplier consistently above average ✓ Earnings/nominal GDP growth multiplier to peak in 2018 – We estimate the domestic earnings/nominal GDP growth multiplier to peak in 2018, at 4.5x. For 2019, we expect the multiplier to drop to 2.4x, which would be in line with 2017 (at 2.0x) and still higher than the last 10-year average of 1.5x.
Domestic companies’ earnings growth / nominal GDP growth 4.5x
2.8x 2.0x 2.4x 0.7x
average: 1.5x
0.6x 0.9x
1.1x
0.3x
-0.7x 2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Source: Company reports and BTG Pactual estimates. 2015/2016 numbers adjusted for gains/losses with derivatives booked by JBS.
27
Double-digit growth expected for several sectors in 2019 ✓ Double-digit growth for a bunch of sectors in 2019 – Many sectors are expected to grow at double-digit levels in 2019. Excluding commodity exporters, we estimate relevant earnings growth for Capital Goods (+87% y/y in 2019), Car Rental & Logistics (+38%), Food & Beverage (+35%), Retail (+32%) and Agribusiness (+27%). – The banking sector, which is the main contributor to total consolidated earnings (42%) and earnings of domestic-related companies (53%), is expected to grow earnings 15% in 2019. Earnings growth by sector
Pulp & paper Capital Goods Metals & Mining Car Rental & Logistics Food & Beverage Retail Oil & Gas Agribusiness Education Commercial Properties Banks Infrastructure Utilities Financials ex-banks Healthcare Airlines & Mileage TMT Housing Source: BTG Pactual estimates
Earnings share by sector
Net Income 2018E 2019E 70.7% 151.5% -10.2% 86.5% 52.3% 77.3% 38.4% 38.1% 84.8% 34.9% 26.2% 32.4% -29.5% 29.1% 1.0% 26.7% 36.1% 17.3% n.a. 17.3% 15.3% 15.0% -5.7% 15.0% 19.6% 12.6% -2.0% 6.8% 11.7% 6.6% -13.8% 5.6% 51.5% n.a. n.a. n.a.
Banks Metals & Mining Food & Beverage Pulp & paper Utilities Financials ex-banks Retail TMT Capital Goods Infrastructure Agribusiness Healthcare Commercial Properties Car Rental & Logistics Education Oil & Gas Airlines & Mileage Housing
Net Income 2018E 2019E 41.7% 36.7% 15.6% 21.2% 9.3% 9.6% 3.4% 6.6% 7.5% 6.4% 6.0% 4.9% 3.2% 3.2% 5.2% 2.9% 1.1% 1.6% 1.6% 1.4% 1.1% 1.1% 1.3% 1.0% 0.9% 0.8% 0.6% 0.6% 0.7% 0.6% 0.6% 0.6% 0.5% 0.4% -0.5% 0.2%
Source: BTG Pactual estimates
28
Downwards earnings revisions stopped in August ✓ Weaker-than-expected economic growth drove down earnings forecasts – With economic growth falling short of initial expectations, earnings growth forecasts were inevitably cut. In the beginning of 2018, GDP growth estimates were 2.7%, but were cut down to 1.3% after May’s truckers drivers strike. – Naturally, weaker economic activity led earnings estimates to be revised down. Since the beginning of the year, our team has cut its 2018 consolidated domestic earnings estimate by 5%. Our 2019 estimates were also lowered, albeit admittedly not as much (-3%). – The good news is that domestic earnings estimates for 2018 and 2019 haven't moved the needle since August.
Real GDP growth estimate (Focus survey) 2.9%
2.7%
3.0%
3.0%
3.0%
2.9%
2.8%
2.7%
3.0%
Revisions to 2018E and 2019E earnings (domestic companies)
3.0% 2.5%
2.5%
2.5%
2.5%
2.5%
2.5%
2.8% 178,024 177,316
2.2%
1.6%
1.5%
155,780 154,633 1.4%
1.4%
1.4%
147,737 147,938
1.3%
2018 Domestic Earnings (R$ mn) 2018
Source: Central Bank
2019
174,000 172,204
1 year ago
8 months ago
2019 Domestic Earnings (R$ mn) 4 months ago
Today
Source: BTG Pactual
29
Brazilian equities look under-owned
Global and GEM investors have reduced their exposure to Brazil in 2018 ✓ In September, Global and GEM funds were close to historical lows. Exposure levels rose slightly in October, but allocation is still way off levels seen in the recent past.
✓ At the end of October, Global funds had 0.5% of their money parked in Brazil (26% lower than January allocation). Allocation into Brazilian equities
Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Jan-18 Mar-18 Jun-18 Sep-18 Oct-18
G.E.M.
Global
16.7%
2.40%
15.9%
1.97%
16.4%
2.24%
11.9%
1.31%
11.0%
1.07%
9.1%
1.07%
6.0% 8.6%
0.52% 0.93%
7.2%
0.60%
7.6%
0.69%
7.5%
0.62%
6.0%
0.42%
6.4%
0.37%
8.0%
0.51%
Source: EPFR
31
Huge potential inflows from foreigners ✓ Potential inflows into Brazilian equities is huge − Although low allocation levels reveal Foreign Investors’ continued (extreme) cautiousness when it comes to investing in Brazil, we see huge potential inflows into Brazilian equities. − Assuming allocations return to October 2014 levels, i.e. just before ex-President Rousseff´s reelection, and based on the current AUM levels of all fund categories, our back-of-the envelope calculation estimates BRL193bn (USD52bn) could flow into Brazilian equities. Allocation to Brazilian Equities April 2010 April 2012 Oct/14 (Before elections) Feb 2017 Apr 2017 Jun 2017 Aug 2017 Dec 2017 Mar 2018 Jun 2018 Sep 2018 Oct 2018
Estimated inflows to Brazilian equities assuming past allocations (US$ bn) April 2010 April 2012 Oct/14 (Before elections) Feb 2017 Apr 2017 AuM @ July 2018 (US$bn)
Global
GEM
2.00% 2.33% 1.41% 1.11% 0.92% 0.75% 0.71% 0.60% 0.62% 0.42% 0.37% 0.51%
Global
49.1 60.1 29.6 19.8 13.7 3,291.9
BRIC
16.0% 16.3% 11.7% 9.1% 8.1% 7.1% 7.8% 7.2% 7.5% 6.0% 6.4% 8.0%
GEM
25.0% 31.1% 26.3% 19.1% 17.4% 16.2% 16.6% 14.7% 16.7% 13.7% 13.4% 17.0%
BRIC
48.6 50.7 22.5 6.5 0.6 608.9
0.33 0.58 0.38 0.08 0.01 4.1
LatAm
66.0% 65.5% 57.1% 57.3% 54.7% 52.6% 54.8% 56.4% 58.2% 52.3% 53.3% 60.3%
LatAm
0.8 0.7 (0.4) (0.4) (0.8) 14.1
Total USD Total BRL
99 112 52 26 13
366 415 193 96 50
# Trading days (YTD ADTV)
30.5x 34.6x 16.1x 8.0x 4.2x 32
Source: EPFR and Anbima
Local funds: potentially another R$190bn in flows from local industry ✓ Local investors’ equities allocations aren’t inspiring either (despite October’s growth), being also low at ~9.8% (vs. 12% at YE14 and an average 14% in 2011-13)
✓ With long-term rates set to fall, equities inflows from local funds are set to soar. ✓ If locals also increase their allocations to equities back to the levels seen at the end of 2014, i.e. from the current 9.8% to 11.9%, extra flows to equities would add up to BRL83.5bn (USD23bn). If equities’ weight in locals’ portfolios go back to the average seen from 2011 to 2013 (14%), then the extra flows could reach BRL187bn (USD50bn).
4,122 22.0%
4000
18.0% 18.3%
AuM (R$bn)
14.8%
2500 15.5% 11.3% 9.9% 854
10.6%
717 893 11.1% 940
11.6%11.4% 1,420 981
1,651
1,500
2,246
2,362
2,557
1,950 1,858
2,104
17%
14.3% 14.0%
1,167
13%
8.7%
11.9% 9.1%
500 362
0
19%
2,803
15%
14.9%
2000
1000
21%
3,269
3000
1500
23%
3,776
3500
25%
334
356
331
9.8%
11% 9%
8.5%
7% 330
Equity Share of Mutual Funds, Selic Rate (% )
4500
405
311 321 303 255 278 224 97 88 80 99 113 133 221 5% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Oct-18 Fixed Income AuM (R$bn)
Equity AuM (R$bn)
Equity Share
End of Period Selic Rate
33 Source: EPFR and Anbima
Lower long-term rates to drive locals’ money to equities ✓ As confidence grows, allocations to Brazilian equities should rise − As the new president’s economic policies become clear, we would expect allocations in Brazilian equities to rise. Increased investors’ confidence in the government´s ability to deal with its fiscal problems should drive long-term real interest rates down, making stocks more attractive. − In fact, long-term rates have already come down in recent months, anticipating the new government’s commitment to reducing the fiscal gap. The long-term 2035 government bond (2035 NTN-B) now pays inflation plus 5.2%, down from inflation plus 5.6% a couple of months ago. That’s still a juicy return, which should trend down as Brazil´s fiscal accounts improve. Evolution of Interest rate curve in Brazil
Evolution of NTNB-2035 coupon 6.1%
13.0%
12%
12%
12%
12%
13%
12%
12.0% 11%
12%
12%
12%
12%
11.8%
11%
11.9%
12.0%
12.1%
13%
13%
12.3%
12.4%
10.7%
10.7%
10.3%
10.4%
13%
12.2%
12.1%
11.6%
5.7%
11%
11.0%
10%
11.5% 11.4% 11.3% 11% 11.2% 11% 11.1% 11.0% 11% 10.8% 10% 10.7% 10.5%
9.9% 9.8% 9.7%9.7% 9.6% 10% 9.4% 9.8% 9.3% 9% 9.2% 9.6% 9.6% 9.5% 9.0% 9% 9.3%9.4% 8.9% 9.3% 9.3% 8.7% 9.1% 9% 9.0% 8.6% 9.0% 8.9% 8.8% 8.4% 8% 8.6% Today 8.6% 8% 8.1% 8% 8.5% 8% 8.3% 8.3% 7.9% 8% 8.1% 7.6% 8% 8.0% 7.9% 7.9% 7% 7.4% 7.7% 7% 7.7% 7.6% 7% 7.5% 7.4% 7.3% 7.2%
10.0%
10%
10.3%
10.2%
10.3%
8.0%
7.0%
10.3%
10.4%
10.6%
10.5%
10.0%
10.1%
9.0%
5.9%
9.8%
9.9%
10.0%
10.1%
10.2%
10.1%
5.47%
5.5%
9.6%
5.3% 1 week ago
1 month ago
2 months ago
5.1%
5.18%
4.9%
Source: Bloomberg
11/01/29
07/01/29
03/01/29
11/01/28
07/01/28
03/01/28
11/01/27
07/01/27
03/01/27
11/01/26
07/01/26
03/01/26
11/01/25
07/01/25
03/01/25
11/01/24
07/01/24
03/01/24
11/01/23
07/01/23
03/01/23
11/01/22
07/01/22
03/01/22
11/01/21
07/01/21
03/01/21
11/01/20
07/01/20
03/01/20
11/01/19
07/01/19
03/01/19
11/01/18
6.0%
Coupon
2018 Average
Source: Tesouro Direto 34 Source: EPFR and Anbima
Credit Market: Funding costs are plummeting
Brazil’s credit markets are well and truly back on their feet ✓ Average spread (DI+) and tenor of issuances have normalized after tough years Domestic debentures: average spread (DI+) vs. average tenor of issuances *issuers/issuances rated AA- or higher )in the Brazilian national scale)
2.50%
2016² 3,3y @ DI+2,3%
2.30% 2.10%
Avg. Spread (DI+)
1.90% 1.70%
2015 3,3y @ DI+1,8%
1.50% 1.30%
2014 4,2y @ DI+1,2%
1.10% 2018 4,2y @ DI+1,0%
0.90%
2017 4,4y @ DI+1,0%
0.70%
2013 5y @ DI+0,9%
0.50% 3.0
3.5
4.0 4.5 Avg. Tenor (years) Source: Anbima; BTG Pactual
5.0
5.5 36
Brazil’s credit markets are well and truly back on their feet ✓ In 2015-16, local capital market operations were tough to sell, and foreign markets were basically closed to Brazilian issuers – Top-quality issuers had to rely more on bank loans, and banks reduced loans to smaller (riskier) companies. – Result: the number of companies filing for bankruptcy protection in 2016 was 2.2x more than in 2014. – Now, with credit markets back to normal, the number of companies filling for bankruptcy protections are coming down (even though is still quite high in 2018).
Number of companies filing for bankruptcy protection
1,863 1,420
1,287 670
252
269
312
2006
2007
2008
2009
757 475
515
2010
2011
2012
874
828
2013
2014
2015
2016
2017
1,297
Nov-18
Source: Serasa
37
Capital market deals are back ✓ In 2017, international debt markets reopened their doors to Brazilian issuers – After raising USD30bn in the international bonds market and USD13.8bn in IPOs and Follow-On transactions in 2017, Brazilian companies have raised USD14.5bn in international bonds and USD7.3bn in IPOs and Follow-Ons so far in 2018.
Number of deals in 2018 (USDmn)
Deal Type International Bonds IPO Follow-On
2017 # of issuers Money raised 23 30,071 15 7,554 13 6,222
2018 # of issuers Money raised 19 14,450 6 6,231 2 1,060
38
Lower Selic rate: Financing companies is good again ✓ Increasingly high interest for local corporate bonds – With government bonds yields down, local bond issuances skyrocketed in 2017 and 2018. The higher NTN-B real interest rates, the lower the appetite for corporate bonds
Local bond market (R$bn)
70.0
8.0% 6.7%
95.87
60.0
82.85
6.3%
36.97
30.70
2015 CRI
NP
30.0
2016 CRA
5.0%
4.2% 58.3
2017
Oct-18
61.8 3.0% 2.0%
33.2 23.3
22.5 12.9
12.6
18.8
20.2
20.4
2014
2015
2016
1.0%
0.0
0.0%
2009
FIDC
6.0%
4.0%
38.93
10.0
2014
5.5%
4.7%
20.0
2013
7.0%
6.3% 5.3%
50.0
40.0
34.93
6.3%
6.1%
6.7%
2010
Debêntures
2011
2012
2013
Debêntures - Volume (R$ bn)
2017
Oct-18
NTNB - 20 avg.
Source: ANBIMA, BTG Pactual estimates
Source: ANBIMA, BTG Pactual estimates
– While local mutual funds’ asset allocation in fixed-income instruments (ex-government bonds) is still at very low levels, it tends to increase in the next years.
Local mutual funds’ allocation in fixed income instruments (ex-government bonds)
23.2%
25.0% 20.0%
18.7%
19.7%
18.4%
16.0% 15.0%
13.9%
13.8% 9.4%
10.0% 4.9% 5.0%
4.8%
3.7%
3.0%
4.5%
0.0% Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Oct-18 Total credit Source: ANBIMA, BTG Pactual estimates
Financials
Corporates
39
Politics: The new administration
Claudio Ferraz [email protected] +55 21 3262-9758 Iana Ferrão [email protected] +55 11 3383-3453
President and Vice-president Personal
Educational Specialization: Officers enhancement (EsAO) • Specialization: Paratrooper (Parachute Infantry Brigade) • Specialization: Physical Education (Army Physical Education School) • BS: Military Sciences (Artillery) (Agulhas Negras Military Academy)
Political
• • •
63 years old Campinas - SP
Jair Bolsonaro (PSL)
• •
Congressman (Federal Representative of Rio de Janeiro) - 1991-present City councilor of Rio de Janeiro (RJ) 1989-1991
President • • • •
65 years old Porto Alegre - RS
• •
General Hamilton Mourão (PRTB) Vice-president
•
Specialization: Politics, Strategy and High Military Administration (ESG) Specialization: High Military Studies (ECEME) Specialization: Officers enhancement (EsAO) Specialization: Paratrooper and Jumpmaster (Parachute Infantry Brigade) BS: Military Sciences (Artillery) (Agulhas Negras Military Academy)
•
•
Secretary of Economy and Finance of the Brazilian Army: 2016-2017 General Commander of the Southern Army: 2014-2016
Source: Media reports, BTG Pactual Digital, BTG Pactual
41
Main Ministries
Current ministries
Finance Planning, Development and Management
Ministries of Bolsonaro
MSc and PhD: Economics (University of Chicago) • MSc: Economics (Getulio Vargas Foundation - FGV/EPGE) • BS: Economics (Federal University of Minas Gerais - UFMG) •
Economy Paulo Guedes
Industry, Trade and Services
Chief of Staff of the Presidency of the Republic
Education
Chief of Staff of the Presidency of the Republic
•
Onyx Lorenzoni
BS: Veterinary Medicine (Santa Maria Federal University)
MSc: System Engineer (Naval Postgraduate school - Monterrey, California) • BS: Aeronautic Engineer (Institute of Aeronautical Technology - ITA) • BS: Public Administration (Air Force Academy - AFA) • BS: Aeronautical Sciences (Air Force Academy - AFA)
Background • • • • • • •
Founder of Millenium Institute Founder and CEO of Bozano Investimentos Founder of BR Investimentos Founder of JGP CEO and majority shareholder of IBMEC Founder of Pactual Bank Professor at PUC-Rio, FGV and IMPA
•
Congressman (Federal Representative of Rio Grande do Sul): 2003-present State Representative of Rio Grande do Sul (RS): 19952003
•
• Ministry of Science, Technology, Innovation and Communication
Ministry of Science and Technology Marcos Pontes
• • •
• Ministry of Agriculture, Livestock and Food Supply
Ministry of Agriculture Tereza Cristina
•
BS: Agronomic Engineer (Federal University of Viçosa - UFV)
•
UN ambassador for Industrial Development: 2001-present First Brazilian astronaut - NASA Fighter pilot (Brazilian air force): +2000 hours flying
Congressman (Representative of Mato Grosso do Sul): 2015-present Secretary of Agrarian Development, Production, Industry, Commerce and Tourism of Mato Grosso do Sul: 20072014
Source: Media reports, BTG Pactual
42
Main Ministries (II) Current ministries
Ministries of Bolsonaro
Education Course: Lawyers training program (Harvard Law School) • PhD: Law (Federal University of Paraná - UFPR) • MSc: Law (Federal University of Paraná - UFPR) • BA: Law (State University of Maringá) • Specialization: Child Orthopedic Medicine (Scottish Rite Hospital for Children - Atlanta) • Major: Orthopedic Medicine (Federal University of Mato Grosso do Sul UFMS) • BS: Medicine (Gama Filho University) • Specialization: Politics, Strategy and High Military Administration (ESG) • Specialization: High Military Studies (ECEME) • Specialization: Officers enhancement (EsAO) • BS: Military Sciences (Infantry) (Agulhas Negras Military Academy) • Specialization: High Military Studies (ECEME) • Specialization: Officers enhancement (EsAO) • BS: Military Sciences (Cavalry) (Agulhas Negras Military Academy)
Background
•
Justice Public Security
Health
Defense
Institutional Security
Justice Sérgio Moro
Health Luiz H. Mandetta
Defense General Fernando Azevedo e Silva
Institutional Security General Augusto Heleno Pereira
Source: Media reports, BTG Pactual
• •
Professor at UFPR and UniCuritiba Federal Judge of the 13th Federal Criminal Court of Curitiba
• • •
Congressman (Federal Representative of Mato Grosso do Sul): 2011-present President of Unimed Campo Grande: 2001-2014 Health Secretariat of Campo Grande (MS): 2005-2010
• • • •
Army Chief of Staff: 2016-2018 General Commander of the Eastern Army Responsible for 2016 Olympic Games security President of the Olympic Public Authority: 2013-2015
•
Head of the Army’s Department of Science and Technology General Commander of the Amazon Army Secretary of Public Security of the Ministry of Justice and Public Security Commander at UN-MINUSTAH mission
• • •
43
Heads of key government entities Head
Education
Background •
• Central Bank
•
Postgraduate: Economics & Finance (University of California - UCLA) BS: Economics & Finance (University of California - UCLA)
Roberto Campos Neto
National Bank of Development (BNDES) Joaquim Levy
Secretary of the National Treasury
• • • • •
• • •
PhD: Economics (University of Chicago) MSc: Economics (Getulio Vargas Foundation - FGV/EPGE) BS: Marine Engineering (Federal University of Rio de Janeiro - UFRJ)
• • • • • • •
•
PhD: Public Policy (Massachusetts Institute of Technology MIT) – not concluded MSc: Economics (University of São Paulo) BS: Economics (Federal University of Ceará)
• •
• •
Head of Treasury & National and International Markets at Santander: 2010present Head of local trading at Santander: 2006-2010 Portfolio Manager at Santander Claritas: 2004-2006 Head of international fixed income trading at Santander: 2000-2003 Head of international fixed income trading at Bozano Simonsen Bank: 1999 Derivatives, fixed income, debt and exchange trader at Bozano Simonsen Bank: 1996-1998 World Bank Chief Financial Officer (CFO): 2016-2018 Minister of Finance: 2015 Superintendent Director at Bradesco Asset Management 2010-2014 Secretary of the National Treasury: 2003-2006 Economist - European Central Bank: 1999-2000 Economist - International Monetary Fund: 1992-1999 Professor at FGV
Secretary of the National Treasury: 2018 Economist - Institute for Applied Economic Research (IPEA)
Mansueto Almeida Source: Media reports, BTG Pactual
44
Heads of key government entities (II) Head
Education
Background
• •
Post-Doctoral: Economics (University of Chicago) PhD: Economics (Getulio Vargas Foundation - FGV/EPGE)
• • • •
Petrobras board member: 2015-2016 Investor Relations and Chief Economist at Vale: 1999-2014 Brazil Central Bank Director: 1985 Professor at FGV
•
PhD: Economics (University of Rochester)
• •
Privatization specialist - worked on Banespa’s privatization Partner at Brasil Plural
• • • •
Professor at FGV Economist at the National Development Bank (BNDES) President of the Brazilian Association Supporting Micro and Small Enterprises (Sebrae) Writer of economic books
• •
Founder and CEO of Localiza Counselor of Millenium Institute
Petrobras Roberto Castello Branco
Caixa Econômica Federal Pedro Guimarães
•
PhD: Economics (University of Chicago)
Banco do Brasil
Rubem Novaes
Secretary of Privatizations Sallim Mattar
•
BS: Business
Source: Media reports, BTG Pactual
45
Proposals of the elected President
General •
• •
Plans to maintain macroeconomic tripod (fiscal- and inflation-targeting regime plus floating exchange rate) and simplify Brazil's tax system. Plans to reduce public debt by 20% via privatizations, concessions and sale of federal government real estate. Plans to eliminate primary public deficit in first year of government and convert it into a surplus in second year.
Social Security Reform •
•
Privatizations •
•
Plans to implement a wide-sweeping privatization program. All resources from privatizations and concessions must be used to pay public debt.
Plans to gradually change pension model from distribution to capitalization. New participants would be able to choose between the two systems. Those who opt for capitalization would 'earn' the benefit of lower labor charges. Shortage of resources caused by transition from one regime to another will be remedied by creating a fund to strengthen social security financing and offset the reduction of social security contributions in the old system.
Tax Reform • •
Fiscal Policy • • • • •
Reduce the primary deficit to zero in 2019 and turn it into a surplus during the second year of government. Promote a Tax Reform to unify taxes and simplify the national system. Reduce the tax burden whilst creating room to rein in expenditures. Reduce debt via spending control and less red tape. Reduce the size of the State.
Defends simplifying and unifying federal taxes and decentralizing and 'municipalizing' taxes. Opposes taxing large fortunes and inheritances and new taxes on entrepreneurs.
Political Reform •
•
Inflation •
•
•
Will preserve inflation-targeting regime. Defends autonomy and independence of Central Bank, with 4-year regimes that do not coincide with the 4-year term of Brazil’s President. Critical of Petrobras’ daily price adjustment.
Expand government support, approving solutions to the problems of caucuses – e.g. backing ‘ruralists’ with land property issues. Reduce the number of ministries.
External Sector • • •
Defends stronger trade ties with China and US and closer ties with Chile. Reduce importance of Mercosur in international trade. Plans to promote greater openness of the economy.
Source: Bolsonaro's government program, Media reports , BTG Pactual
46
Proposals of the elected President (II)
Public Banks •
Doesn’t plan to privatize Banco do Brasil or Caixa Econômica Federal.
Infrastructure • • • •
Health • • •
Create the National Electronic Record with the aim of integrating the national health system. Establish neonatal programs (including dental check-ups) throughout the country. Include physical education professionals in family health program.
Less bureaucracy and privatization of infrastructure projects, generating low regulatory risk for investments. Integrate Northeast region with the country’s developed regions. Increase port efficiency. Promote investments in railways, waterways and improvements in the quality of highways.
Agribusiness • • •
Education • •
• • •
Defends distance learning, from basic to higher education. Militarization of education with military schools. Initially, create schools in São Paulo – Campo de Marte. Invest in university research. Against quota policy in universities. Defends schools without political influence from teachers.
Create a new federal agricultural structure, with a dedicated agricultural policy. Centralize agribusiness demands at a single ministry. Create specific policies to consolidate and open up new external markets.
Social Programs •
•
Public Security • • • • • •
Reduce minimum criminal age to 16. Ease gun ownership rules. Promises to restructure the Disarmament Statute. Provide legal backing to security officers and to anyone who reacts to a crime or property invasion. End the progression of prison sentences and temporary releases. Restructure the human rights policy. Reinforce the role of Brazil’s Armed Forces in combating organized crime.
Plans to keep social programs such as ‘Bolsa Familia’, ensuring a minimum level of subsistence for families. Defends a family planning program to control birth rates.
Additional proposals •
Plans to create Economy Ministry, covering functions currently performed by the Finance, Planning and Trade Ministries, as well as the Executive Secretariat of the PPI (Investment Partnership Program).
Source: Bolsonaro's government program, Media reports , BTG Pactual
47
Proposals defended by the Finance Minister Proposal
Definition
Delinking
Give more freedom to the Budget, which today has minimum compulsory
the budget
expenditures (inflation-adjusted) for health and education
Pension reform
Tax reform
20% income tax
Pre-salt auction
Privatizations
How to implement
Proposal provides for capitalization system (individual accounts) for new entrants
Constitutional amendment
High
Constitutional amendment
High
Substitution of employers´ payroll contribution by a contribution on financial Constitutional amendment
transactions Change income tax to 20% (no details on if there will be changes to income tax bands and brackets)
Allows other companies to operate in blocks currently controlled by Petrobras
Government is talking about privatizing or liquidating companies such as EPL (bullet train) and Valec (railroads)
Complexity level
Ordinary law
High
High
Draft bill to be voted in the Senate facilitates the auction process
Medium
Control of some state-owned companies, such as EPL, can only be sold if authorized by law
Medium
Source: Media reports, BTG Pactual
48
Proposals defended by the Finance Minister (II)
Proposal Possession and carrying of weapons
Sale of subsidiaries
Definition
Reduction in minimum age for carrying weapons from 25 to 21, and waiving the requirement to declare the need to own a gun. Carrying a weapon is authorized for those above the age of 25 who meet the gun possession criteria. Sell, for example, areas of public banks not directly related to banking, such as insurance and cards
Sale of properties
Selling federal government real estate to raise funds to reduce public debt
13th Bolsa Família extra year-
During the election campaign, Bolsonaro promised a 13th (extra monthly) salary for
end allowance
the Bolsa Família family allowance program
How to implement
Complexity level
Must be approved in congress since it requires changes in the disarmament statute.
Medium
Some experts say it needs approval via law, such as the sale of state-owned companies
Medium
Done by bidding, you also need Congressional approval
Medium
Provisional measure
Medium
Provisional measure
Medium
Government decree
Low
The new portfolio, which will coexist with the current one, will guarantee only Green and yellow wallet
constitutional rights such as paid vacations, 13th year-end bonus salary and FGTS (Workers´ Severance Fund)
Lower industry tariffs and
Cautious and negotiated trade opening, under a pro-competitive agenda; avoids a
gradual trade opening
reduction in trade tariffs with no counterpart measures
Source: Media reports, BTG Pactual
49
Procedural passage of main legislative rules
Votes required for approval
One of the main obstacles to the approval of the Social Security Reform is that the proposal requires changes in the text of the Constitution. The criteria for approval of a constitutional amendment are much stricter than for approval of statutory legislation. Constitutional Amendment (EC)
Statutory Law (LO)
Supplementary Law (LC)
Provisional Measure (MP)
3/5
Simple majority
Absolute majority
Simple majority
(308 federal deputies and 49 senators)
(more than 50% of total votes, excluding abstentions. An absolute majority must be present for the bill to be voted)
(257 federal deputies and 41 senators)
(more than 50% of total votes, excluding abstentions. An absolute majority must be present for the bill to be voted)
Thematic committees
Thematic committees
Joint congressional committee
2
(may have a conclusive nature )
2
(may have a conclusive nature )
»
»
»
»
Special Committee (CE)
Legal Committee in the House of Representatives (CCJC)1
Legal Committee of the House of Representatives (CCJC)1
1 round in House of Representatives
»
»
»
»
2 rounds in House of Representatives
1 round in House of Representatives
1 round in House of Representatives
1 round in Senate
Thematic committees
»
»
CCJ3
»
»
Processing
Legal Committee in the House of Representatives (CCJC)1
Thematic committees 2
(may have a conclusive nature )
Signed into law or vetoed by president 2
(may have a conclusive nature )
»
»
»
2 rounds in the Senate
CCJ3
CCJ3
»
»
»
Enactment
1 round in Senate
1 round in Senate
»
»
Signed into law or vetoed by president
Signed into law or vetoed by president
If rejected, one-third of deputies may call a floor vote. 2 This means that the bill would not need to be put to a floor vote. 3 If rejected, one-third of senators may call a floor vote. CCJC: Commission on Constitution, Justice and Citizenship in the House of Representatives; CE: Special Committee; and CCJ: Commission on Constitution and Justice in the Senate. 1
Source: Brazilian Constitution, Rules of Order of House of Representatives, Rules of Order of Senate, BTG Pactual
50
Constitutional amendments usually take long to get approved •
The fastest approval of a constitutional amendment occurred in 4 months, while the longest approval is 155 months. The median time is 21 months. The Social Security reform approved by the Fernando Henrique Cardoso (FHC) administration took 45 months to be approved. The reform approved by the Lula administration, which was much narrower than that of the FHC government, took 8 months.
•
The procedural passage track record of PECs suggests that approval of the Social Security reform in the first half of 2019 would be atypical. Only 8 of the 99 amendments were approved within six months
Procedural passage time (months) 155
45 37
21 8 4 Source: House of Representatives, Senate, BTG Pactual
Minimum
Social Security Reform - Lula
Median
Average
Social Security Reform - FHC
Source: House of Representatives, Senate, BTG Pactual
Maximum
51
PT and PSL will be the biggest parties in Brazil’s Lower House Party PT PSL PP MDB PSD PR PSB PRB PSDB DEM PDT SD PODE PSOL PTB PC do B PSC PPS PROS Novo AVANTE PHS PATRI PV PRP PMN PTC PPL DC REDE PSDC PRTB Total
2014 election 69 1 38 65 36 34 33 20 54 21 20 15 4 5 25 10 13 10 11 0 1 5 2 8 3 3 2 0 2 0 2 1 513
Currently 61 8 50 51 37 40 26 21 49 43 19 10 17 6 16 10 9 8 11 0 5 4 5 3 0 0 0 1 0 2 0 0 512
2018 election 56 52 37 34 34 33 32 30 29 29 28 13 11 10 10 9 8 8 8 8 7 6 5 4 4 3 2 1 1 1 0 0 513
Growth/reduction in number of seats: 2018 vs. 2014 election PSL
10 8 8 8 7 6 5 3 1 1 1 1 0 0
DEM Novo AVANTE PATRI
PRP REDE PTC PR PC do B
PRTB SD PSDC PV PT
PSDB
-25 -31
-13 -15
-1 -1 -1 -1 -1 -1 -2 -2 -2 -2 -3 -4 -5
51
Growth/reduction in number of seats: 2018 election vs. current level PSL
9 9 8 6 4 4 3 3 2 2 2 1 1 0 0 0 0 0
PDT PSB PRP PMN
PHS PV PPS PPL PRTB PSC PSD PT PTB PP MDB
-13 -14 -17 -20
44
-1 -1 -1 -3 -3 -5 -6 -6 -7
Source: Superior Electoral Court, House of Representatives, BTG Pactual
52
MDB lost most Senate seats in the upcoming legislature Party MDB PSDB DEM PT PP PSD PDT PSB REDE PSL PTB PR PPS PHS PRB SD PSC PODE PROS PRP PSOL PC do B Novo PATRI PV PTC No party Total
2014 election
Currently
2018 election
18 10 5 12 5 3 8 7 0 0 3 4 0 0 1 1 0 0 1 0 1 1 0 0 1 0 0 81
18 12 5 9 6 5 3 3 1 0 2 4 1 0 2 0 0 5 1 0 0 1 0 0 1 1 1 81
12 8 7 6 6 6 6 5 5 4 4 2 2 2 1 1 1 1 1 1 0 0 0 0 0 0 0 81
Growth/reduction in number of seats: 2018 vs. 2014 election REDE PSD PPS PP PSC PRP
0 0 0 0 0 0 0
SD Novo PTC PSOL PV PDT PR PT
-6 -6
-1 -1 -1 -2 -2 -2 -2
1 1 1 1 1
2 2 2
3
4
5
Growth/reduction in number of seats: 2018 election vs. current level REDE
PDT PSB PHS PPS PSC 0 0 0 0 0
PP PSOL PATRI PC do B PTC PR PSDB MDB
-6
-4 -4
-3
-2
1 1 1 1 1
2 2 2 2
3
4 4
-1 -1 -1 -1 -1
Source: Superior Electoral Court, House of Representatives, BTG Pactual
53
Bolsonaro’s possible base of support looks good Lower House composition after 2018 election The number of parties will remain at a high level in the next legislature (2019-22) PT PDT PSB PSOL PC do B PROS PV Rede PPL Avante PPS PSDB MDB Novo PMN PTC Patriotas PHS DC PRP PSC SD Podemos PTB PR PSD PP DEM PRB PSL
56 28 32 10 9 8 4 1 1 7 8 29 34 8 3 2 5 6 1 4 8 13 11 10 33 34 37 29 30 52
Parties which probably will support Bolsonaro’s administration
Left parties 148 in 2018 election (vs. 157 in 2014)
Left parties
Parties which will probably support Bolsonaro’s administration: 268 in 2018 election (vs. 214 in 2014)
Source: Superior Electoral Court, House of Representatives, BTG Pactual
54
Bolsonaro’s possible base of support looks good ✓ Bolsonaro may have more than 50% of the votes in the Lower House. Lower House Bolsonaro's support base Party PSL PP PSD PR DEM PRB Podemos PTB PSC PHS SD PRP DC
Opposition
Independents
# of seats
% of total
Party
# of seats
% of total
52 37 34 33 29 30 11 10 8 6 13 4 1
10.1% 7.2% 6.6% 6.4% 5.7% 5.8% 2.1% 1.9% 1.6% 1.2% 2.5% 0.8% 0.2%
PT PDT PSB PV Rede PROS PSOL PcdoB
56 28 32 4 1 8 10 9 148
10.9% 5.5% 6.2% 0.8% 0.2% 1.6% 1.9% 1.8% 28.8%
268
52.2%
Party MDB PSDB PPL PMN PTC Patriotas Avante PPS Novo Total
# of seats
% of total
34 29 1 3 2 5 7 8 8 97 513
6.6% 5.7% 0.2% 0.6% 0.4% 1.0% 1.4% 1.6% 1.6% 18.9%
55
State-owned companies: A long list of assets to sell
A big government ✓ A Finance Ministry report a few weeks ago shows that there were 148 Federal government-owned companies in Brazil at the end of 2017, 5 less than at the end of 2016 – However, since the end of 2004, i.e. in the past 13 years, 16 new state-owned companies were created. – The chart below shows the different types of stakes held by the government. It controls some companies directly, some indirectly and is a minority investor in others. Types of ownership
Equity Share
Federal Government Companies
Control Interest
Direct Control State owned companies Mixed capital companies
Minority Interest
Indirect Control
State Government Companies
Privatelyheld Companies
Stakes in other institutions
Indirectly controlled companies
Source: Finance Ministry report on Brazilian government’s ownership stakes 57
47 directly-controlled companies ✓ At the end of 2017, the government controlled 47 companies directly, including high-profile listed companies like Petrobras, Eletrobras and Banco do Brasil. Companies directly controlled by the government Controlling stake - 148 companies Direct control - 47 Companies
26 state-owned
20 mixed public-private
%
capital companies
13 Non-dependents
%
6 Listed 100.00
BANCO DO BRASIL
50.73
BNDES
100.00
ELETROBRÁS (*)
40.99
CAIXA ECONÔMICA FEDERAL
100.00
PETROBRAS (*)
28.67
CASA DA MOEDA
100.00
TELEBRAS (*)
47.39
51.00
BASA-BANCO DA AMAZÔNIA
51.00
CORREIOS ECT
100.00
BNB - BANCO DO NORDESTE
50.92
EMGEA-EMP.GEST.ATIVOS
100.00
11 Non-listed
EMGEPRON-EMP.GEST.PROJ.NAVAIS
100.00
CASEMG-CIA ARMAZ. SILOS DE MG
92.96
FINEP-FINANCIAD.ESTUDOS
100.00
CEAGESP-CIA ENTREP.ARMAZ.SP
99.68
HEMOBRAS-EMP.BR.HEMOD.BIOTEC.
100.00
CEASAMINAS-CENT.ABAST.MG
99.57
INFRAERO
100.00
CDC-CIA DOCAS DO CEARÁ
99.93
PPSA-PRÉ-SAL PETRÓLEO S.A.
100.00
CDP-CIA DOCAS DO PARÁ
100.00
13 Dependents
CDRJ-CIA DOCAS DO RJ
99.99
AMAZUL-AMAZÔNIA AZUL TEC.DEFESA
100.00
CODEBA-CIA DOCAS DA BA
98.36
CEITEC-CENT.EXCEL.TEC.ELETR.AVANÇ.
100.00
CODERN-CIA DOCAS DO RN
99.99
CODEVASF-CIA DES.VALES.FR.PARN
100.00
CODESA-CIA DOCAS DO ES
99.45
CONAB-CIA NAC.ABASTECIMENTO
100.00
CODESP-CIA DOCAS DE SP
99.97
97.33
CODOMAR-CIA DOCAS DO MA
99.97
EBC-EMP.BRASIL COMUNICAÇÃO
100.00
3 Dependents (non-listed)
EBSERH-EMP.BR.SERVIÇOS HOSPIT.
100.00
CBTU-CIA BR. TRENS URBANOS
99.99
EMBRAPA-EMP.BR.PESQUISA AGROP.
100.00
HNSC-HOSP.N.S.CONCEIÇÃO
99.99
EPE-EMP.PESQ.ENERGÉTICA
100.00
TRENSURB-EMP.TR.URB.P.ALEGRE
99.88
EPL SA-EMP.PLANEJ.LOGÍSTICA
100.00
HCPA-HOPS.CLÍNICAS PORTO ALEGRE
100.00
IMBEL-IND. MATERIAL BÉLICO DO BR
100.00
VALEC ENG.CONSTR.FERROVIAS S.A.
100.00
CPRM-CIA PESQUISA REC.MINERAIS
%
company
ABGF-AG.BR.GEST.FUND.GARANT.
DATAPREV
1 Binational
Source: Finance Ministry report on Brazilian government’s ownership stakes
ALCANTRA CYCLONE SPAC
51.18
58
Petrobras, Eletrobras and BB control 92 subsidiaries ✓ In addition to the 47 directly controlled companies, the government controls 101 companies indirectly. – Brazil’s new administration has been talking about privatizing a large number of companies but has reiterated that it doesn’t intend to privatize Petrobras or Banco do Brasil (and maybe not even Eletrobras). – However, Petrobras, Eletrobras and Banco do Brasil control together 92 subsidiaries. By selling some of these subsidiaries, the government can slash the number of state-owned companies.
✓ The government also has minority stakes in 58 companies from a range of sectors. – Of these, 27 have an equity value above R$100mn. The government also has golden shares in three privately-controlled listed companies: Vale, Embraer and IRB.
59
Broad privatization program could slash debt levels ✓ Big companies under control – The book value of the government´s stakes in the 47 companies it directly controls was R$270bn at the end of 2017. In 2014, before the write-downs at Petrobras and Caixa, the book value of these stakes was R$314bn. Book value of government´s direct stakes in 47 companies
314 270
32
168 27 13
25
179
293
281
277
270
34
36
37
15
20
66
61
229
40
62
35
205
25
18 61
52
22
66
13 28
20
24
37
33
46
53
2008
2009
30
34
31
34
63 55
33
35
29
26
96
95
98
2010
2011
2012
Petrobras
34
27
26
28
34
Eletrobras
23
100
2013 BB
BNDES
31
40
89
2014 Caixa
44
36
39
17
18
19
73
72
76
2015
2016
2017
Others
Source: Finance Ministry report on Brazilian government’s ownership stakes
60
Profits of state-owned companies have plummeted ✓ The three big listed state-owned companies were trading at or below their book values at the end of 2017. Price/Book Value: Petrobras, Eletrobras and Caixa 1.03 x
1.03 x 0.92 x 0.84 x
0.83 x 0.82 x
0.79 x 0.72 x 0.58 x 0.52 x
0.50 x
0.41 x 0.39 x 0.22 x 0.15 x
Petrobras
BB 2014
2015
2016
Eletrobras 2017
3Q18
Source: Finance Ministry report on Brazilian government’s ownership stakes
✓ The profits generated by government-controlled companies have also plummeted in recent years, as shown in the table below.
Earnings of companies directly controlled by the government (R$mn) Company Banco do Brasil BNDES Caixa Petrobras Eletrobras Other Total
2012
2013
2014
2015
2016
2017
12,310 8,136 6,066 20,895 -6,879 1,452 41,980
15,810 8,150 6,723 23,408 -6,287 -2,984 44,822
11,313 8,594 7,092 -21,692 -3,031 -3,428 -1,153
14,109 6,199 5,797 -34,836 -14,442 -9,609 -32,782
7,930 6,392 3,702 -14,824 3,426 -4,434 2,193
10,881 6,183 12,462 -446 -1,764 -3,154 24,162
Source: Finance Ministry report on Brazilian government’s ownership stakes 61
State-owned companies have been draining cash ✓ Consistent negative contributions – State-owned companies have consistently negatively contributed to the country’s fiscal accounts. In other words, the government is having to put more money into state-owned companies (capitalizations + debt financing) than it has been able to collect (dividends + interest). – The amount of money required to fund these companies’ deficits has been growing consistently, rising from R$6.5bn in 2012 to ~R$15bn in 2017.
Direct subsidies for state-owned companies (R$mn) 14,841 13,348 11,146
9,856 8,229 6,533
– In the past 5 years, except for 2014, the government has pumped more money into state-owned companies than it has taken out. In 2016 and 2017, the money-in/money-out ratio was as low as 0.2x and 0.3x, respectively. 2012
2013
2014
2015
2016
2017
Source: Finance Ministry report on Brazilian government’s ownership stakes
Costs vs. returns of state-owned companies (R$mn) Costs (R$ thousands)
Return (R$ thousands)
Year
AFCI
Hybrid Instruments
Subsidy
Total Costs
Interest Income (Hybrid Instruments)
Dividends
Total Return
Return/Costs
2012
3,285,634
21,099,997
6,531,679
30,917,310
2,391,340
27,775,051
30,166,391
0.98
2013
5,384,644
23,000,000
8,229,590
36,614,234
1,373,016
16,909,531
18,282,547
0.50
2014
5,132,002
999,999
9,856,531
15,988,532
2,779,339
18,905,531
21,684,870
1.36
2015
5,634,086
0
11,145,857
16,779,943
2,677,569
12,044,357
14,721,926
0.88
2016
8,666,265
0
13,348,536
22,014,801
1,668,075
2,835,828
4,503,903
0.20
2017
5,334,390
0
14,840,910
20,175,300
1,029,182
5,498,246
6,527,428
0.32
Total
33,437,021
45,099,996
63,953,103
142,490,120
11,918,521
83,968,544
95,887,065
0.67
Source: Finance Ministry report on Brazilian government’s ownership stakes 62
Economic recovery to accelerate in 2019
Claudio Ferraz, BTG’s Brazil Chief Economist [email protected] +55 21 3262-9758
A slow recovery and lots of slack. Watch out for a confidence boost. ✓ 3Q18 GDP came in strong as expected, but heavily driven by base-effects. – Election result may bring a confidence boost – In fact, consumer confidence has already shown positive signs (expectations component). – Preliminary exercises suggest that GDP can grow from 2.6% to 3.8% in 2019 if there is a post-elections confidence boost.
64
A slow recovery after the worse GDP performance in decades
Deviation from the peak before recession
GDP – Median market forecasts (Focus report)
Source: IBGE and Central Bank of Brazil
Source: IBGE and Central Bank of Brazil
65
Industrial activity bounced back from the strike ✓ But growth at the margin has been sluggish
Industrial Production, s.a.
Industrial Production, y/y %
Indústrial geral
Extrativa
Apr-18
Jul-17
Oct-16
Jan-16
Apr-15
Jul-14
Oct-13
Jan-13
Apr-12
Jul-11
Oct-10
Jan-10
Apr-09
Jul-08
Oct-07
Jan-07
20 15 10 5 0 -5 -10 -15 -20
Transformação
1.1 0.2
Jan-03 Nov-03 Sep-04 Jul-05 May-06 Mar-07 Jan-08 Nov-08 Sep-09 Jul-10 May-11 Mar-12 Jan-13 Nov-13 Sep-14 Jul-15 May-16 Mar-17 Jan-18
130 125 120 115 110 105 100 95 90 85 80
y/y
3-month average y/y
66
Commerce: Retail sales was also impacted by the strike ✓ And recovery has been at a much slower pace…
Retail Sales, index s.a. (2014=100)
Chart 1: Retail Sales breakdown, index s.a (3-month moving average)
105 170
100
Core retail sales Source: IBGE
Broad retail sales
Supermarkets and foodstuff Furniture and household appliances Books, magazines and stationery Vehicles
Apr-18
Jul-17
Oct-16
Jan-16
Apr-15
Jul-14
Oct-13
Jan-13
Apr-12
Jul-11
Jan-10
Jul-18
Jan-18
Jul-17
Jan-17
Jul-16
Jan-16
Jul-15
70
Jan-15
80
Jul-14
90
Jan-14
85 Jul-13
110
Jan-13
90
Jul-12
130
Jan-12
95
Oct-10
150
Apparel Pharmaceutical goods, cosmetics Office, communication and IT equip. Building material
Source: IBGE
67
Services: lagging behind in the ongoing economic recovery… Services output, index s.a
105
100 95 90
Jun-18
Nov-17
Apr-17
Sep-16
Feb-16
Jul-15
Dec-14
May-14
Oct-13
Mar-13
Aug-12
Jan-12
85
Services output
Core services
3-m av. (Services output)
3-m av. (Core services)
Source: IBGE and BTG Pactual
68
Consumption and investment show signs of recovery ✓ But remain low by historical standards, and the GDP should end 2018 5% below the 2014 peak – Consumption: 6% below the 2014 peak – Investments: 26% below the 2013 peak GDP (Consumption & Investments); Índice 1995=100
210 190
170 150 130
110 90
Consumption
Investment
Nov-17
Mar-16
Jul-14
Nov-12
Mar-11
Jul-09
Nov-07
Mar-06
Jul-04
Nov-02
Mar-01
Jul-99
Nov-97
Mar-96
70
GDP
69
Labor market: employment has improved of late… ✓ But driven by low paying, less secure, non-payroll jobs
107
93
105
92
103
91
101
90
n.s.a. Source: IBGE and BTG Pactual
s.a.
Labor force
Aug-18
Jan-18
Jun-17
Nov-16
Apr-16
Sep-15
Feb-15
Jul-14
88 Dec-13
95 May-13
89 Oct-12
97 Mar-12
Sep-18
Mar-18
Sep-17
Mar-17
Sep-16
Mar-16
Sep-15
Mar-15
Sep-14
99
Employment (rhs)
Source: IBGE and BTG Pactual
70
Millions
12.1% 11.7%
Millions
Labor force and employment, s.a.
Mar-14
Sep-13
Mar-13
Sep-12
Mar-12
Unemployment rate 14 13 12 11 10 9 8 7 6
Actual Forecast
6
Actual
Dec-20
10
May-20
12
Oct-19
13
Mar-19
-600
Aug-18
7 Jan-18
-400
Jun-17
8
Nov-16
-200
Apr-16
9
Sep-15
0
Feb-15
200
Jul-14
400
Dec-13
Net payroll jobs, s.a.
May-13
600
Oct-12
800
Mar-12
Mar-20
Mar-19
Mar-18
Mar-17
Mar-16
Mar-15
Mar-14
Mar-13
Mar-12
Mar-11
Mar-10
Mar-09
Mar-08
Mar-07
Mar-06
Mar-05
Mar-04
Thousands
...and the adjustment will take long Unemployment rate, s.a. %
14 Dec-18 11.8
11 Dec-19 11.1
Forecast
71
Credit market has shown some positive signs ✓ With momentum slowly increasing
Non-performing loans, s.a.
7.5
3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0
6.5 6.0 5.5 5.0 4.5 4.0 3.5 3.0 2.5
7.0 6.5 6.0 5.5 5.0 4.5
Total Source: IBGE
Households
Non-financial corporations
Households
Oct-18
Mar-18
Aug-17
Jan-17
Jun-16
Nov-15
Apr-15
Sep-14
Feb-14
Jul-13
Dec-12
May-12
Oct-11
Mar-11
Jan-18
Mar-17
May-16
Jul-15
Sep-14
Nov-13
Jan-13
Mar-12
May-11
Jul-10
Sep-09
Nov-08
Jan-08
4.0
Mar-07
Trillions
Total outstanding loans (s.a., current R$)
Non-financial corporations (rhs)
Source: IBGE
72
Leverage has fallen over the past years ✓ Despite worsening slightly at the margin
Household debt, % of annual income
Household debt service, % monthly income
Total Source: IBGE
Total
Ex-mortgage
Nov-17
Dec-16
Jan-16
Feb-15
Mar-14
Apr-13
Nov-17
Dec-16
Jan-16
Feb-15
Mar-14
Apr-13
May-12
Jun-11
Jul-10
Aug-09
Sep-08
Oct-07
Nov-06
Dec-05
Jan-05
15
17.6
May-12
20
Jun-11
23.7
Jul-10
25
20.0
Aug-09
30
Sep-08
35
Oct-07
40
24 23 22 21 20 19 18 17 16 15
Nov-06
42.1
Dec-05
45
Jan-05
50
Ex-mortgage
Source: IBGE
73
Business and consumer confidence have started to improve ✓ But remain below their historic average (mean=100)
Consumer confidence, s.a.
Business confidence - Industry Average=100 and SD=10
Average=100 and SD=10
130
125
120 115
110
105
Source: FGV
Expectations
Confidence index
Current situation
Expectation
Mar-18
May-17
Jul-16
Sep-15
Nov-14
Jan-14
Mar-13
May-12
Jul-11
Sep-10
Jan-09
Nov-09
Mar-08
May-07
Sep-05
May-18
Jul-17
Sep-16
Nov-15
Jan-15
Mar-14
May-13
Jul-12
Nov-05
Current situation
Sep-11
60
Nov-10
65
Jan-10
70
Mar-09
75
May-08
80
Jul-07
85
Sep-06
90
Jan-05
95
Jul-06
100
Consumer confidence index
Source: FGV
74
A confidence boost improves the outlook for GDP growth
Business confidence trajectories
GDP growth (y/y) vs business confidence scenarios 10
120
8
110
6 3.2% in 2019 2.8% in 2019
4
100
2
90
0 -2
80
-4
70
-6
Source: IBGE, FGV and BTG Pactual
2006
Average 2002-2006
Feb-19
Mar-18
Apr-17
May-16
Jun-15
Jul-14
Aug-13
Sep-12
Oct-11
Nov-10
Dec-09
Jan-09
Feb-08
Jul-19
Sep-18
Nov-17
Jan-17
Mar-16
May-15
Jul-14
Sep-13
Nov-12
Jan-12
Mar-11
Jul-09
May-10
Sep-08
Nov-07
Jan-07
Average 2002-2006
Mar-07
-8
60
2006
Source: IBGE, FGV and BTG Pactual
75
Mar-17
Unemployment rate, s.a. %
14
12 12.0
10 81
8
79
6
4 75
Jan-05 Oct-05 Jul-06 Apr-07 Jan-08 Oct-08 Jul-09 Apr-10 Jan-11 Oct-11 Jul-12 Apr-13 Jan-14 Oct-14 Jul-15 Apr-16 Jan-17 Oct-17 Jul-18
Unemployment rate - Brazil Sep-13 Jun-15
Dec-11
Jun-08 Mar-10
Sep-06
Mar-03 Dec-04
Jun-01
Dec-97 Sep-99
Jun-94 Mar-96
Sep-92
How much slack? Capacity Utilization in Industry, %
87
85
83 Avera ge 2007-2017 Avera ge 2012-2017
80.4
78.4
77 75.3
73
76
Benign inflation scenario ✓ Benign inflation scenario in the short and medium term. – In the short term, energy prices (electricity tariffs and fuels) are declining significantly. – Sizable slack in the economy favors contained inflationary pressures. – In fact, underlying inflation measures running at a weak pace for this time of year. – Medium and long-term inflation expectations remain well-anchored, amidst declining inflation targets. – Central Bank credibility will be critical to maintain inflation expectations anchored should the BRL faces a more volatile environment. – Our expectation for the IPCA is 3.8% for 2018 (target: 4.5%) and 4.2% for 2019 (target: 4.25%) IPCA 2018-2020 (12-month accumulated inflation, %)
20 15
10 5
IPCA
Monitored prices
Sep-20
Apr-20
Nov-19
Jun-19
Jan-19
Aug-18
Mar-18
Oct-17
May-17
Dec-16
Jul-16
Feb-16
Sep-15
Apr-15
Nov-14
Jun-14
Jan-14
0
Free prices
Source: IBGE and BTG Pactual
77
Benign inflation outlook in the short term ✓ Energy prices and core measures have helped...
Median
Seasonality: Gasoline
Source: IBGE and BTG Pactual
Source: IBGE and BTG Pactual
2017
2018
15-Dec
15-Nov
15-Oct
15-Sep
15-Aug
15-Jul
15-Jun
15-May
15-Apr
15-Mar
15-Feb
15-Jan
Seasonality: Headline 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0 -0.2 -0.4
2019
Seasonality: Electricity
Source: IBGE and BTG Pactual
78
Benign inflation outlook in the short term ✓ Energy prices and core measures have helped... Daily price of gasoline 2.60 5.00 2.40 4.80
2.20
4.60
2.00
4.40
1.80
4.20
1.60
Consumer prices - ANP
Dec-18
Nov-18
Oct-18
Oct-18
Sep-18
Aug-18
Aug-18
Jul-18
Jun-18
Jun-18
May-18
Apr-18
Mar-18
Mar-18
Feb-18
Jan-18
0.80 Jan-18
3.40 Dec-17
1.00 Nov-17
3.60
Nov-17
1.20
Oct-17
3.80
Sep-17
1.40
Sep-17
4.00
Petrobras distribution price d-20 (rhs)
Source: ANP, Petrobras and BTG Pactual
79
Benign inflation outlook in the short term ✓ With core measures trending around comfortable levels
Seasonality: core measures (average)
Seasonality: core services (as per BCB)
0.8
1.2
0.7
1.0
0.6
0.8
0.5
0.6
0.4 0.4
0.3
Source: IBGE and BTG Pactual
2017
2018
2019
2017
2019
Source: IBGE and BTG Pactual
80
28-Dec
15-Dec
15-Nov
28-Nov
15-Oct
28-Oct
15-Sep
28-Sep
15-Aug
2018
28-Aug
15-Jul
28-Jul
15-Jun
28-Jun
15-May
Median
28-May
15-Apr
28-Apr
15-Mar
28-Mar
15-Feb
28-Feb
15-Jan
15-Dec
28-Dec
15-Nov
28-Nov
15-Oct
28-Oct
15-Sep
28-Sep
28-Aug
15-Aug
15-Jul
28-Jul
15-Jun
28-Jun
15-May
Median
28-May
15-Apr
28-Apr
15-Mar
28-Mar
15-Feb
-0.2
28-Feb
0.0
15-Jan
0.0
28-Jan
0.1
28-Jan
0.2
0.2
12-month services inflation at low levels 12
10 8 6 4
Services
Services ex-air fare
Jan-18
Jan-17
Jan-16
Jan-15
Jan-14
Jan-13
Jan-12
Jan-11
Jan-10
Jan-09
Jan-08
Jan-07
Jan-06
Jan-05
Jan-04
Jan-03
Jan-02
2
Services BCB
Source: IIBGE, Central Bank of Brazil and BTG Pactual
81
Benign inflation outlook in the medium term ✓ Inflation expectations remain well anchored
IPCA Inflation Expectations 2018-2020 12-month accumulated inflation, %
20 15 10
5
IPCA
Monitored prices
Sep-20
Apr-20
Nov-19
Jun-19
Jan-19
Aug-18
Mar-18
Oct-17
May-17
Dec-16
Jul-16
Feb-16
Sep-15
Apr-15
Nov-14
Jun-14
Jan-14
0
2016 2017 2018F 2019F 2020F
IPCA 6.3 2.9 3.8 4.2 4.1
Monitored 6.5 1.3 3.0 3.8 4.0
Free 5.5 8.0 5.8 5.3 4.6
Free prices
Source: IBGE e BTG Pactual
82
Midpoint target and target band 4.00
jan-16
2020
6.5 6 5.5 5 4.5 4 3.5 3 2.5 2
Source: BCB
83
nov-18
set-18
jul-18
mai-18
jan-18 mar-18
nov-17
set-17
jul-17
mai-17
6.5 6 5.5 5 4.5 4 3.5 3 2.5 2 jan-17 mar-17
nov-16
set-16
jul-16
mai-16
3.94
mar-16
2019
Midpoint target and target band
2021
nov-18
set-18
jul-18
mai-18
jan-18 mar-18
nov-17
set-17
jul-17
mai-17
2018
jan-17 fev-17 mar-17 abr-17 mai-17 jun-17 jul-17 ago-17 set-17 out-17 nov-17 dez-17 jan-18 fev-18 mar-18 abr-18 mai-18 jun-18 jul-18 ago-18 set-18 out-18 nov-18
nov-18
set-18
jul-18
mai-18
jan-18 mar-18
nov-17
set-17
jul-17
6.5 6 5.5 5 4.5 4 3.5 3 2.5 2 mai-17
jan-17 mar-17
nov-16
set-16
jul-16
mai-16
jan-16 mar-16
2018 6.5 6 5.5 5 4.5 4 3.5 3 2.5 2
jan-17 mar-17
nov-16
set-16
jul-16
mai-16
jan-16 mar-16
2020
Benign inflation outlook in the medium term
✓ Inflation expectations remain well anchored
2019 Midpoint target and target band
4.12
2021 Midpoint target and target band 3.86
External accounts remain at a good shape ✓ The current account deficit will increase in 2018, owing mainly to a decline in the trade balance. We expect an increase in the current account deficit in 2019, primarily owing to more robust economic growth, which will likely increase imports and other expenditures such as remittances of profits and dividends – FDI will remain relatively stable in 2018 in comparison with 2017. However, the composition will change, with a sharp increase in intercompany loans and a decline in equity capital. The prospects of higher GDP growth in the coming years will contribute to increase the FDI in 2019. FDI will continue to finance the current account deficit comfortably in 2018 and 2019. – International reserves remain at a very high level, helping keep Brazil’s external vulnerability at a low level. – The adverse external scenario for EM economies tends to curb further BRL appreciation in 2018. The dynamic of the exchange rate in 2019 will depend on the capacity of the new administration to implement the structural reform agenda. Current account balance and foreign direct investment (US$bn) 101.2 88.5
97.2
86.6
74.7
69.7
50.7
54.1
31.5 20.1
-30.6
5.2
77.8
12.6
24.1
-23.7 -74.2
60.9
66.0
-9.8
-14.0
85.0 55.0
-7.0
-26.3
-77.0
80.0
15.3
12.4 -5.2
-75.8
70.7
-30.0
-59.5 -74.8 -104.2
2008
2009
2010
2011
2012
Current account
2013
2014
2015
2016
Foreign direct investment (FDI)
2017
2018e
2019e
Balance
Source: Central Bank of Brazil and BTG Pactual
84
Balance of Payments overview Current account Trade Balance Exports Imports Services Travel Operational leasing Other Primary income Compensation of employees Interest Profits and dividends Secondary income
Capital and financial account Capital account Investments - assets Direct investment Portfolio investments Other assets Investments – liabilities Direct investment Portfolio investments Equity and investment fund shares Debt securities Long-term loans and debt securities issued abroad Short-term loans and debt securities issued abroad Other liabilities Financial derivatives – assets and liabilities Reserve assets
Errors and omissions
2010 -75.8 18.5 201.3 182.8 -30.2 -10.7 -13.7 -5.7 -67.1 0.5 -12.0 -55.6 2.9 -76.3 0.2 71.8 26.8 -0.6 45.7 197.1 88.5 55.2 37.7 17.5 30.1 27.4 -4.1 0.1 49.1 -0.4
2011 -77.0 27.6 255.5 227.9 -37.2 -14.7 -16.7 -5.8 -70.5 0.6 -14.4 -56.6 3.0 -79.5 0.3 35.0 16.1 -5.2 24.1 172.9 101.2 12.4 7.2 5.3 47.7 -3.9 15.5 0.0 58.6 -2.5
2012 -74.2 17.4 242.3 224.9 -40.2 -15.7 -18.7 -5.8 -54.3 0.5 -16.6 -38.2 2.8 -74.2 0.2 36.5 5.2 3.8 27.5 129.3 86.6 17.0 5.6 11.4 18.7 -4.1 11.1 0.0 18.9 0.1
2013 -74.8 0.4 241.6 241.2 -46.4 -18.6 -19.1 -8.8 -32.5 0.5 -19.3 -13.7 3.7 -74.1 0.3 62.2 14.9 3.4 43.9 130.0 69.7 42.1 11.1 31.0 2.5 -0.1 15.9 -0.1 -5.9 0.7
2014 -104.2 -6.6 224.1 230.7 -48.1 -18.7 -22.6 -6.8 -52.2 0.4 -21.4 -31.2 2.7 -100.9 0.2 79.5 26.0 -1.4 54.9 192.5 97.2 38.6 11.5 27.1 21.6 24.9 10.3 1.6 10.8 3.4
2015 -59.5 17.7 190.1 172.4 -36.9 -11.5 -21.5 -3.9 -42.9 0.3 -22.5 -20.8 2.8 -55.6 0.5 53.9 13.5 -1.1 41.5 114.1 74.7 26.5 9.8 16.7 -3.6 -6.3 22.7 3.4 1.6 3.8
2016 -23.7 45.0 184.5 139.4 -30.4 -8.5 -19.5 -2.5 -41.2 0.3 -22.1 -19.4 2.9 -16.8 0.3 45.4 12.8 -1.7 34.3 70.2 77.8 -15.6 11.0 -26.7 -15.7 4.4 19.4 -1.0 9.2 6.9
2017 -9.8 64.0 217.2 153.2 -33.9 -13.2 -16.8 -3.8 -42.6 0.3 -21.9 -21.0 2.6 -6.6 0.4 62.9 6.3 -6.7 63.4 74.9 70.7 0.6 5.7 -5.1 -5.7 -5.3 14.6 0.7 5.1 3.3
2018e -15.0 54.0 239.2 185.2 -35.0 -13.0 -15.5 -6.5 -36.7 0.3 -19.0 -18.0 2.7 -9.0 0.4 50.0 2.0 0.0 48.0 84.0 80.0 -1.0 4.0 -5.0 0.0 0.0 5.0 3.0 22.4 6.0
2019e -30.0 45.0 275.0 230.0 -40.0 -15.0 -19.0 -6.0 -38.6 0.4 -14.4 -24.0 3.0 -25.0 0.5 70.0 10.0 5.0 55.0 129.0 85.0 17.0 12.0 5.0 7.0 5.0 15.0 5.0 29.5 5.0
85
Slight increase in the current account deficit in 2018 ✓ The current account deficit will increase just slightly in 2018, to 0.8% of GDP from 0.5% of GDP in 2017. The decline in the trade balance will be the main driver of the reduction in the current account deficit in the year. On the other hand, net expenditures with income fell in 2018, curbing a higher increase in the current account. – The increase in the current account deficit in 2019 will be driven mainly by an acceleration in imports, in turn reflecting higher growth in domestic demand. Current account balance 12-month accumulated (left axis: US$bn; right axis: % of GDP) 30
2.0
1.7
1.5 1.2
10
4 0.7
11
14
13
1.0
0
-8 -10
-25
-10
0.0
-24
-24
-26
-15
-0.5 -30
-1.6 -50
-1.8
-1.6
-76
-77
-74
-1.3
-75
-1.0
-1.5 -2.0
-104 -2.9 -3.0 -3.0
-70
-3.0
-3.3
-3.4 -90
-0.8
-59
-31
0.0
-30
-3.8
-4.0
-4.2
-4.2
-110
-5.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018e2019e
Source: Central Bank of Brazil and BTG Pactua l
86
Higher current account deficit in 2018; Slightly worse trade balance ✓ The reduction in the trade balance in 2018 has been partially offset by the decline in net expenditures with income (remittances of profits and dividends and interest payments). Net expenditures with services (e.g. travel and equipment rental) have remained relatively stable in the year.
Breakdown of current account balance 12-month accumulated 80
60 40 20 0
-20 -40 -60 -80
-100 -120 2000
2001
2002
2003
Other services and income
2004
2005
Trade balance
2006
2007
Interest rate
2008
2009
2010
2011
Profits and dividends
2012
2013
2014
Equipment rentals
2015
2016
Transportation
2017 Travel
Source: Central Bank of Brazil and BTG Pactual
87
Trade balance remains at a high level in 2018 Trade Balance and growth of exports and imports (US$bn, %)
54
52 43
33 23 15
24 7
7
12
3
2
20 18
38 29 23
48
54
45 45
38
33
24
18
11
25
28
25
16
17
15
0
0
-3
-1
-7
-8 -17
Exports (year-on-year change) Imports (year-on-year change)
-33
-34 -45 -46
Trade balance
2001
-6
-10
-13
2000
14
18
1
2
-2
13
22
45
64
54
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
-58
2015
2016
2017
Oct-18
* Growth in exports and imports: year-to-date until October versus the same period of the previous year. Trade balance cumulative in 12 months until October.
Source: Central Bank of Brazil and BTG Pactual
88
Exports overview: countries, products and share Main destinations – Exports (%)
Exports (as % of GDP)
4
5
16
90 16
79
36
5
16
NAFTA Latin America (ex-Mexico) Asia (ex-Middle East) Other Countries
53
European Union Middle East Africa
43 38 30
29
26
25
24
Main products – Exports (%) 20
19
15
1
13
11
10
9
1
42 7 15 6
Source: The World Bank Data, Central Bank of Brazil and BTG Pactual
Non-commodities Soy Complex Iron ore
10
Other Commodities Meat Complex Steel
Sugar Complex Wood & Pulp Oil & Fuels
89
Significant growth of imports in 2018 ✓ Growth in exports in 2018 was explained by an increase in prices and quantum, while growth in the quantum was the main driver of expansion in imports.
Imports: price, quantum and value (%, y/y)
Exports: price, quantum and value (%, y/y) Value 32 17
16
23
Value 44
27 30
18 10
17
14
24
42
32
24
20
-5
0
3
-7
8
11 10 3 -3
9
5
19 11 129 13 11 3 5
-5
-13
26
-15
Price
10
-2 -11 -13
8
3 0 -5 -3
-1
-4
-15 -25
-26
21 23 3
-1
-3
-15
-23
16
-3
-7
10
7
2
3
37
Quantum
10 7 4 3
13 2 0
-2 -5
0
3
6
22 22 18 18 16 11 10 8 7 5
4
-6
-22
-3
-5 -15
-3 -4 -12
Price
14 9
Quantum
13 45 6
9 1 -2 -1
-11 -17
-20
-2-3 -9 -12 -15 -12
* Year-to-date until September. Source: MDIC, FUNCEX and BTG Pactual
Source: MDIC, FUNCEX and BTG Pactual
90
FDI may increase significantly in 2019 ✓ FDI will remain relatively stable in 2018 in comparison with 2017. However, the composition will change, with a sharp increase in intercompany loans and a decline in equity capital. – The prospects of higher GDP growth in the coming years will contribute to increase the FDI in 2019. FDI will continue to finance the current account deficit comfortably in 2018 and 2019, we believe. Foreign Direct Investment (US$bn) Equity and investment fund shares Intercompany loans 101 88
16
97 87
85
13 23
70
39
75
80
78 71
18
24
57
54
12
18 24
51 45 21
33 3
38
19 23 4
17
30 19
18
17 -1
10 1 9
19
15
4
75
64
58
12
19 15
31
85
26
15
59
67 56
31
30
20
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018e2019e
Source: Central Bank of Brazil and BTG Pactual
91
Share of Brazil in EM FDI is higher than 15% ✓ Brazil’s Foreign Direct Investment (FDI) has accounted for around 15% of the total FDI received by Emerging Markets since 2011 (excluding 2014, when this share declined to 10.7%). – The share of Brazil in world FDI is around 3.5% in 2018, much higher than it was in the previous decade.
Share of Brazil in world and Emerging Markets FDI (%) 25 22.9
20
16.5
15.6
15
15.2
15.9
15.7
14.5 13.6
14.1
12.3
10.7
10
9.2 8.2
7.5 5.6
5 2.3
2.9
2.2
1.4
1.8
00
01
03
04
05
5.4
1.0
0.9
06
07
0
8.3
9.2
4.7
1.4
08
2.1
2.3
09
10
Brazil/World
11
4.4
12
5.3 4.1
13
3.3
14
15
3.1
3.2
3.6
16
17
18
Brazil/EM
Source: Central Bank of Brazil and BTG Pactual
92
Brazil was the sixth highest receptor of world FDI
Ranking of the highest receptors of FDI (US$ bn)
2005
2015
2010
United Kingdom (1)
253
Netherlands (2)
United States (1)
264
China (2)
210
United States (1)
509
China (2)
244
Brazil position in the FDI ranking
2017
242
United States (1)
355
Netherlands (2)
317
2005
21
2006
27
2007
United States (3)
142
Netherlands (3)
116
Ireland (3)
Belgium (4)
111
Hong Kong (4)
235
China (3)
21
168 2008
China (4)
104
France (5)
85
Brazil (5)
88
Netherlands (5)
Austria (6)
81
Germany (6)
86
Switzerland (6)
Germany (7) Ireland (8)
Arab World (9) Brazil (21)
60 47
46 15
181 181 116
Hong Kong (4)
122
Germany (5)
78
Brazil (6)
71
Hong Kong (7)
83
Brazil (7)
75
United Kingdom (7)
65
Arab World (8)
70
Singapore (8)
71
Singapore (8)
64
United Kingdom (9)
67
Canada (9)
62
France (9)
47
Singapore (10)
55
Germany (10)
54
Australia (10)
45
14
2009
14
2010
5
2011
5
2012
5
2013 2014
6 5
2015
7
2016
7
2017
6
Country (#), where # is position in the ranking of the highest receptors of FDI.
Source: World Bank Data and BTG Pactual
93
Foreign investments in portfolio will remain low in 2018 ✓ Foreign investments in portfolio have remained highly volatile in 2018. These investments will continue to be much lower in 2018 than what we saw up to 2015.
Foreign investment in portfolio (US$ bn)
Foreign investment in portfolio (12-month, US$ bn)
Equity and investmets fund
42.1
Debt securities issued in Brazil
38.6
Portfolio investment
26.5
10.1
10.3
6.0
6.2
31.0 17.0
0.6 0.7 -0.1
2.8
4.1
2.3
0.5
-3.0 -5.7
2.2 4.1
-4.1
-4.4
-3.7
-2.0 -6.4
-1.9 -1.2 -3.1
Dec-17
Feb-18
-0.1
-7.7
5.3 7.2
11.4
5.6
11.1
11.5
9.8
Jun-18
Aug-18
0.6 5.7 -5.1
-26.7
-2.7 -0.8 -3.5
0.7
-3.1 -2.4
Equity and investmets fund -15.6
-7.8 Apr-18
11.0
1.5 0.6
Debt securities issued in Brazil
-7.8 Oct-17
16.7
12.4
5.4 3.1 1.4
27.1
Oct-18
2011
2012
2013
2014
2015
2016
2017
Oct-18
Source: Central Bank of Brazil and BTG Pactual
94
External debt stable in the last four years ✓ Brazil's total external debt remained relatively stable in the past four years at approximately USD540bn. – The external debt of the public sector has remained relatively stable since 2012. – The external debt of the private sector increased significantly from 2009 to 2014, but since then has declined gradually. – External debt of intercompany loans increased significantly from 2005 to 2018 and has accounted for the bulk of external debt since 2016. External debt composition (US$bn) 561
540
544
545
545
206
222
228
244
207
195
184
128
127
133
487 455 208
416 352
263 226
102
108
228
235
17
20
85
125
79
69
136
132
199
190
128
123
106
95
241
220 19
278
128
174
188
199
47
79
65
196
19
27
69
83
107
114
103
100
89
86
84
96
214
173
153
104
114
139
127
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Oct-18 External Debt - Public Sector
External Debt - Private Sector
Intercompany Loans
Source: Central Bank of Brazil and BTG Pactual 95
Short-term external debt account for less than 15% of total
External debt by term composition (US$bn) External Debt - Long Term External Debt - Short Term Intercompany Loans - Long Term Intercompany Loans - Short Term
6
10
11
9
196
212
218
51
56
51
19
0 0 202
2 8
3 13 28
4 13 23
4 16 20
4 14 19
4 4 15 19
5 22 20
43 39
5
9
87
59
71
57
37
31
128
182
187
2001
2002
2003
183
2004
151
152
154
162
167
2005
2006
2007
2008
2009
40
33
295
58 33
280
295
2011
2012
2013
2014
59
284
270
266
2015
2016
2017 Jun-18*
199
2010
218
104
269 195
174
242
Source: Central Bank of Brazil and BTG Pactual
96
International Reserves still at a high level
International Reserves (US$bn, % of GDP)
US$ bn % of GDP 20
20
20 18
15
14 13
13 11 9 7
15
15
373
359
364
356
365
374
381
2012
2013
2014
2015
2016
2017
Nov-18
13 352
289 8
6
8
6
5
239 180
194
2007
2008
86 33
36
38
49
53
54
2000
2001
2002
2003
2004
2005
2006
2009
2010
2011
Source: Central Bank of Brazil and BTG Pactual
97
Brazil’s exports are higher than the net external debt
Exports (as % of GDP)
Net total external debt/Exports (ratio)
450
3.5 400
350
300
2.8
2.7 2.1
250
1.4 200
150
0.9 0.5
100
50
-0.1 -0.1 -0.4
-0.3
-0.2
-0.3
-0.2 -0.4
-0.3
-0.4
0
Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14 Jan-16 Jan-18
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Source: Central Bank of Brazil and BTG Pactual
98
The key challenge: Fiscal reforms ✓ Positive fiscal news in the shorth term but long-term scenario yet to be addressed. – Public accounts should outperform the 2018 target, with help from all government spheres. – But primary surpluses are still far away. Unless for significant non-recurring revenues or tax hikes, public accounts should return to positive territory only in 3-4 years. – Spending cap ceiling will be respected this year and (with strong efforts) next year. Margin of maneuver require urgent reform on mandatory expenses – Golden rule to be met this year and the following. Risks still lie ahead due to pressure to adjust via discretionary spending (investment). – Fiscal turnaround needed is large (~4% of GDP). Risk of higher tax burden increase if markets impose a frontloaded adjustment. Dependency ratio and social security expenditures % of GDP (2014-2016)
Italy France
Greece Portugal
% of GDP
Brazil
Japan
Dependency ratio (65+ / 20-64)
99
Consolidated Public Accounts - Summary In Nominal Terms (R$ Bn)
Nominal Result (C=A+B) Central Government Federal Government Central Bank Subnational Government States Municipalities Government Owned Companies Federal States Municipal Interest Payments (B) Central Government Federal Government Central Bank Subnational Government States Municipalities Government Owned Companies Federal States Municipal Primary Result (A) Central Government Federal Government Central Bank Social Security Subnational Government States Municipalities Government Owned Companies Federal States Municipal
Oct-18 -6.1 -0.2 -2.0 1.8 -6.2 -5.6 -0.6 0.4 0.6 -0.3 0.0 -13.9 -10.4 -12.6 2.1 -3.1 -2.8 -0.3 -0.3 0.1 -0.4 0.0 7.8 10.2 23.8 -0.4 -13.2 -3.1 -2.8 -0.3 0.7 0.5 0.1 0.0
Monthly Oct-17 -30.5 -24.6 -29.6 5.0 -4.7 -4.2 -0.5 -1.1 -0.4 -0.7 0.0 -35.3 -29.6 -34.5 4.9 -5.1 -4.7 -0.4 -0.6 0.0 -0.5 0.0 4.8 5.0 18.7 0.0 -13.8 0.4 0.5 -0.1 -0.6 -0.4 -0.2 0.0
∆ 24 24 28 -3 -1 -1 0 1 1 0 0 21 19 22 -3 2 2 0 0 0 0 0 3 5 5 0 1 -3 -3 0 1 1 0 0
Oct-18 -369 -326 -393 67 -41 -39 -2 -1 1 -2 0 -317 -260 -327 67 -52 -48 -4 -5 0 -5 0 -52 -66 103 -1 -168 11 9 2 4 1 2 0
YTD Oct-17 -416 -385 -418 34 -27 -27 0 -4 -1 -3 0 -338 -289 -323 34 -45 -41 -4 -5 0 -4 0 -77 -96 60 -1 -155 18 14 4 1 -1 1 0
∆ 47 58 25 33 -14 -13 -2 3 2 1 0 21 29 -4 33 -7 -7 0 0 0 0 0 26 30 43 0 -13 -7 -5 -2 3 2 1 0
Rolling 12-month Oct-18 Oct-17 -464 -601 -401 -554 -478 -584 78 30 -61 -42 -55 -39 -6 -4 -2 -5 1 -1 -3 -4 0 0 -380 -414 -312 -354 -391 -385 79 31 -62 -55 -57 -50 -5 -5 -6 -6 0 0 -6 -5 0 0 -85 -187 -89 -200 107 -18 -1 -1 -195 -181 0 12 1 11 -1 1 4 0 1 -1 2 1 0 0
∆ 137 153 106 47 -19 -16 -2 3 2 1 0 34 42 -6 47 -7 -7 0 0 0 0 0 102 111 126 0 -14 -12 -10 -2 3 2 1 0
Rolling 12-month (% of GDP) Oct-18 Sep-18 Oct-17 -6.8 -7.2 -9.2 -5.9 -6.3 -8.5 -7.0 -7.4 -9.0 1.1 1.2 0.5 -0.9 -0.9 -0.7 -0.8 -0.8 -0.6 -0.1 -0.1 -0.1 0.0 -0.1 -0.1 0.0 0.0 0.0 0.0 -0.1 -0.1 0.0 0.0 0.0 -5.6 -5.9 -6.4 -4.6 -4.9 -5.4 -5.7 -6.1 -5.9 1.1 1.2 0.5 -0.9 -0.9 -0.8 -0.8 -0.9 -0.8 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 0.0 0.0 0.0 -0.1 -0.1 -0.1 0.0 0.0 0.0 -1.2 -1.3 -2.9 -1.3 -1.4 -3.1 1.6 1.5 -0.3 0.0 0.0 0.0 -2.9 -2.9 -2.8 0.0 0.1 0.2 0.0 0.1 0.2 0.0 0.0 0.0 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Source: Central Bank of Brazil and BTG Pactual 100
The key challenge. Fiscal accounts in red ink
PSBR
Gross and Net Debt 85.0
-5.0% -3.7% -3.7% -3.2%
-3.2%
-3.3% -2.6% -1.9%
-3.0%
-2.2%
Gross debt
65.0
-1.7%
-2.0%
Net debt
75.0
-2.9%
% of GDP
-1.0% 0.0%
55.0
45.0 Central Government
0.6%
1.2%
2.5%
Jan-18
Aug-18
Jun-17
Apr-16
Nov-16
Sep-15
Feb-15
Jul-14
Dec-13
May-13
Oct-12
Aug-11
Mar-12
2018.10.
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
Jan-11
25.0
Jun-10
1.9%
3.0%
Apr-09
Primary - Total
35.0
Nov-09
2.0%
1.7%
Sep-08
Government Owned Companies
Jul-07
Subnational Government
Feb-08
1.0%
Dec-06
% of GDP - (-) = surplus
-4.0% -3.2%
Source: Central Bank of Brazil and BTG Pactual
101
Positive short term fiscal performance ✓ Strong revenue growth and contained expenditures; the recurring primary deficit measure still points to a bigger deficit
15.0
5.0% 4.0%
10.3
10.0
3.0%
2.0%
% of GDP
12-month accumulated - Real terms
Federal Government
5.0
0.0
0.0
1.0% 0.0% -1.0%
-2.0% -3.0%
Net revenues
-5.0
-4.0%
-5.0%
Total expenditures Sep-18
Jan-18
May-18
Sep-17
Jan-17
May-17
Sep-16
Jan-16
May-16
Sep-15
Jan-15
May-15
Sep-14
Jan-14
May-14
Sep-13
Jan-13
May-13
Sep-12
Jan-12
May-12
Sep-11
Jan-11
May-11
-10.0
Consolidated Primary Surplus
Primary Surplus - Adjusted
Source: Central Bank of Brazil and BTG Pactual
102
Backloaded slow fiscal adjustment ✓ But big imbalance persists; compliance with the spending cap rule is a growing challenge
28%
Expenditures
26%
2000-2016 Avg increase
24%
Source: Central Bank of Brazil and BTG Pactual
103
2027
2025
2023
2021
2019
12%
2017
13%
2015
14%
2013
14%
2011
16%
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018*
15%
2009
18%
2007
16%
20%
2005
17%
2011-2016 Avg increase
22%
2003
% of GDP
% of GDP
18%
2001
19%
Under the rule of the spending cap ceiling
1999
20%
Primary Expenditures Net revenues
1997
21%
Long term challenges – secular growth in expenditures
Primary Expenditures, % of GDP
Primary Expenditures, % of GDP (Breakdown)
20.0
12.0
19.0
10.0
~6% pa in real terms ~0.3% of GDP pa 18.0
Income Transfer Personnel Fed Discretionary, Soc Ministries (ex-FP) Extended Subsidies Other Current Expenditures PAC (ex-Housing Program)
8.0 % of GDP
17.0
16.0
Primary Expenditures, % of Budget (Breakdown) Other Legislative, 0.1% Executive, 4% Education, 3%
Judiciary, 0.7%
Soc Development, 3% Health, 8%
6.0
PAC, 2% 4.0
15.0
Other mandatory expenditures, 14%
2.0
14.0
Social security benefits, 43%
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
0.0
13.0
Payroll, 22%
Source: Central Bank of Brazil and BTG Pactual
104
Long term challenges - High debt and high tax burden
Gross debt (% of GDP) – IMF Fiscal Monitor 0
20
40
60
Tax Burden (% of GDP) – IMF 2015 80
100
120
40 35
1
2
30 25 20
3
15 10
4
5 0
5
Developed economies
Brazil
Emerging economies
Low income countries
Source: Treasury, fiscal monitor (IMF) and BTG Pactual
105
Long term challenges – Tax breaks
Other 10%
Other 20%
Worker benefits 4%
IT & Automation 18%
"Simples Nacional" 33%
Exempt income tax and taxable 7%
North and Northeast 4%
Payroll tax break 7%
Support to cultural events 4% Boats and aircraft 5%
Basic Basket 9%
Exempt income tax and nontaxable 10%
Medicines 16%
Non-profit organizations 10%
Zona Franca de Manaus 10%
Public transportation 5% Technological Information Chemical & 6% Pharmaceutical 7%
Auto sector 8% Housing sector 7%
Source: Treasury, fiscal monitor (IMF) and BTG Pactual
106
Long Term challenges – Generous Pension system
Dependency ratio and social security expenditures % of GDP (2014-2016)
Italy France
Greece Portugal
% of GDP
Brazil
Japan
Dependency ratio (65+ / 20-64)
107
Long Term challenges – Generous Pension system ✓ Deficits everywhere…
108
Long Term challenges – Generous Pension system ✓ Deficits everywhere - breakdown RGPS (% of GDP) 1.0% 0.5%
% of GDP
0.0%
Total
Rural
9.5
9.3
120.0
-110.7
0.1%
1.8%
-1.7%
RPPS Total**
0.9
37.1
123.5
-86.3
0.6%
1.9%
-1.3%
Civil servants
0.6
33.8
82.4
-48.7
0.5%
1.3%
-0.7%
Army
0.3
3.3
41.0
-37.7
0.1%
0.6%
-0.6%
Urban
Rural
2017
-1.1%
2017
-2.8%
6.7%
2016
8.5%
5.6%
2016
5.7%
-71.7
2015
-182.4
437.2
2015
557.2
365.5
2014
374.8
20.3
2014
29.8
Urban
-3.0%
2013
RGPS - Total
-2.5%
RGPS
RPPS (% of GDP) 0.0%
-0.2% -0.4%
*Except regional government spheres (deficit of ~1%) **number of benefits as of dec/2016
% of GDP
-0.6%
-0.8% -1.0% -1.2% -1.4% -1.6%
Civil servants
2013
-4.1%
2012
10.4%
2012
6.3%
2011
-268.8
2011
680.7
2010
411.9
2010
30.7
2009
Private System - Total
-2.0%
2009
Revenues Expenditures
2008
Total
2008
Revenues Expenditures
-1.5%
2007
# of benefits
-1.0%
2007
Social security deficit*- (% of GDP) - Breakdown 2017
-0.5%
Army
RPPS
109
Gross Debt: Scenarios Debt stabilization scenarios - Required Primary surplus % Interest rate
GDP Growth
Debt T= 80% 0.0%
2.0%
4.0%
6.0%
8.0%
1.0%
-0.8
0.8
2.4
4.0
5.6
2.0%
-1.6
0.0
1.6
3.2
4.8
3.0%
-2.4
-0.8
0.8
2.4
4.0
4.0%
-3.2
-1.6
0.0
1.6
3.2
Debt stabilization scenarios - Imp. Interest rate% Primary Surplus
GDP Growth
Debt T= 80%
Source: Treasury and BTG Pactual
-2.0%
-1.0%
0.0%
1.0%
2.0%
1.0%
-1.5
-0.3
1.0
2.3
3.5
2.0%
-0.5
0.8
2.0
3.3
4.5
3.0%
0.5
1.8
3.0
4.3
5.5
4.0%
1.5
2.8
4.0
5.3
6.5
110
Exchange rate of BRL3.90/USD YE 2018 and 2019 BRL/USD exchange rate forecast 5.00
benign scenario
5.00
baseline scenario
4.50
adverse scenario
4.00
3.90 3.90
3.50
3.40
3.00
2.50
2.00
1.50
Source: Central Bank of Brazil and BTG Pactual
111
External factors curbs further BRL appreciation Brazil’s 10-year CDS spread scenarios
625
benign scenario
575
baseline scenario
525
adverse scenario
475 425 400 375 325 275
225
225
175 150
125 75
Source: Central Bank of Brazil and BTG Pactual
112
External factors curbs further BRL appreciation
10-year US Treasury rate forecast (%, p.a.) 5.25
2-year US Treasury rate forecast (%, p.a.) 6.00
benign scenario baseline scenario
4.75
5.00
adverse scenario
4.25 4.00 3.75
4.00
3.75
3.50 3.25
3.25
3.00
2.75
3.00 2.75
2.00 2.25
1.00
Dec-19
Dec-18
Dec-17
Dec-16
Dec-15
Dec-14
Dec-13
Dec-12
Dec-11
Dec-10
Dec-09
Dec-08
Dec-07
0.00 Dec-06
Dec-19
Dec-18
Dec-17
Dec-16
Dec-15
Dec-14
Dec-13
Dec-12
Dec-11
Dec-10
Dec-09
Dec-08
Dec-07
Dec-06
Dec-05
1.25
Dec-05
1.75
Source: Central Bank of Brazil and BTG Pactual
113
Macro Scenario
2011
2012
2013
2014
2015
2016
2017
2018
2019
Real Growth
4.0
1.9
3.0
0.5
-3.5
-3.5
1.0
1.3
2.8
IPCA IGPM
6.5 5.1
5.8 7.8
5.9 5.5
6.4 3.7
10.7 10.5
6.3 7.2
2.95 -0.52
3.8 8.6
4.2 3.3
R$/US$ (end of period) R$/US$ (average)
1.9 1.7
2.0 2.0
2.3 2.2
2.7 2.4
3.9 3.3
3.3 3.5
3.31 3.19
3.80 3.55
3.90 3.85
End of period Average Real / Average (IPCA)
11.00 11.71 4.89
7.25 8.46 2.47
10.00 8.44 2.39
11.75 11.02 4.33
14.25 13.58 2.63
13.75 14.15 7.39
7.00 9.83 6.69
6.50 6.6 2.7
7.50 6.7 2.4
Primary Surplus - % GDP Net Public Debt - % GDP Gross Debt - % GDP
3.1 36.5 51.3
2.2 32.2 53.7
1.7 30.5 51.5
-0.6 32.6 56.3
-1.9 35.6 65.5
-2.5 46.2 70.0
-1.7 51.6 74.0
-1.8 51.8 76.1
-1.2 55.5 78.8
GDP
Inflation
FX Rate
Interest Rates
Public Accounts
As of Dec-18
Source: Central Bank of Brazil and BTG Pactual
114
Investment Themes, by sector
Basic Materials
VALE | Risk/return profile looking attractive Simplified risk/return analysis for Vale – stock currently pricing in < US$60/t IO price Implied EBITDA/t
40 11
45 16
50 21
55 26
60 31
65 36
70 41
75 46
80 51
390
390
390
390
390
390
390
390
390
IO EBITDA - US$mn
4,290
6,240
8,190
10,140
12,090
14,040
15,990
17,940
19,890
Bmetals/others EBITDA - US$mn
3,200
3,200
3,200
3,200
3,200
3,200
3,200
3,200
3,200
TOTAL EBITDA
7,490
9,440
11,390
13,340
15,290
17,240
19,190
21,140
23,090
6.0x
6.0x
6.0x
6.0x
6.0x
6.0x
6.0x
6.0x
6.0x
Implied EV Net Debt Adjustments Asset sales
44,940 17,838 0 0
56,640 16,570 0 0
68,340 15,303 0 0
80,040 14,035 0 0
91,740 12,768 0 0
103,440 11,500 0 0
115,140 10,233 0 0
126,840 8,965 0 0
138,540 7,698 0 0
Implied Equity value
27,103
40,070
53,038
66,005
78,973
91,940
104,908
117,875
130,843
5.2 -59%
7.7 -40%
10.2 -21%
12.7 -1%
15.2 18%
17.7 38%
20.2 57%
22.7 76%
25.2 96%
(1,159) (698.00) (4,000) 1,633 2%
(1,077) (1,088) (4,000) 3,275 5%
(995) (1,478) (4,000) 4,917 7%
(912) (1,868) (4,000) 6,560 9%
(830) (2,258) (4,000) 8,202 12%
(748) (2,648) (4,000) 9,845 14%
(665) (3,038) (4,000) 11,487 16%
(583) (3,428) (4,000) 13,129 19%
(500) (3,818) (4,000) 14,772 21%
11.8x
9.2x
7.5x
6.4x
5.5x
4.8x
4.2x
3.8x
3.4x
Volumes – Mt
EV/EBITDA target
Equity value/shr Upside/downside
FCF yield potential Net Financial Expenses Taxes Capex FCFE Yield % EV/EBITDA
Source: BTG Pactual.
117
VALE | A 10% dividend yield at US$60/t IO… ✓ All these, dividend payments respect a leverage ceiling of 1.5x (max). Conservative BS. ✓ M&A unlikely. ✓ Large capex unlikely.
Dividend Potential – 2019 Scenarios Iron Ore pricing - US$/t 50
55
60
65
Dividend Potential
US$5bn
US$6bn
US$7.5bn
US$9bn
Yield (%)
7%
8%
10%
12%
Source: Vale, Bloomberg, BTG Pactual.
118
Brazilian steels ✓ All things considered, domestic demand remains resilient... 40% 30% 20% 10% 0% -10% -20% -30% -40%
Flats growth % y/y
Longs growth % y/y
Source: IABr, BTG Pactual.
119
What’s priced in? A contraction from current levels GGBR
USIM
CSN
TX
Shr Price
15.33
8.70
8.50
28.20
#shrs
1,702
1,238
1,357
196
Market Cap
26,092
10,773
11,535
5,536
Net debt - 2019 YE
9,967
3,877
22,386
1,572
Adjustments
-882
162
-2,961
510
35,177
14,812
30,959
7,618
6.0x
6.0x
6.0x
4.5x
Implied Norm. EBITDA
5,863
2,469
5,160
1,693
Recurring EBITDA 19
7,125
3,216
6,177
2,385
Implied growth
-18%
-23%
-16%
-29%
EV
Target multiple
Note: Priced as of 10/12/2018
120
Pulp S&D Outlook ✓ A tight market… and structural upside risk ahead.
Source: RISI, BTG Pactual
121
P&P | FCF Profile
FCF Yield 2019 sensitivity to BHKP prices -- assuming FX at spot
20% 18% 17% 15% 13% 12% 9%
9%
600
9%
10%
630
10%
660
10%
10%
690
720
Klabin
11%
750
11%
780
12%
810
Suzano
Note: Priced as of 10/12/2018.
122
Food and Beverage
Our main Food & Beverage calls In a low beta sector, we favor stocks that benefit from undemanding valuations and positive cyclical effects ✓ Proteins: time to change your diet! Lower growth, deleverage and positive cycle to drive stronger performance: − JBS: Our top pick on a combination of improving corporate governance, management professionalization, strong momentum across most relevant segments and undemanding valuation; − Marfrig: Some exposure to stronger US and Brazil beef outlook, but weaker track record of execution and lack of clarity on further deleveraging after buying assets in Argentina make it no longer our preferred vehicle to surf the sector’s new diet. − BRF: also a beneficiary of improving poultry cycle in Brazil, but we believe poor visibility on structural margins following indirect costs inflation and lost of pricing power in both Brazil and internationally leave us Neutral.
✓ Ambev (Neutral) seems unattractive on a combination of rich valuations and continued miss to consensus earnings expectations on deteriorating revenue mix and earnings quality, all of which justifies a de-rating, in our view. ✓ M.Dias Branco: our Neutral remains in place at least until we have greater visibility of when margins will rebound. MDB shares remains a “mean reversion” story, which we believe shall start to happen only later in 2019, when margins normalize, following the full implementation of 2018’s price increases and the impact of the recent drop in wheat prices on costs. That said, we admittedly like the stock more today, and believe the differentiated pricing approach in 2018 could be a strong testament that MDB’s improving commercial platform could be bearing fruits. This could mean stronger LT margins, in our view. 124
2019: Beef - positive cattle cycle is up and running Positive cattle cycle in Brazil is intensifying, which should translate into higher margins for players
Positive cycle: higher female slaughtering meaning more cattle availability and cheaper cattle
Brazil has the cheapest cattle the in world
55%
6.0 5.5 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5
50%
Cattle prices (USD/Kg)
45% 40%
35% 30%
Brazil
US
Cow slaughtering (% of total slaughter)
Australia
Spreads are 11% above historical average
12M moving average
Brazil – Total Beef production to grow (‘000 tons)
2.200 2.00 1.800 1.600 1.400 1.200 1.00
9,951 9,675 9,723 9,425
9,307
10,150
9,550 9,284
Sep-18
Jan-18
May-17
Sep-16
Jan-16
May-15
Sep-14
Jan-14
May-13
Sep-12
Jan-12
May-11
Sep-10
Jan-10
9,024 8,935 9,115 9,030
Beef exports spread (LHS)
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
20%
2000
Sep-18
Jul-17
Feb-18
Dec-16
Oct-15
May-16
Mar-15
Jan-14
Aug-14
Jun-13
Apr-12
Nov-12
Sep-11
Jul-10
Feb-11
Dec-09
Oct-08
May-09
Mar-08
Jan-07
Aug-07
25%
Average
Source: Bloomberg / BTG Pactual / Cepea / IBGE / Secex / USDA / MAPA
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017 2018E 2019E
125
JBS: Our Top Food Pick Strong momentum and attractive valuation, well positioned to benefit from positive commodity cycles 43% of JBS’ EBITDA comes from its US beef business, with growing cattle supplies… 24% 22% 20%
… which should translate into higher spreads, which already are 16% above historical average 50
15%
30
10% 5%
10
16% 14%
-5%
-30
-10%
Jan-00 Oct-00 Jul-01 Apr-02 Jan-03 Oct-03 Jul-04 Apr-05 Jan-06 Oct-06 Jul-07 Apr-08 Jan-09 Oct-09 Jul-10 Apr-11 Jan-12 Oct-12 Jul-13 Apr-14 Jan-15 Oct-15 Jul-16 Apr-17 Jan-18 Oct-18
12%
Brazil’s Seara should also improve margins as sector has historically responded to supply cuts 4.10 3.70 3.50
3.30 3.10 2.90 2.70 May-18
Jul-17
Dec-17
Feb-17
Apr-16
Sep-16
Nov-15
Jun-15
Jan-15
Aug-14
Oct-13
Mar-14
May-13
Jul-12
Dec-12
Feb-12
Apr-11
Sep-11
Jun-10
Nov-10
Jan-10
2.50
Historical avg. Tyson Beef
JBS USA
Trading at a steep discount to historical 25% 20% 15% 10% 5% 0% -5% -10% -15% -20%
3.90
Brazil's poultry production volumes y/y
US beef spread National Beef
12-month moving avg
Poultry production margin (R$/Kg)
Source: Companies data / Bloomberg / BTG Pactual / Secex / APINCO / IBGE
15x 13x
11x 9x
7x 5x
3x Jan-09 Jun-09 Nov-09 Apr-10 Sep-10 Feb-11 Jul-11 Dec-11 May-12 Oct-12 Mar-13 Aug-13 Jan-14 Jun-14 Nov-14 Apr-15 Sep-15 Feb-16 Jul-16 Dec-16 May-17 Oct-17 Mar-18 Aug-18
Cow slaughter (% of total slaughter)
0%
-10 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18
18%
EV/EBITDA 12M Fwd
Average
Avg + Std. Dev.
Avg - Std. Dev.
126
BRF – The gross margin and asset turnover dilemma Asset turnover and operating margin seem to have suffered a downshift in recent years BRF is struggling to show improvements on both fronts
?
2.0
25%
BRF - COGS (R$mn)
20%
COGS (16,796) (19,047) (22,064) (22,953) (20,497) (22,108) (26,206) Soybean + corn (from 20-F) 22.7% 23.0% 25.0% 24.6% 27.2% 27.4% 32.5% COGS from soybean + corn (3,813) (4,381) (5,516) (5,646) (5,575) (6,058) (8,517) Depreciation + Amortization (633) (800) (856) (1,016) (1,022) (1,085) (1,296) Total Volumes (k tons) 6,064 6,202 6,337 5,863 4,722 4,726 4,688 COGS / kg (R$) (2.77) (3.07) (3.48) (3.91) (4.34) (4.68) (5.59) Soybean + corn / kg (R$) (0.63) (0.71) (0.87) (0.96) (1.18) (1.28) (1.82) Depreciation + Amortization / kg (R$) (0.10) (0.13) (0.14) (0.17) (0.22) (0.23) (0.28) COGS / Kg (ex-grains) (R$) (2.14) (2.36) (2.61) (2.95) (3.16) (3.40) (3.77) Cash COGS / Kg (ex-grains) (R$) (2.04) (2.24) (2.48) (2.78) (2.94) (3.17) (3.50) Y/Y 9.8% 10.8% 12.2% 5.9% 7.6% 10.4%
BRF's ROIC (pre-tax) %
Invested Capital turnover (x)
2019E
2018E
2017
2016
2015
-5% 2014
1.0 2013
0% 2012
1.2 2011
5%
2010
1.4
2009
10%
2008
1.6
2007
15%
2006
1.8
EBIT Margin %
Pricing has lagged below inflation for quite some time now 4%
5.0
12%
4.5
0%
10%
4.0
-2%
8%
3.5
-4%
6%
3.0
-6%
4%
2.5
-8%
2%
2.0
FPP Price vs. inflation LTM
EBIT mg in Brazil LTM
Source: Company data / Bloomberg / BTG Pactual / Secex
3Q18
2Q18
1Q18
4Q17
3Q17
2Q17
1Q17
4Q16
3Q16
2Q16
1Q16
4Q15
3Q15
2Q15
1Q15
4Q14
3Q14
2Q14
1Q14
2%
2011
2012
2013
2014
2015
2016
2017
2018E
(26,796) (28,592) 28.5% 30.5% (7,637) (8,720) (1,378) (1,470) 4,919 4,932 (5.45) (5.80) (1.55) (1.77) (0.28) (0.30) (3.89) (4.03) (3.61) (3.73) 3.4% 3.2%
International margins have decoupled from spreads
14%
More promotional prices take effect and affect margins
2010
1,600 1,400 1,200 1,000 800 600 400 200
(200) (400) (600)
1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18
2.2
Indirect costs are now at higher levels
BRF Int'l EBIT/ton (R$)
Secex (gross profit per ton)
127
Ambev: Good, but not necessarily great; a de-rating call Economic environment is improving but Ambev is failing to capture it; pricing power is down Beer consumption shows strong correlation with GDP
Ambev’s apparently losing share based on IBGE’s data
10.00%
70%
8.00%
68%
6.00%
66%
64%
4.00%
62%
2.00%
60%
.00%
58%
-2.00%
56%
2019 E
Margin resilience based on pricing power is under threat 60% 55%
46%
50% 45%
42%
40%
0%
50% 51% 48% 49% 50%
3% 3%
1%
-1%
35%
1%
3%
4%
56%
6%
52% 54%
30,000
2%
3% 2%
0%
2% 0%
3Q2018
1Q2018
3Q2017
1Q2017
3Q2016
1Q2016
3Q2015
1Q2015
3Q2014
1Q2014
3Q2013
1Q2013
3Q2012
1Q2012
3Q2011
CONSENSUS EBITDA REVIEW 2007 2011 2015 2019
4%
45% 45% 46%
3%
Consensus continues to revise earnings down
24,000
2008 2012 2016
2009 2013 2017
2010 2014 2018
18,000
-2%
30%
30% 30% 30% 28%
33%
31% 30%
34% 33% 33% -4% 30% 30% 29% 29% 28% -6%
12,000
Source: Company data / SICOBE / BTG Pactual / IBGE
Jan-18
Jan-17
Jan-16
Jan-15
Jan-14
Jan-13
Jan-12
Jan-11
Jan-10
Jan-09
6,000
Jan-08
2018E
2017
2016
2015
2014
2012
2013
ABV's Brazil Beer EBITDA margin
Jan-07
ABV's Brazil Beer Price VS. Inflation ABV's Brazil Beer SG&A as % of Revenues
2011
2010
2009
2008
2007
2006
2005
-6% 2004
20%
Jan-06
25%
0%
52% 53%
1Q2011
Beer consumption growth
3Q2010
2018E
2017
2016
2015
2014
2013
2012
2011
50% 1Q2010
GDP Growth
2010
2009
2008
2007
2006
2005
2004
52%
2003
54%
-6.00% 2002
-4.00%
128
Agribusiness
Agribusiness: Sugar world production could be at a turning point Sugar prices still under pressure, but we and the market are consistently revising surplus estimates down Attribute
Country
Sugar Production (1000 MT)
Total Use (1000 MT)
2006/2007 2007/2008 2008/2009 2009/2010 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 2015/2016 2016/2017 2017/2018E 2018/2019E
Brazil
31,450
31,600
31,850
36,400
38,350
36,150
38,600
37,800
35,950
34,650
39,333
29,200
28,000
China
12,855
15,898
13,317
11,429
11,199
12,341
14,001
14,263
11,000
9,050
9,300
10,250
10,800
India
30,780
28,630
15,950
20,637
26,574
28,620
27,337
26,605
30,460
27,385
22,200
34,000
31,000
Thailand
6,720
7,820
7,200
6,930
9,663
10,235
10,024
11,333
10,793
9,743
10,033
13,730
14,100
European Union
17,987
15,834
14,290
16,897
15,939
18,320
16,655
16,020
18,449
14,283
16,500
21,150
19,900
Others
64,486
63,475
61,226
60,891
60,496
66,683
71,341
70,080
70,810
69,592
74,106
75,000
75,750
World
164,278
163,257
143,833
153,184
162,221
172,349
177,958
176,101
177,462
164,703
171,472
183,330
179,550
World
151,399
151,247
154,448
154,926
155,938
160,219
166,816
168,172
171,241
172,488
173,573
175,309
177,062
-0.1%
2.1%
0.3%
0.7%
2.7%
4.1%
0.8%
1.8%
0.7%
0.6%
1.0%
1.0%
% y/y
Surplus / (deficit)
World
12,879
12,010
-10,615
-1,742
6,283
12,130
11,142
7,929
6,221
-7,785
-2,101
8,021
2,488
Ending Stocks (1000 MT)
World
36,736
43,080
29,836
28,028
29,491
35,190
42,521
43,928
45,762
37,763
32,828
40,849
43,337
Stock-to-Use (% )
World
24.3%
28.5%
19.3%
18.1%
18.9%
22.0%
25.5%
26.1%
26.7%
21.9%
18.9%
23.3%
24.5%
Avg Sugar Price (USDc/lbs)
World
10.4
12.1
20.8
23.8
25.4
20.1
17.4
15.8
13.2
17.1
20.0
14.0
12.5
Average BRL/USD
Avg. Oct - Sep
2.04
1.71
2.13
1.77
1.65
1.89
2.11
2.29
3.01
3.62
3.20
3.52
3.86
Avg Sugar Price (BRLc/lbs)
World
21.1
20.8
44.4
42.1
41.8
38.0
36.6
36.0
39.7
61.9
64.1
49.3
48.3
Stock-to-Use (%)
Avg Sugar Price (USDc/lbs)
Source: BTG Pactual / USDA / Datagro
-7,785
Surplus / (deficit)
Sugar Production (1000 MT)
2018/2019E
2017/2018E
2016/2017
2015/2016
2014/2015
-10,615 2013/2014
2018/2019E
2017/2018E
2016/2017
2015/2016
2014/2015
2013/2014
2012/2013
2011/2012
2010/2011
2009/2010
2008/2009
2007/2008
2006/2007
16%
-2,101
2012/2013
18%
8,021
-1,742
2011/2012
20%
7,929 6,221
2,488
2010/2011
22%
6,283
2009/2010
24%
12,130 11,142
2008/2009
26%
190,000 12,879 12,010 185,000 180,000 175,000 170,000 165,000 160,000 155,000 150,000 145,000 140,000 2007/2008
28%
27 25 23 21 19 17 15 13 11 9
2006/2007
30%
Total Use (1000 MT)
130
Agribusiness: Ethanol market still supportive despite oil price slump Despite high ethanol inventories, our S-D model still points to a tight market by crop-end, driven by strong consumption Ethanol (m ³)
Cro p B o P
Cro p Eo P
Inventory (BoP)
Production
Net im port
Available
Consum ption
Inventory (EoP)
January-18
7,252,445
323,938
41,264
7,384,588
2,292,575
5,092,013
February-18
5,092,013
259,883
99,855
5,396,550
2,088,632
3,307,918
March-18
3,307,918
563,255
255,803
4,354,791
2,351,787
2,003,004
April-18
2,003,004
2,658,072
313,295
4,362,633
2,198,022
2,164,611
May-18
2,164,611
3,774,927
11,394
6,105,132
2,143,978
3,961,154
June-18
3,961,154
4,491,870
(63,814)
8,175,531
2,345,116
5,830,415
July-18
5,830,415
5,002,034
(37,248)
10,583,342
2,418,293
8,165,049
August-18
8,165,049
4,380,728
(178,514)
12,314,644
2,685,826
9,628,818
September-18
9,628,818
4,235,914
(170,724)
13,536,968
2,581,980
10,954,988
October-18
10,954,988
3,219,020
(213,012)
13,851,802
2,858,114
10,993,688
November-18
10,993,688
167,969
(85,145)
11,076,512
2,459,331
8,617,181
December-18
8,617,181
67,187
18,396
8,702,764
2,745,026
5,957,738
January-19
5,957,738
50,391
123,791
6,131,919
2,398,188
3,733,731
February-19
3,733,731
33,594
299,565
4,066,890
2,204,531
1,862,359
March-19
1,862,359
16,797
511,606
2,390,762
2,485,341
(94,579)
36,256,741
(94,579)
TOTAL
29,245,578
Drop in gasoline prices is a risk, but ethanol remains well below pump parity, offering upside 80%
72%
70%
63%
64% 56% 48%
May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18
40%
Source: BTG Pactual / ANP / MAPA
131
São Martinho: our Top Agri Pick – When asset quality pays off Strong FCF, even during sugar price lows. Unique ethanol storage capacity should enable better pricing
SMTO is one of the most efficient S&E producers 2.14
1.89
Low leverage ratio may trigger stronger dividends 3,000
2.50x
2,500
2.00x
2,000
0.88
1.50x
1,500 14.6
14.6
13.9
10.6
1.00x
1,000
0.50x
500 0
São Martinho
Adecoagro
Cosan
Cash Production Costs (c/lb)
0.00x 2010A 2011A 2012A 2013A 2014A 2015A 2016A 2017A 2018A 2019E
Avg. Brazil
Net Debt (R$mn)
Cogeneration
Net Debt/EBITDA
We see SMTO trading at a compelling 15% Adjusted FY2019 FCFE yield (R$mn) Net Revenues EBIT
FY2017A 3.003 850
FY2018A 3.436 1.049
FY2019E 3.740 992
FY2020E 4.091 1.120
FY2021E 4.403 1.189
EBIT Margin
28,3%
30,5%
26,5%
27,4%
27,0%
Cash net fin expenses Cash Income Tax Earnings D&A Cash Earnings CAPEX FCF Adjusted Market Cap * Adjusted FCF Yield
(273) (162) 415 739 1.154 (869) 285 5.556 5%
(169) (131) 749 896 1.644 (1.065) 579 6.276 9%
(175) (107) 709 971 1.681 (1.024) 657 5.016 13%
(155) (145) 820 1.022 1.841 (1.081) 761 5.016 15%
(111) (162) 916 1.106 2.022 (1.169) 854 5.016 17%
Source: Companies data / Bloomberg / BTG Pactual
132
Farming companies: Back to land Land market to soon show some recovery on combination of stronger farming yields and low interest rates
20%
14.000
15%
12.000 10.000
10%
8.000
5%
6.000
0%
4.000
-5%
Brazil land prices - real y/y appreciation
Aug-18
Feb-18
Aug-17
Feb-17
Aug-16
Feb-16
Aug-15
Feb-15
Aug-14
Feb-14
Aug-13
Feb-13
Aug-12
Feb-12
Aug-11
Aug-10
-10%
Feb-11
2.000
Brazil average land prices (R$/ha)
✓ SLC Agrícola and BrasilAgro have for some years now sold land more often than buying it. We believe this approach may soon have to change, as we believe land market could be on the verge of a recovery. Brazil’s soybean and cotton yields have improved over 20% in the past two years, which combined with low real rates all suggest land prices may soon show real term appreciation. Source: FNP/ IBGE / BTG Pactual
133
Fuel Distribution
Fuel Distribution Industry – A very tough macroeconomic backdrop After 11 years of sales growth, fuel volumes stagnated in the last 3-4 years. Volumes in 2019 should recover, but on a very weak comparison basis.
Diesel + Otto
Growth y/y
120,000
12% 10%
100,000
8% 6% 4%
60,000
2%
40,000
0% -2%
20,000
-4%
0
-6%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 10M18
'000 m3
80,000
135 Source: ANP / BTG Pactual
Fuel Distribution Industry – Fiercer competition Bad macro + premium to international parity = imports. Recent scenario has favored smaller distributors
Diesel imports reached record level in 2017…
… helping smaller players to gain share and….
'000 m3
(since beginning of subsidy, it has fallen sharply)…
90%
2,000
Plural
80%
Others/White Flags 73%
1,600
70%
1,200 50%
800 30%
400
20%
0
27%
10%
… sales efficiency relative to top 3 players Ipiranga
BR
Raízen
Others & White Flag
3,500 3,000 2,500 2,000 1,500 1,000 500
0 2010
2011
Source: Companies data / ANP / BTG Pactual
2012
2013
2014
2015
2016
2017
9M18
136
Cosan: our Top Fuel Distribution Pick Competition should hinder high returns from the past. CSAN’s better positioned in a scenario of increased competition
Pre-tax ROIC has trended higher for private Co’s… Ipiranga
Raizen Combustíveis
… driven mainly by higher EBIT margin
BR Distribuidora
BR Distribuidora
40%
4.0%
34%
3.6%
28%
3.2%
22%
2.8%
16%
2.4%
10%
2.0% 2011
2012
2013
2014
2015
2016
Ipiranga
Raizen Combustíveis
Raizen Combustíveis
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
2017
Asset turnover has failed to impress, with Cosan’s Raízen being the only exception
Ipiranga
Out of top 3 players, only Raízen has grown share in last 7 years (Otto cyle + diesel) Ipiranga
BR Distribuidora
BR
Raízen
35%
12.00
31%
10.80
27%
9.60
23%
8.40
19%
7.20
Jul-18
Oct-18
Apr-18
Jan-18
Jul-17
Oct-17
Apr-17
Jan-17
Jul-16
Oct-16
Apr-16
Jan-16
Jul-15
Oct-15
Apr-15
Jan-15
Jul-14
Oct-14
Apr-14
Jan-14
Jul-13
2017
Oct-13
2016
Apr-13
2015
Jan-13
2014
Jul-12
2013
Oct-12
2012
Apr-12
2011
Jan-12
15%
6.00
137 Source: Companies data / BTG Pactual
BR Distribuidora: a binary story! A ‘what if’ analysis to BRDT’s investment case
We run a DCF-based valuation for BRDT shares, using a real WACC of 8.2% and real perpetuity of 2.5% DCF, BRL mn EBIT (ex-PF) (-) Tax NOPLAT (+) Depreciation (-) NWC (-) Capex Cash Flow Cash flow (real) DCF
2019E 2,754 (936) 1,818 457 (609) (682) 984 984 984
2020E 3,226 (1,097) 2,129 490 (505) (330) 1,784 1,716 1,586
2021E 3,436 (1,168) 2,268 521 (482) (330) 1,977 1,832 1,565
BRDT could capture up to R$49/m3 in a bull case scenario if fully closes its gaps to peers
2022E 3,659 (1,244) 2,415 554 (513) (380) 2,077 1,855 1,465
2024E 4,149 (1,411) 2,739 627 (580) (380) 2,406 1,996 1,348
2025E 4,418 (1,502) 2,916 667 (616) (380) 2,586 2,069 1,291
2026E 4,705 (1,600) 3,105 709 (656) (380) 2,778 2,142 1,235
2027E 5,009 (1,703) 3,306 754 (697) (380) 2,983 2,216 1,182
2028E 5,333 (1,813) 3,520 802 (741) (380) 3,200 2,292 1,130
We estimate an significant gain of R$12/share to our current TP if all upsides materialize 40
140
125
4
17
30
100
8
25
32 R$
80
35
35
9
120
R$ / m3
2023E 3,897 (1,325) 2,572 589 (545) (380) 2,236 1,925 1,406
60
20 15
40
10
67 20
23
5 0
0 2017 Norm. Co's Adj. EBITDA
Gross Profit
SG&A
Inflation
2020 Norm. Co's Adj. EBITDA
PT w/o gap improvements
Gross Profit
SG&A
PT with gap improvements
138 Source: Company data / BTG Pactual
Ultrapar – High multiples don’t bode well with lower growth Focus in WK management and increase POS productivity is the right path in the long term, but it comes at a cost
EV/EBITDA 12M Forward
P/E 12M Forward 48.0x
18.0x
39.0x
15.0x
30.0x
9.9x 21.0x
6.0x
12.0x
Average
Avg + Std. Dev.
P/E 12M Forward
Avg - Std. Dev.
Average
Avg + Std. Dev.
2018
2017
2016
2015
2014
2013
2009
2012
3.0x
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
3.0x
EV/EBITDA 12M Fwd
22.6x
22.2x
9.0x
2011
10.1x
2010
12.0x
Avg - Std. Dev.
Company recently released its ‘19 guidance to even lower figures. Gas station conversion should slow down 2,500
R$ mn
2,000 1,500 1,000 500 0 2013
Ultragaz
2014
Oxiteno
2015
Ultracargo
2016
Ipiranga
2017
2018E
Extrafarma
19 UGP Guidance
Others
139 Source: Company data / BBG / BTG Pactual
Financials
In Financials, our top picks for Brazil are Bradesco and B3! ✓ Bradesco – After several bad years in Brazil’s economy and the acquisition of HSBC, Bradesco’s ROE (and investor’s preference) lost ground versus peers Itau and Santander. But with the help of insurance (stronger healthcare and financial results at the group due to stable/higher Selic), HSBC´s full incorporation (as of Jan/19 they will be able to adjust fees of former HSBC clients), and a stronger economy (which helps Bradesco more than peers in SMEs, countryside/north & northeast clients; and should drive another nominal decline in provisions), we expect the group´s earnings to outpace peers in the coming years, paving the way for a bigger re-rating on a relative basis.
✓ B3 – As we’ve been banging on the drum for a while, B3 is one of the most interesting stories to play as capital markets gain more relevance. With the overhang of elections now behind us, market sentiment is set to improve and B3 should benefit from additional volumes in many different ways - from cash equities trading to fixed income custody. Even though there are some risks – change in regulation for auto liens and loans and an expected new competitor in registration – the upside from higher activity in a favorable market seems much larger than such threats. If volumes remain at these levels, there is a very relevant upside risk to our (and consensus) earnings estimates.
141
B3: Capital markets to continue gaining importance in 2019 ✓ While demand for capital has been increasing Capital markets more active, particularly in fixed income
Domestic pension funds allocation in equities has a lot of room to increase…
Capital raising activity (R$bn)
AuM - Pension Funds (R$bn)
190
200 150 100 50
156148
139
188
134
102
19
14
2011
2012
176 144 135 111
115 88
173
71 40 44
24
15
18
11
2013
2014
2015
2016
7
0 BNDES
Capital Markets - Fixed Income
2017
3Q18
74% 74% 80% 72% 71% 64% 70% 61% 62% 60% 60% 50% 40% 29% 29% 30% 25% 30% 19% 18% 18% 17% 20% 11% 11% 11% 10% 9% 9% 9% 9% 10% 0% 2011 2012 2013 2014 2015 2016 2017 5M18
Fixed Income
Capital Markets - Equities
AuM - mutual funds (R$bn) 85%
86%
86%
88%
91%
91%
91%
Number of individual investors by asset class ('000)
90%
80% 60% 40% 20%
15%
14%
14%
12%
9%
9%
9%
10%
0% 2011
2012
2013
2014
Fixed Income
2015
2016
Equities
Others
With lower interest rates, more individual investors have been buying more sophisticated products
…mutual funds as well
100%
Equities
2017
5M18
1,600 1,400 1,200 1,000 800 600 400 200 0
1,466 1,043 587 484
583 482 1562
144 96
125 88
2011 REITs
589 510
2012
2013
766 620 619 564 564 557 500 505 438 438 413 341 399 204 185 237 163 119 2014
Tesouro Direto
2015 Equities
2016
2017
Hedge Funds
3Q18 142
Scenario remains positive for banks ✓ A better Brazil + HSBC full benefits + insurance improvement = BBDC’s earnings outgrow vs peers! – ROE of credit business should match CoE in the medium-to-long run. But the credit ROE destroyed value in the past few years and just very recently got above the CoE. If, on average, ROE = CoE in credit, we need to see a value generation in the next 12-18 months to compensate for the previous years destruction. – Loan growth + favorable mix (SME recovery and double digit growth in individuals) + healthy NPLs should lead to ROE expansion in 2019! – In such scenario, Bradesco is our TOP PICK among the banks.
ROE – CoE of the system continues expanding
While NPLs should fall for Bradesco and BB
Overall, loans should accelerate in 2019
18.0 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 -
13.7% 10.6%12.0% 10.1% 10.1% 10.1% 10.0%10.4% 8.9% 8.4% 7.3% 7.1%
15.0% 10.0%
5.0% 0.0%
6.4%
6.0%
5.0%
5.3%
4.9% 4.2%
4.0%
1.3%
0.4%
7.0%
3.9%
4.4% 3.7%
3.2%
5.0%
3.7%
4.9% 4.2%
4.0%
3.7%
3.0%
2.9%
2019E
2020E
3.0% 2.0%
SELIC
Jun-18
Jun-17
Dec-17
Dec-16
Jun-16
Jun-15
Adjusted ROE for the system
Dec-15
Dec-14
Jun-14
Jun-13
Dec-13
Jun-12
Dec-12
Jun-11
Dec-11
Dec-10
-5.0%
-3.2% -5.6%
1.0% 0.0%
-10.0% 2017 Itau
Bradesco
2018E
2019E
Banco do Brasil
2020E
Santander Brasil
2017 Itau
2018E Bradesco
Banco do Brasil
Santander Brasil
143
Retail
Dynamic periodic table 2018 – our main calls Consumer & Retail main themes
Our calls
Premium Companies
Good Momentum
Exposure to Internet Secular Growth
Exposure to Lower SELIC
Turnaround stories
Short term portfolio (3-6 months)
Mid-term portfolio (1-2 years)
Long-term portfolio
LREN
B2W
B2W
B2W
NATU
B2W
B2W
B2W
RADL
MGLU
MGLU
LAME
PCAR
MGLU
MGLU
LAME
MELI
BKBR
MELI
VVAR
HGTX
LREN
LREN
MGLU
ARZZ
LAME
MGLU
VVAR
CVCB
CVCB
MELI
LAME
VVAR
LLIS
MEAL
BKBR
BKBR
LREN
LAME
RADL
CVCB
PCAR
AMAR
Premium companies should continue outperforming the overall sector
Exposure to staples segment and cheap valuation theses do not always pays-off during the economic downturn. We prefer top-notch execution!
E-commerce is a irreversible trend in Brazil, and should post a secular growth in the coming years, but only with a few potential winners
Turnaround stories, such as HGTX and PCAR should be kept on the radar screen, also benefiting from a better macro outlook
145
Brazilian e-commerce – secular growth ahead
Brazilian e-commerce sales (R$bn) to triple until 2025 CAGR 17/25E = 14.2%
200 179
CAGR17/21E = 16.5%
159
142 127
112 96
59
2016A
69
2017A
82
2018E
2019E
2020E
2021E
2022E
2023E
2024E
2025E
146
Brazilian e-commerce – market breakdown ✓ MercadoLibre as the LatAm winner with its Alibaba/Taobao-esque platform, and B2W and Magazine Luiza as the winners with an Alibaba/Tmall-esque platform
Taobao-like platform
C2C
and smaller players
B2C
Tmall-like platform
35%
65%
of the market
of the market
147 Source: e-Bit and BTG Pactual
Brazilian e-commerce – only a few potential winners
Taobao-like market
Tmall-like market
Total GMV (R$bn) 32% 48%
R$200bn
13%
68%
10% 26% 2%
2017
139,979
R$69bn
70%
2017 MELI
B2W
MGLU
MELI's Share (Taobao-like market)
VVAR
Others
Others 15%
10%
44,992 24,226
65%
13%
59,991
35%
2017 Taobao-like market
30%
28%
85%
2025 40%
Tmall-like market
8%
2025
2025 MELI
B2W
MGLU
VVAR
Others
MELI's Share (Taobao-like market)
Others
148 Source: BTG Pactual
LatAm Transportation & Capital Goods
Transportation and Capital Goods Best Ideas
150
Rumo – Still Top Pick ✓ 2018 to remain strong: market share gains, new projects ✓ Positive FCFE for the first time in several years ✓ Double digit normalized FCF yield ✓ We believe the likelihood of Malha Paulista’s renewal has not changed and is still high; we also believe investors over-quantify its value
✓ Sorriso Project is material upside risk R$mn
Comment
EBITDA
4,500
Assuming mid-point of 2020 guidance
Capex, pre expansion
(1,200)
Maintenance; in line w/ depreciation. 2020 last expansion year
Net financial expenses, cash
(500)
Avg. R$5bn adjusted net debt
Taxes
(420)
Tax rate @ 20% , Malha Norte benefit + accumulated losses
Working capital change
(50)
Assumes WK @ 5% of revenues
FCFE
2,330
Market cap
25,334
FCFE yield (early 2020s)
9.2%
P/CF
10.9x
More than 35% upside without assuming optionalities EBITDA Target fw EV/EBITDA
R$mn
Comment
4,500
Assuming mid-point of 2020 guidance
9.0
In line with forward EV/EBITDA of North American Class 1
Target EV
40,500
Net debt
6,000
Target Equity value
34,500
Implied fw P/CF Current market cap 12-month upside
14.8 25,334 36%
151
Assumes 2019 end valuation potential
Embraer – Good risk/return from Boeing outcome ✓ Since the strategic partnership with Boeing was officially announced, ERJ shares underperformed as the deal came at a lower value than investors were expecting. – But we see good upside from current levels, and believe investors are not pricing in a deal happening. – Embraer’s value is now below the monetization value announced for Embraer’s Commercial Aviation alone (cash portion net of taxes + put option), which we believe is unfair – we continue to expect a deal to ultimately happen, which should be highly accretive to ERJ. – ERJ has recently announced the golden share request notification. Strategic partership
US$mn
100% - Eq. V - Comercial aviation, gross of taxes 80% - Eq. V - Comercial aviation, gross of taxes
4,750 3,800
Book value of comercial aviation (60% of total)
2,600
Base for capital gain Tax on capital gain (34% rate)
2,150 731
Synergies, annual NPV @ 10x Pretax
150 1,500
1. Monnetization of Commercial stake, net of taxes 2. 20% of newco pre-synergies (Put option) 3. 20% of synergies 4. 20% of Commercial net debt (estimate) 5. Re-rating ERJ - Commercial all-in
3,069 950 300 0 250 4,569
Defense value (12x normalized EBIT - zero value for JV) Defense + Executive synergies @ 10x
960 375
Total value - EV
5,904
Net debt ex Commercial (estimate) Equity Equity per ADR # of ADRs
300 5,604 30.6 183
152
Real Estate
Housing: 2019 is shaping up much better Mid/high-income is getting better all the time. MCMV program remains a government priority Mortgage rates are starting to decrease, at a slow pace
mortgage conditions) and rising consumer confidence (a mandatory condition for higher demand), we believe all is set for higher home sales in 2019. Thus, we are more positive on mid/high-end homebuilders and brokers (we like Even and Lopes)
12.0%
✓ The low-income homebuilders have suffered a lot, as investors are
10.0%
skeptical on the continuity of MCMV housing program, but with a huge pent-up demand and since the government is ultra-committed with MCMV program, we expect another strong year for this segment, which is our preference in the coverage (MRV is our favorite pick)
9.5%
Launches / sales of residential units in the city of São Paulo
11.5%
Bradesco
11.0%
Itau
10.5%
BB Santander
CEF
9.0% Nov-18
Jun-18
Jan-18
Aug-17
Mar-17
Oct-16
May-16
Dec-15
Feb-15
8.5% Jul-15
✓ In a scenario of much lower interest rates (and much better
MCMV budget remains solid for the next four years
50,000
FGTS' budget
Launches
Gross Sales
Inventory
53
2021E
46
53
26
2018E
53
43
2017
53
40
51
35
48
32
2016
9
2015
9
2014
9
2013
9
2012
8
9
2011
9M18
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
-
7
11
2010
5
10,000
5
10
2020E
20,000
8
2019E
30,000
2005
UNITS
40,000
Mortgages + Construction Financing
Subsidy
154
Housing: we prefer low-income (very attractive valuation) ROEs will lackluster in the mid/high-end segment; strong growth for low-income homebuilders
✓ Valuations of mid/high-income homebuilders are already pricing-in a nice recovery of ROEs, but we think they may take much longer to materialize than market is expecting. Therefore, we prefer (i) the brokerage firm Lopes; and (ii) the discounted homebuilder Even.
Aggregate launches and sales – mid/high-end segment 24.0
20.0 16.0 12.0
✓ On the flipside, low-income homebuilders combine: (i) EPS growth; (ii) nice cashflow generation; and (iii) attractive valuation. MRV at 6x P/E and 13% FCF yield for 2019E is our favorite pick.
8.0 4.0
0.0 2009
2010
2011
2012
2013
Launches
Brazilian Housing – Valuation multiples
2015
Sales
2016
2017 2018E
Inventory
Aggregate launches and sales – low-income segment P/E
Last
Target
Upside
Rating
Price
Price
12m
P/BV
2018E
2019E
Cyrela
Buy
15.33
14.00
-9%
1.08x
NM
18.6x
MRV
Buy
12.08
18.00
49%
1.32x
6.7x
6.3x
7.5
Gafisa
Neutral
16.33
9.00
-45%
1.23x
NM
-8.6x
6.0
Tecnisa
Neutral
1.35
1.20
-11%
0.53x
NM
-6.4x
Even
Buy
5.72
5.50
-4%
0.83x
NM
21.6x
Direcional
Buy
7.65
15.20
99%
0.81x
NM
9.2x
EZTec
Neutral
24.50
18.00
-27%
1.62x
59.1x
17.6x
1.5
Helbor
Neutral
1.48
1.20
-19%
0.58x
NM
-11.2x
0.0
Company
2014
10.5
9.0
4.5
3.0
2009
2010
2011
2012
Launches
2013
2014 Sales
2015
2016
2017 2018E
Inventory
155
Malls: all set for a strong year; Offices: we would still avoid Malls should see nice SSS and SSR growth; Rents to keep falling in the office segment
30% 25% 20%
while rents should keep falling (in nominal terms), mostly in the Rio de Janeiro market.
15%
✓ The sector should benefit from low interest rates, mostly
0%
10%
Same-Store-Sales (SSS) growth of listed shopping malls
SP
2018E
2017
2016
2015
the leveraged companies, with some potential upside coming from a reduction of long-term real rates.
2014
2010
5% 2013
✓ In office spaces, we expect vacancy to remain high,
35%
2012
sales improving and (ii) easy comps. This combined with a higher IGP (LTM is 8%), we also expect companies to post nice Same-Store-Rent growth.
Office vacancy in São Paulo and Rio markets
2011
✓ We expect nice Same-Store-Sales for malls: (i) retail
RJ
Same-Store-Rents (SSR) growth of listed shopping malls
20%
20%
15%
15%
10%
10%
5%
5%
0%
3Q18
1Q18
3Q17
1Q17
Iguatemi
3Q16
1Q16
3Q15
1Q15
BR Malls
3Q14
1Q14
3Q13
1Q13
3Q12
Aliansce
1Q12
3Q11
1Q11
3Q10
1Q10
Multiplan
3Q18
1Q18
3Q17
1Q17
Iguatemi
3Q16
1Q16
3Q15
1Q15
BR Malls
3Q14
1Q14
3Q13
1Q13
3Q12
Aliansce
1Q12
3Q11
-5%
1Q11
-10% 3Q10
0% 1Q10
-5%
Multiplan
156
Properties: solid outlook for malls, with a potential re-rating Retail sales recovering + low interest rates = Buy shopping malls Brazilian Properties – Implied IRR vs. long-term interest rates
recovering, top line growth (higher sales and some reduction of discounts to tenants), adjusted Ebitda growth (lower vacancy and NPLs).
10%
✓ We prefer more premium portfolios (AAA-oriented), that
4%
6%
2%
✓ For the office companies, we still expect vacancy to remain high (Rio’s market is ~40% vacant and SP’s is ~20%), while rents should remain under pressure for a while and allowances very high.
✓ In terms of valuation, we see malls trading at attractive valuations (nice premium to long-term real interest rates). Multiplan is our favorite pick, on AAA portfolio of shopping malls and attractive valuation.
SCAR3
BRPR3
PARAUCO
ALSC3
IGTA3
0% BRML3
we believe are in better shape to surf a recovery of tenants’ sales (it should be translated into higher rents faster).
NTNB ‘35
8%
MULT3
✓ We expect a solid 2019 for shopping malls: (i) retail sales
Brazilian Properties – Valuation multiples P / FFO
Last
Target
Upside
Implied
Company
Rating
Price
Price
12m
IRR
2018E
2019E
BR Malls
Buy
13.10
15.00
15%
7.7%
19.6x
16.2x
Multiplan
Buy
23.29
26.00
12%
6.8%
19.3x
18.7x
Iguatemi
Buy
39.15
45.00
15%
8.1%
18.7x
16.8x
Aliansce
Buy
18.16
22.00
21%
9.2%
18.7x
14.2x
157
Our calls in summary Housing and Properties preferred picks
What to own? • Homebuilders focused in the low-income segment (strong top line growth + high FCF yields + attractive valuation)
• Shopping malls, focused on the more AAA portfolios (faster recovery beta) and at attractive valuation
What to avoid? • Commercial properties with high exposure to the office sector (supply glut, high vacancies and declining rents) • High-end homebuilders that would remain destroying equity value for a while and too much geared (i.e. the “turnaround” stories)
Top stock ideas • Low-end Homebuilders: MRV • Mid/high-end Homebuilders: Even and Lopes • Shopping Malls: Multiplan
158
Healthcare and Education
Education – K12 and DL in the spotlight K12 on the rise: A year for Kroton to deliver synergies and for Arco to take a toll on market leaders 15%
16%
17%
17%
18%
18%
18%
18%
13%
14%
47
47
47
46
46
46
45
45
44
44
44
6
6
7
7
7
8
8
8
8
8
8
41
41
40
39
39
38
37
37
36
36
36
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
12%
Public Students - #mn
After the acquisition of Somos by Kroton and the IPO of Arco, K12 is definitely on the radar screen. The private Basic Education market showed a ~4% 2007-17 CAGR.
Private Students - #mn
While Kroton will keep pushing its brownfield strategy and delivering the synergies promised, Arco is set to keep investing in order to take on the leaders by adding new features and supplementary products to its core business.
% of Private Students
Distance Learning: growing uncertainty about price pressure after the capacity expansion The higher flexibility in the regulatory framework for DL was the main catalyst for the recent market growth acceleration. KROT is market leader, but ESTC is closing the gap.
17.6% CAGR 1.6 1.2
In 2018 companies were in growth mode not only in the number of learning centers, but expanding its portfolio of courses. We believe that competition will deteriorate down the road and margins will likely come down. But Estácio still has ample room to grow in the segment, helping the consolidated profitability of the company.
0.7
2010
0.8
2011
0.9
2012
1.3
1.4
1.0
2013
2014
2015
2016
2017
mn of DL students
160
Estácio: Our Top Pick in Education Faculty Cost: Efficiencies clearly being captured Faculty Costs per Student [R$ / Student / Month]
0%
9%
20% 5%
316 279
-1% 325
259
277
-3% 306
3%
266
-5% -22% 253
262
-6%
-5%
289 252
One of ESTC’s main objectives in 2018 was to turnaround the operation in terms of efficiency in order to start thinking about growth from 2019 onwards. The company deployed a number of initiatives (reassessing professors’ salaries, increasing the number of students per class and implementing its strategic source project). Elsewhere, ESTC is ready to accelerate consolidation, with some interesting M&A moves on the radar screen.
1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18
Faculty Costs Per Student (Average)
y/y Growth
Distance Learning: Accelerating… If the onsite business is proving to be a big growth challenge (ESTC has been suffering with double digit intake drops recently), DL is doing better than expected. The company continues to fine tune its products and increase the offer of courses.
ESTC is doubling the efforts in the sector, reaching 506 active LCs by 3Q18, 81% up y/y. To keep growing, the company wants to have 85 courses available in the DL business, 38 more than in 2Q18.
206
117 59
61
128
133
154
170
171
146
79
1H13 2H13 1H14 2H14 1H15 2H15 1H16 2H16 1H17 2H17 1H18 DL Students - 000s
161
Healthcare – Vertical players still outperforming Vertical players will keep consolidating the market Average MLR in Brazil [%] 83%
83%
58%
79%
81%
76%
83% 66%
78%
74%
72%
80%
73%
82%
It’s no news that vertical players are outperforming, even when operating in tough market conditions. In 2018, Hapvida and GNDI IPOed and the sector experienced several M&As. GNDI was responsible for the largest moves: GreenLine, Mediplan and Samed. At the same time, Hapvida acquired Uniplam and Free Life. The vertical players will keep on leveraging on inefficient providers and operators to increase their footprint.
*2017 Data, except Vitallis, São Francisco and Plena = 2016 Data (last available)
Pay-for-performance will impose challenges for providers – consolidation to accelerate In 2018 we finally saw the pay-for-performance model gaining room. Bolstered by operators and premium providers, new payment models are gaining traction and are set to change the hospital and the diagnostic markets in the years to come. However, there are other moving parts (such as population aging) that will keep pushing up the “per capita” HC expenditure.
4 3
3 2
Smaller players tend to have less control over its costs, so we expect consolidation moves to keep gaining traction in the years to come.
Sabin
Fleury
Pardini
São Marcos
# of acquisitions
162
Hapvida: Our Top Pick in Healthcare Growing organically, but the market expects M&A moves from 1H19 on
Year
2017
2016
2017*
2017*
2017
2016
State
SP
MG
SP
RJ
SP
SP
Net Revenues
2,329
487
1,071
772
169
74
MLR (ex-IBNR)
79%
81%
70%
78%
74%
80%
Gross Margin
21%
16%
29%
26%
24%
19%
EBIT Margin
9%
0%
6%
4%
-1%
0%
EBITDA Margin
10%
1%
7%
4%
0%
1%
Net Margin
7%
0%
6%
4%
1%
3%
Average Ticket [R$/month]
554.4
122.4
156.1
139.0
123.4
132.1
Members ['000]
374.0
331.4
571.8
463.1
114.2
46.6
With R$3bn in cash available for acquisitions, investors are already anticipating potential targets and awaiting for bold M&A moves in 2019, mostly after GNDI’s recent acquisitions. In addition to the most obvious N/NE regions, HAPV is clearly looking for targets in the S, SE and MW regions – after GNDI’s acquisition of GreenLine, we believe it’s less likely to see HAPV coming to SP soon.
Lower price caps for Individual health plans -> ST negative, but LT positive for HAPV ANS is working on the new methodology for the calculation of max price hikes for Individual health plans, and we believe it will come down, closer to the 7-8% range. While ST negative for all the operators, it’ll certainly accelerate consolidation moves. Good for those better prepared to capture that, like Hapvida.
2017 VDA
17.4%
Age Adjustment
1.8%
Adj VDA
15.3%
FGE
3.7%
IVDA
11.6%
Adjusted CPI
2.9%
IVDA Weight
80%
IPCA* Weight
20%
Readjustment
9.8% 163
Telecom and Technology
Sector consolidation I: Oi is a unique strategic asset ✓ Once Oi’s debt restructuring is concluded, it would be natural to expect M&A talks to resurface. - The company will be a full corporation with 71% of its capital in the hands of former bondholders and distressed debt investors. - We believe these investors may favor a sale to a strategic player, assuming a reasonable offer is made.
✓ Oi is also a unique strategic asset. - With integrated operations and scale, it is probably the best (if not the only) alternative for newcomers looking to enter Brazil’s telecom market.
- It is also attractive for existing players looking to expand and complement their operations in the country. - Equally important, by buying Oi current players would prevent a new, large telecom player from entering Brazil´s already competitive telecom market.
- When a unique asset is up for sale and there is demand, M&A is the logical outcome.
✓ A strategic asset and a few possibilities. - Infrastructure-wise, no one has Oi’s reach and size, as the company is present with copper and fiber fixed infrastructure in 26 of Brazil’s 27 states, whilst also operating a nationwide mobile network.
- It provides all types of services (fixed and mobile voice telephony, broadband and pay-TV) and serves all types of clients (residential fixed and mobile, small- and medium-size businesses, large businesses and the government). Oi ended October with 58.5 million clients.
- A potential merger between Oi and TIM has been speculated countless times by the media in the past. And the reason for this is that they have extremely synergic network and services. While TIM has strong mobile operations, Oi controls extensive copper and fiber infrastructure across the country. We believe synergies could reach as much as R$30bn, the bulk of it coming from lower capex.
165
Sector consolidation II: Nextel has valuable spectrum & clients ✓ Nextel is the other attractive asset which is up for sale - Nextel Brazil is an interesting target for any of the big three mobile operators in Brazil: TIM, Vivo and Claro. With the new spectrum cap regulation having been recently approved by Anatel, we believe the company should be sold in the near future.
- Nextel Brazil is the 5th largest wireless carrier in Brazil, with 3.1mn subscribers and 1.3% overall market share. Its subscriber base mostly comprises postpaid users (96% of its customers, or 3mn subscribers) with an ARPU of R$56 in 2Q18 (vs. R$28 for Vivo, R$22 for TIM and R$17 for Claro). Its share of the postpaid market is 3%. TIM has 20%, Vivo 41% and Claro 23%.
✓ The company’s spectrum portfolio has a lot of value for all telco’s (especially TIM) - The company’s spectrum portfolio includes 20Mhz of national spectrum in the 1.9/2.1GHz frequency band, 30MHz in the 1.8GHz frequency band in SP & another 20MHz in the 1.8GHz frequency band in RJ, ES, MG and the North & Northeast regions.
- Nextel’s 1.8MHz frequency (formerly used for 2G services) has a lot of value for companies looking to increase their 4G/LTE coverage (all other telcos are refarming their 1.8GHz frequency for 4G use) and its 1.9/2.1GHz frequency can be used for 3G services.
166
Sector consolidation II: Nextel has valuable spectrum & clients ✓ Spectrum alone is likely worth at least R$2.7bn - In December 2010, Nextel paid R$1.2bn for 20Mhz national spectrum in the 1.9/2.1Ghz frequency band, and then forked out an additional R$200mn for 20Mhz spectrum in the 1.8Ghz band in part of the Southeast, North and Northeast regions.
- At the end of 2015, it paid another R$455mn for 30Mhz spectrum in the 1.8Ghz band in São Paulo, for a total investment of R$1.9bn in 3G and 4G spectrum in a five-year window.
- If we adjust these payments by past inflation, this spectrum is worth at least R$2.7bn.
✓ Clientbase is also valuable for current players - Nextel Brasil has 3.1mn 3G/4G subscribers, 96% of them postpaid. Its client base generated R$2.6bn in sales in 2017 and R$1.15bn in 1H18 (R$2.3bn annualized). Full-year 2017 EBITDA was -R$74mn, improving to +R$2mn in 1H18.
- The incremental margin of Nextel’s clients when plugged into the operations of existing telecom providers should be very high. These companies probably won’t have to make any important adjustments to their structures to absorb Nextel’s 3mn clients (Vivo has 75mn clients, Claro 59mn, TIM 56mn). The commercial structure, networks, support overhead, systems are all in place and operating.
- The incremental margin of Nextel’s clients when plugged into the operations of existing telecom providers should be very high. These companies probably won’t have to make any important adjustments to their structures to absorb Nextel’s 3mn clients (Vivo has 75mn clients, Claro 59mn, TIM 56mn). The commercial structure, networks, support overhead, systems are all in place and operating.
✓ Nextel Brazil seems more attractive for TIM - TIM has less spectrum than its competitors and a weaker position in postpaid. Claro could also be a strong bidder. At a June event in New York, senior management openly expressed their interest in the asset. Claro´s share in the postpaid segment is a relatively small at 23%.
- Vivo, on the other hand, may face some regulatory/anti-trust constraints as its share of Brazil´s postpaid market is a sizable 41% and it is particularly strong in São Paulo, home to most of Nextel Brasil’s 3mn clients
167
Regulatory environment: Important pipeline, but uncertain timeline ✓
After being approved in the Lower House and by the Senate's thematic commission, the Telecom Bill (PL#79), that changes fixedline concessions to authorizations, got bogged down in the Senate in a dispute involving Senate leaders, opposition parties and the Supreme Court.
✓ ✓ ✓
Recently, in a surprising turn of events, the bill was approved in the Senate’s Cience & Technology commission.
✓
In our base case scenario: the bill will most probably only be voted next year, once the new government takes office and a new President is elected for the Senate. Having said this, there is still a 2-week window before Congress enters its end of year recess where we could see positive surprises
At this point, the only thing that is needed for the Bill to be sanctioned is the approval of the Senate’s plenary (by simple majority). While this looks like a simple task, for unknown reasons, the Senate’s President, Eunício de Oliveira hasn’t been putting it up for voting in plenary.
Telefonica estimated savings if concession rules change
Oi estimated savings if concession rules change In BRL mn
1) End of concession fees (1% of concession revenues)
85
In BRL mn 1) End of concession fees (1% of concession revenues)
151
2) Savings with public phones
100
2) Savings with public phones
300
3) Savings from less harsh requirements
150
3) Savings from less harsh requirements
300
4) Rental gains from real estate assets under concession Estimated market value of real estate assets % of the value of the assets effectively rented Value of assets rented rental fee per year rental gains 6) Total estimated gains from change in regulation
4) Rental gains from real estate assets under concession 7.294 70% 5.106 6% 306 641
Estimated market value of real estate assets % of the value of the assets effectively rented Value of assets rented rental fee per year rental gains 6) Total estimated gains from change in regulation
Contribution to EBITDA margin (based on 2015 net revenues)
+1,5%
Contribution to EBITDA margin (based on 2015 net revenues)
Contribution to overall EBITDA (based on 2015 EBITDA)
+5,0%
Contribution to overall EBITDA (based on 2015 EBITDA)
Contribution to overall OpFCF (2015 EBITDA - Capex)
Source: BTG Pactual estimates
18.235 50% 9.118 6% 547 1.298 +4,8% +18,5%
+14,6%
Source: BTG Pactual estimates
168
Linx is our top pick ✓ Omni-platform is a reality; This is where the next leap will come from ￚ Linx has been investing heavily in its Omni platform since its IPO in 2013. A platform designed to help retailers improve their customers' shopping experience with seamless integration between physical stores, virtual sales channels, retailers’ headquarters and tax authorities. ￚ And it seems that the company is finally in a position to start selling these solutions to the market in a competitive way. The 2 most important solutions OMS & E-commerce (website & marketplace integration) are already attracting relevant retailers.
ￚ Linx has already been hired to deploy its OMS or E-commerce solutions for the following big retailers: Centauro, Hering, Drogarias São Paulo, Restoque, Boticário, Ri-Happy. ￚ Given the complexity of the solutions, we could be talking about relevant contracts for Linx. At this point, contribution to topline is still small (the solutions are still being deployed), but we believe they can grow to become relevant revenue generators for the company in the future.
✓ Payments: taking advantage of unique position as Brazil’s leading software management company for retailers ￚ Being the largest technology player when it comes to management software for Retail in Brazil, Linx processes a relatively large amount of payments transactions for retailers using the company’s POS solutions. ￚ The company is looking for alternatives to monetize the payments transactions processed within its client base. This is the goal of the partnership with REDE. ￚ Linx basically helps REDE convert a retailer that uses some other acquirer into becoming a REDE client and receives a % of the MDR charged by REDE from this client. ￚ The second strategy, which is more incipient, and similar to what we have been seeing in more developed countries, Linx and REDE are developing a model so that they can access micro retailers and micro service providers and offer an integrated solution that combines acquiring and technology for business management (POS + simplified ERP). ￚ Last but not least, there seems to be an incipient discussion inside the company on the possibility of becoming a sub-acquirer. 169
The reasons why we like Linx… ✓ There’s still room to grow on the Traditional Business (POS/ERP + Cross-selling initiatives): ￚ Even though Brazil’s macroeconomic scenario has been extremely challenging for some time (with retailers closing stores, no new clients being added, etc), the company has grown organically some 9/10% per year (down from mid-teens some years ago). ￚ As economic activity picks up, store openings should accelerate and new clients should be added. In addition, one specific crossselling initiative (electronic invoicing – NFC-e) should prove a strong tailwind for the business in the coming years. ￚ Until the end of 2019, all retailers will be required to have electronic invoicing (this is a regulatory obligation). Linx sells the solution for R$50 per store and its clients own 120,000 stores. Since only ~30,000 stores already have NFC-e, we would expect some R$50mn of incremental revenues (some 8% of revenues) in the next years. Margins of the solution are very high (probably close to 100%), which makes it even more relevant in terms of incremental EBITDA generation. ￚ We expect organic revenue growth to accelerate in the coming years as the traditional businesses improve.
✓ M&A’s: there’s room for more! ￚ Since its follow-on in October 2016, the company acquired 7 companies, deploying R$320mn in this transactions - the average multiple paid on average was 3.4x EV/Sales. In addition to addition to growing the company, these acquisitions brought in new technology to Linx, reinforcing their portfolio of solutions. ￚ Linx is still sitting on a net cash position of R$217mn, which it could deploy in more acquisitions, generating more value through M&A’s for shareholders
170
Utilities
Highlights for 2019 ✓ After relevant M&A deals during 2018 (Eletropaulo, Cesp, Eletrobras’ discos) and general elections, we expect advances on the regulatory agenda in 2019 with a new structure for the sector coming sooner than expected.
Coverage SANEPAR SABESP AES TIETE EDP DO BRASIL COPEL LIGHT OMEGA COPASA ALUPAR ENGIE BRASIL TRANSMISSÃO PAULISTA CESP TAESA EQUATORIAL ENERGISA CEMIG
Relevant topics Conclusion of GSF Proposal Better hydrology, leading to lower spot prices: GSF still expected @ 88% Potential privatizations ahead Consolidation of the distribution segment CP33 to boost the free market State elections: a positive trigger or a non-event?
172
IRR & Utilities ERP ✓ IRR
✓ Utilities ERP
– After the elections period, the Utilities Average IRR is now close to 8%, reflecting the decrease on Brazilian 10y Real Rates, which dropped to 4.5%.
– We see the Utilities ERP now close to 4%, with a small volatility during the year on the Top 5 IRR – Bottom 5 IRR, always varying between 6.0% and 4.5%.
16%
8.0%
14%
7.0%
12%
6.0%
10%
5.0%
8%
4.0%
6%
3.0%
4%
2.0%
2%
1.0%
0% Oct-12 Apr-13
Oct-13 Apr-14
Oct-14 Apr-15
Average IRR
Oct-15 Apr-16 Median IRR
Oct-16 Apr-17 10y Real Rates
Oct-17 Apr-18
Oct-18
0.0% Oct-12 Apr-13
Oct-13 Apr-14
Oct-14 Apr-15 Utility ERP
Oct-15 Apr-16
Oct-16 Apr-17
Oct-17 Apr-18
Oct-18
Top 5 IRR - Bottom 5 IRR
173
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19
Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
Southeast
Northeast
Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19
Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19
Reservoir Levels – Historical
✓ After five years of intense draught the reservoirs seems to be recovering their seasonal regularity.
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
South
North
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
174
Reservoir Levels 2019 According to the most recent forecast made by CCEE (Energy Trading Chamber), we can expect a strong recovery in the Northeast region reservoirs, allowing not only the Southeast region to regain storable energy, but also the whole system to improve the metabolism of reservoirs depletion during the dry months.
Southeast
South
Northeast
North
We expect a return to the historical regular steadiness for the region, with a consistent recovery in important reservoirs such as Furnas, Nova Ponte and Emborcação.
With an almost unanimous scenario of El Niño we expect precipitations above the long term average on the main southern watersheds, leaving the region with a secondary role of energy exporter.
After years with recurrent difficulties on recovering its reservoirs we expect a decent improvement, also the profile of generation complementarity between hydro and wind was a key factor to this recovery.
We expect an enlargement on the region role as main exporter of energy with the evolution of Belo Monte and the full availability of Madeira’s hydro generation transmission lines.
175
Dec-19
Oct-19
Nov-19
Sep-19
Jul-19
Aug-19
Jun-19
Apr-19
May-19
Mar-19
Jan-19
Feb-19
Dec-18
Dec-19
Oct-19
Nov-19
Sep-19
Jul-19
Aug-19
Jun-19
Apr-19
May-19
Mar-19
Jan-19
Feb-19
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Dec-18
Dec-19
Oct-19
Nov-19
Sep-19
Jul-19
Aug-19
Jun-19
Apr-19
May-19
Mar-19
Jan-19
Feb-19
Dec-19
Oct-19
Nov-19
Sep-19
Jul-19
Aug-19
Jun-19
Apr-19
May-19
Mar-19
Jan-19
Feb-19
Dec-18
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Dec-18
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
Top Picks: Equatorial ✓ Incorporating Cepisa – After incorporating Cepisa in our model, we’ve updated our TP to R$79/share for YE19. – We incorporate its extraordinary tariff review in 2019 and assume EQTL will be able to implement its full turnaround.
✓ Celpa’s tariff review – We see Celpa’s tariff review as a potential upside for EQTL. – The tariff review will help reset volumes and we model for a RAB of R$4.9bn.
✓ Valuation – We see EQTL trading at 2.2x EV/RAB, but we still see it as one of the best carry names in the sector
176
Top Picks: Cemig ✓ Political upside – We believe Cemig still has significant upside considering the current political scenario – While a privatization may still be a long shot, the nomination of a pro-market CEO could be the next trigger for Cemig. – Tackling costs and implementing its full divestment plan could are the next milestones.
✓ What if the privatization is succesfull? – In a scenario where Cemig is privatized, we believe is disco could be sold above 2x EV/RAB, which would translate into a R$19/share TP.
– The current fiscal deficit in the State of Minas Gerais poses as an incentive for the Governor to pursue the sale of Cemig
177
Top Picks: Light ✓ An offer around the corner? – We still see a high probability that it’ll be sold. – Due to its high leveraged profile, any significant improvement in operations can have a big impact on equity.
✓ Crucial timing – We acknowledge that we’d rather see the deal coming back sooner than later, as Light’s deteriorating Operations could lead to potential value destruction.
✓ Valuation – Assuming the same deal structure with GP, if Light is valued at 1.3x EV/RAB, post the R$2bn capital increase, it could be worth ~R$26/share.
178
Brazil Follow the Money: Allocations are low
180
G.E.M Weighted Funds AuM and and Allocations Allocations - GEM Weighted AuM Weighted Funds Funds 700.000 700.000
16% 16%
14% 14% 12% 12%
600.000 600.000 500.000 500.000
10% 10% 8%8%
400.000 400.000 300.000 300.000
6%6% 4%4%
200.000 200.000 100.000 100.000
00 13-Dec-11 6-Dec-11
Allocation in Brazil (%) Allocation in Brazil (%)
18% 18%
Equity AuM (USD mn) Equity AuM (USD mn)
800.000 800.000
13-Dec-12 6-Dec-12
13-Dec-13 6-Dec-13
13-Dec-14 6-Dec-14 AuM AuM
13-Dec-15 6-Dec-15
13-Dec-16 6-Dec-16
13-Dec-17 6-Dec-17
2%2% 0%0% 13-Dec-18 6-Dec-18
Allocation Allocation in in Brazil Brazil
Evolution of allocations among the main G.E.M economies G.E.M Dez-09 Dez-10 Dez-11 Dez-12 Dez-13 Dez-14 Dez-15 Dec-16 May-17 Dec-17 May-18 Oct-18
China 15.3% 14.6% 15.6% 15.4% 17.3% 19.5% 21.9% 20.6% 22.5% 24.1% 27.7% 25.2%
India 7.6% 8.1% 6.1% 7.6% 7.7% 10.8% 11.3% 10.3% 10.0% 9.8% 9.3% 9.3%
Brazil 16.7% 15.9% 16.4% 11.9% 11.0% 9.1% 6.0% 8.6% 7.5% 7.2% 6.5% 8.0%
South Korea 10.6% 11.7% 12.9% 12.6% 12.8% 10.2% 10.0% 10.5% 11.8% 11.2% 11.6% 10.9%
Taiwan 9.2% 8.9% 8.0% 7.4% 8.5% 9.6% 9.7% 9.7% 10.2% 9.2% 9.5% 10.0%
South Africa 6.3% 6.3% 7.1% 6.4% 6.1% 6.9% 6.4% 6.9% 6.2% 7.0% 6.1% 5.4%
Russia 7.2% 6.9% 6.5% 6.9% 7.2% 3.2% 4.0% 5.9% 4.7% 4.9% 4.8% 5.3%
Mexico 5.0% 4.9% 3.9% 5.0% 4.5% 4.0% 4.4% 3.6% 3.5% 3.1% 2.7% 2.9%
Turkey 2.9% 2.7% 2.0% 3.0% 1.9% 2.4% 2.0% 1.7% 1.8% 1.7% 1.5% 1.2%
Indonesia 2.3% 2.8% 3.0% 2.5% 1.6% 2.9% 2.9% 3.1% 2.8% 2.7% 2.3% 2.4%
Source: EPFR, BTG Pactual Estimates
180
181
Global Weighted Funds AuM and and Allocations Allocations - Global Weighted AuM Weighted Funds Funds 3.500.000 3.500.000
1,4% 1,4%
Allocation in Brazil (%) Allocation in Brazil (%)
1,6% 1,6%
Equity AuM (USD mn) Equity AuM (USD mn)
4.000.000 4.000.000
3.000.000 3.000.000
1,2% 1,2%
2.500.000 2.500.000
1,0% 1,0%
2.000.000 2.000.000
0,8% 0,8%
1.500.000 1.500.000 1.000.000 1.000.000
0,6% 0,6%
500.000 500.000 00 13-Aug-15 13-Jan-16 13-Jun-16 6-Aug-15 6-Dec-15 6-Apr-16 6-Aug-16 13-Nov-16 6-Dec-16 AuM AuM
0,4% 0,4% 0,2% 0,2%
13-Apr-17 6-Apr-17
0,0% 0,0% 13-Sep-17 13-Feb-18 13-Jul-18 13-Dec-18 6-Aug-17 6-Dec-17 6-Apr-18 6-Aug-18 6-Dec-18
Allocation in Brazil Allocation in Brazil
Evolution of allocations among continents (Global funds ex-USA) Global Latin America Dez-09 4.6% Dez-10 3.8% Dez-11 3.7% Dez-12 3.1% Dez-13 2.4% Dez-14 1.9% Dez-15 1.4% Nov-16 2.8% Jan-17 2.7% May-17 2.6% Oct-17 2.1% Dec-17 2.1% May-18 1.6% Oct-18 1.4%
Emerging Asia 8.5% 9.1% 8.3% 8.0% 7.0% 7.6% 7.7% 9.7% 9.2% 9.3% 8.1% 8.4% 8.0% 7.3%
Developed Asia 22.8% 23.6% 23.1% 22.8% 23.6% 23.4% 25.1% 25.7% 25.6% 24.4% 26.2% 26.3% 26.8% 26.7%
Emerging Europe 1.4% 0.8% 0.9% 1.0% 1.2% 0.7% 0.5% 0.9% 1.1% 1.0% 0.9% 0.9% 0.7% 0.7%
Developed Europe 55.8% 55.1% 55.6% 55.4% 57.1% 57.5% 56.3% 50.9% 52.5% 53.9% 54.3% 54.1% 53.9% 54.6%
Middle East 0.6% 0.5% 0.9% 1.1% 1.1% 1.0% 1.4% 1.3% 1.1% 1.1% 0.9% 0.9% 0.8% 0.7%
Africa 0.8% 0.8% 0.9% 0.7% 0.6% 0.6% 0.5% 0.6% 0.5% 0.5% 0.4% 0.4% 0.5% 0.4%
North America 3.1% 4.4% 3.7% 4.6% 4.7% 5.5% 5.3% 6.3% 5.7% 4.6% 4.5% 4.6% 4.9% 5.2%
Source: EPFR, BTG Pactual Estimates
181
182
LatAm Weighted Funds
35.000 35.000
70% 70%
30.000 30.000
65% 65%
25.000 25.000
60% 60%
20.000 20.000
55% 55% 15.000 15.000
50% 50%
10.000 10.000
45% 45%
5.000 5.000 00 13-Dec-11 6-Dec-11
13-Dec-12 6-Dec-12
13-Dec-13 6-Dec-13
13-Dec-14 6-Dec-14 AuM
13-Dec-15 6-Dec-15
13-Dec-16 6-Dec-16
13-Dec-17 6-Dec-17
Allocation (%) Brazil (%) in Brazil Allocation in
Equity mn) (USD mn) AuM (USD Equity AuM
AuM and Allocations - LatAm Weighted Funds
40% 40% 13-Dec-18 6-Dec-18
Allocation in Brazil
Evolution of allocations among Latin America countries LatAm Dez-09 Dez-10 Dez-11 Dez-12 Dez-13 Dez-14 Dez-15 Dec-16 May-17 Dec-17 Apr-18 May-18 Sep-18 Oct-18
Argentina 1.0% 1.1% 0.9% 0.9% 1.3% 1.3% 1.1% 1.5% 2.5% 3.5% 3.6% 3.2% 2.7% 2.5%
Brazil 67.2% 65.5% 65.4% 57.8% 53.6% 50.5% 43.1% 56.0% 53.7% 56.4% 56.5% 54.6% 53.3% 60.3%
Chile 4.4% 5.3% 6.5% 7.8% 8.4% 8.9% 9.8% 8.0% 8.4% 8.8% 7.1% 7.8% 7.3% 6.5%
Colombia 0.6% 1.0% 1.9% 2.7% 3.9% 3.8% 2.3% 2.0% 2.3% 1.8% 1.8% 2.0% 1.9% 1.6%
Mexico 20.2% 20.0% 17.9% 22.2% 23.6% 25.8% 35.9% 23.9% 25.4% 22.0% 22.9% 23.6% 26.7% 21.1%
Panama 0.6% 0.5% 0.7% 1.0% 1.2% 0.7% 0.4% 0.5% 0.4% 0.4% 0.4% 0.4% 0.3% 0.2%
Peru 2.1% 2.7% 2.9% 4.0% 4.2% 4.6% 3.5% 4.1% 3.1% 3.4% 3.3% 3.6% 3.7% 3.6% Source: EPFR, BTG Pactual Estimates
182
183
BRIC Weighted Funds AuM and Allocations - BRIC Weighted Funds 40%
35%
25.000
30% 20.000
25%
15.000
20% 15%
10.000
10% 5.000 0 6-Dec-12 13-Dec-12
5% 6-Dec-13 13-Dec-13
6-Dec-14 13-Dec-14
6-Dec-15 13-Dec-15 AuM (mn)
6-Dec-16 13-Dec-16
6-Dec-17 13-Dec-17
Allocation in Brazil (%)
Equity AuM (USD mn)
30.000
0% 6-Dec-18 13-Dec-18
Allocation in Brazil
Evolution of allocations among BRIC countries BRIC Dez-09 Dez-10 Dez-11 Dez-12 Dez-13 Dez-14 Dez-15 Dec-16 May-17 Dec-17 Apr-18 May-18 Sep-18 Oct-18
China 30.6% 32.0% 35.1% 37.3% 36.3% 43.8% 53.2% 44.8% 50.8% 50.9% 49.9% 51.5% 56.6% 52.2%
India 16.5% 16.3% 12.0% 14.9% 16.6% 19.9% 19.0% 17.2% 17.8% 18.0% 17.0% 16.7% 15.1% 15.4%
Russia 16.2% 14.8% 15.6% 16.2% 18.8% 9.1% 10.5% 14.4% 12.5% 13.5% 13.9% 13.9% 10.7% 11.0%
Brazil 31.4% 35.0% 33.3% 27.6% 22.5% 20.7% 12.6% 17.5% 16.5% 14.7% 16.5% 13.9% 13.4% 17.0%
Source: EPFR, BTG Pactual Estimates
183
184
Domestic inflow into equities Equity Evolution in the Brazilian Mutual Fund Industry vs. Domestic Interest Rates
4,122 22.0%
4000
18.0% 18.3%
AuM (R$bn)
14.8%
2500 15.5% 11.3% 9.9% 854
10.6%
717 893 11.1% 940
11.6%11.4% 1,420 981
1,651
1,500
2,246
2,362
2,557
1,950 1,858
2,104
17%
14.3% 14.0%
1,167
13%
8.7%
11.9% 9.1%
500 362
0
19%
2,803
15%
14.9%
2000
1000
21%
3,269
3000
1500
23%
3,776
3500
25%
334
356
311
321
331
303
9.8%
11% 9%
8.5%
7% 330
Equity Share of Mutual Funds, Selic Rate (% )
4500
405
255 278 224 88 97 113 133 221 80 99 5% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Oct-18 Fixed Income AuM (R$bn)
Equity AuM (R$bn)
Equity Share
End of Period Selic Rate
Source: Anbima, BTG Pactual estimates * One-off launchings: Oct/05 – launching of PIBB (IBrX50) rising R$1.3bn; Jan/06 – launching of FIA Fundamentalista with R$1.0bn.
184
185
Ibovespa ADTV ✓ So far in December, daily Bovespa volumes averaged R$15.8bn, 63% above December 2017.
18.0 18,0 16.0 16,0 14.0 14,0 12.0 12,0 10.0 10,0 8.0 8,0 6.0 6,0 4.0 4,0 2.0 2,0 0.0 0,0 Jul-11 Aug-11
Mar-12 Apr-12
Nov-12 Dec-12
Jul-13 Aug-13
Mar-14 Apr-14
Nov-14 Dec-14
Jul-15 Aug-15
Mar-16 Apr-16
Nov-16 Dec-16
Jul-17 Aug-17
Mar-18 Apr-18
Nov-18 Dec-18
Source: Bovespa, Bloomberg, BTG Pactual
185
Ibovespa: Looks attractive, and under-owned
Ibovespa trading below its historical average ✓ The Ibovespa is now trading at 11.7x 12-month forward P/E, below its historical average.
19x
Brazil’s 12-month forward P/E
17x 15x 13x 11.7
11x 9x
Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 Jan-18 May-18 Sep-18
7x
Average
+1 Std Dev
-1 Std Dev
Source: Economática, BTG Pactual estimates
P/E 12MF (ex-Petro & Vale)
187
The premium to hold equities should grow, as interest rates fall ✓ The premium to hold equities stands at 5.5%, above its historical average, with real interest rates hovering around 3%.
Brazil’s premium to hold equities 10% 8% 6%
5.5%
4% 2%
1.9%
0% -2% -4% -6% Sep-06 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 Jan-18 May-18 Sep-18
-8%
Real Earnings Yield (Ex-Petro & Vale)
AVERAGE
Source: Economática, BTG Pactual estimates
+1 Std Dev
-1 Std Dev
188
The Ibovespa looks cheap in USD terms ✓ In spite of last two years rally, in USD terms the Ibovespa is trading at quite depressed levels.
4.50 78000
4.00
68000
3.50 3.00
58000
2.50 48000
29,000
4.4
27,000
4.2
4
25,000
3.8 23,000 3.6
2.00 38000
1.50
28000
1.00
18000
0.50
8000
0.00
IBOV Index (USD)
IBOV Index (BRL)
USD/BRL
21,000
3.4
19,000
3.2
17,000
3
IBOV Index (USD)
USD/BRL
189
Long positive cycles can yield outstanding performances ✓ We looked at an Ibovespa series (in USD) dating back to the 1980s (chart 1 below) and identified lengthy rallies, usually triggered by key political events that drove the Ibovespa to post outstanding performances.
✓ The impeachment of President Dilma may have started a new cycle. 100,000
+19x
10,000
+30x
Impeachment of President Dilma
Election of President Lula + Letter to Brazilians
+16x 1,000
Impeachment of President Collor End of Dictatorship+ Plano Cruzado
Source: BTG Pactual and Bloomberg
01/01/2018
01/01/2017
01/01/2016
01/01/2015
01/01/2014
01/01/2013
01/01/2012
01/01/2011
01/01/2010
01/01/2009
01/01/2008
01/01/2007
01/01/2006
01/01/2005
01/01/2004
01/01/2003
01/01/2002
01/01/2001
01/01/2000
01/01/1999
01/01/1998
01/01/1997
01/01/1996
01/01/1995
01/01/1994
01/01/1993
01/01/1992
01/01/1991
01/01/1990
01/01/1989
01/01/1988
01/01/1987
01/01/1986
01/01/1985
01/01/1984
01/01/1983
01/01/1982
01/01/1981
01/01/1980
100
190
Ibovespa recent performance
In 2018, IBOV performed better than other LatAm indexes Ibovespa performance 2018 29,000
Stock market performance YTD (in US$)
Dow Jones
-2.4%
27,000
S&P 500
-2.5%
25,000
IBOV
-2.7%
23,000
Colombia IGBC
21,000
Peru SPBLPGPT
19,000
Chile IPSA MEXBOL
17,000
-6.0% -7.5% -16.6% -18.3%
Argentina MERVAL -49.5%
-60% -50% -40% -30% -20% -10% Ibovespa performance (2008 – 2018)
0%
Stock market performance in 2017 (in US$)
S&P 500
7.7%
40,000
Dow Jones
7.1%
35,000
Colombia IGBC
6.2%
30,000
MEXBOL
50,000 45,000
25,000
IBOV
20,000 15,000 10,000 5,000 0
1.3%
Peru SPBLPGPT Chile IPSA
-0.8% -5.6% -13.3%
Argentina MERVAL-49.2%
-60% -50% -40% -30% -20% -10% 0% 10% 20% Source: BTG Pactual, Bloomberg and Economatica
192
Source: BTG Pactual, Bloomberg and Economatica
Education
Healthcare
-30.0
Airlines & Mileage
-20.0
Food & Beverage
-1.7
Real Estate
-0.1
Telco & Tech
-10.0
Infrastructure
4.9
Agribusiness
10.0
Capital Goods
15.0
Retail
50.0
Steel
18.6
Ibrx-50
20.0
IBOV
23.1
Oil, Gas & Chemicals
24.4
Utilities
30.0
Financials ex-Banks
39.1
Mining
40.4
Car Rental & Logistics
40.0
Banks
Pulp, Paper & Wood
Performance by sector YTD in 2018 YTD (%)
37.8 30.8
14.5 9.8
4.3
0.0
-5.6 -11.8
-21.5 -23.7
-40.0 -30.0
-50.0 -39.8
193
Brazilian stocks performances YTD in 2018 Name Irbbrasil Re Magaz Luiza Eletropaulo Suzano Papel Cemig SLC Agricola B2W Digital Locamerica Banrisul Cesp Sul America Petrobras Celesc Porto Seguro Fibria Gol Direcional Somos Educa Linx Petrobras Brasil Santander BR Petrobras BR CPFL Energia Tegma Copasa Copel ItauUnibanco Natura Engie Brasil Brasilagro Vale Duratex Randon Part
Ticker YTD Performance (%) IRBR3 134.5 MGLU3 109.4 ELPL3 104.3 SUZB3 102 CMIG4 97.7 SLCE3 82.9 BTOW3 81.2 LCAM3 79.1 BRSR6 66 CESP6 59.4 SULA11 58.9 PETR3 58.1 CLSC4 57.7 PSSA3 57.6 FIBR3 50.9 GOLL4 50.7 DIRR3 49.4 SEDU3 47.6 LINX3 47.1 PETR4 46.3 BBAS3 44.5 SANB11 43.6 BRDT3 42.6 CPFE3 41.6 TGMA3 37.8 CSMG3 36.1 CPLE6 35.7 ITUB4 34.5 NATU3 34.4 EGIE3 33.1 AGRO3 30.9 VALE3 30.8 DTEX3 29.9 RAPT4 29.6
Name Cvc Brasil Bradesco Localiza Tupy Gerdau Met Gerdau Rumo S.A. Taesa Santos Brp B3 JBS Tran Paulist Cyrela Realt Qgep Part Braskem Lojas Americ Eztec Ibovespa Ibrx 50 Eneva Lojas Renner Movida Equatorial Cia Hering Usiminas Sid Nacional BBSeguridade Usiminas P.Acucar-Cbd Telef Brasil Even Wilson Sons Abc Brasil CPFL Renovav
Ticker YTD Performance (%) CVCB3 28.2 BBDC4 28 RENT3 27.7 TUPY3 27.2 GOAU4 27 GGBR4 26.9 RAIL3 26.4 TAEE11 24.6 STBP3 24.6 B3SA3 24.4 JBSS3 23 TRPL4 21.5 CYRE3 19.7 QGEP3 18.6 BRKM5 18.4 LAME4 17.6 EZTC3 17 IBOV 15 IBXL 14.5 ENEV3 13.7 LREN3 13 MOVI3 11.6 EQTL3 11.4 HGTX3 9.8 USIM3 9.8 CSNA3 8.2 BBSE3 7.3 USIM5 6.5 PCAR4 6.4 VIVT4 6.3 EVEN3 5.9 WSON33 5.8 ABCB4 5.2 CPRE3 4.9
Name Bk Brasil Embraer Aliansce Energias BR Marcopolo Iochp-Maxion BR Malls Par Alupar Multiplan Iguatemi Valid Sao Martinho Arezzo Co Klabin S/A Sanepar Weg Light S/A Klabin S/A Omega Ger Totvs Tim Part S/A Sabesp Hypera Mills Le Lis Blanc Lopes Brasil Alliar AES Tiete E Odontoprev MRV Ecorodovias BR Propert M.Diasbranco Cosan
Source: BTG Pactual, Bloomberg and Economatica
Ticker YTD Performance (%) BKBR3 4.9 EMBR3 4.6 ALSC3 4.2 ENBR3 4 POMO4 4 MYPK3 4 BRML3 3.9 ALUP11 3.2 MULT3 2.4 IGTA3 2.3 VLID3 0.4 SMTO3 -0.1 ARZZ3 -1 KLBN4 -2.6 SAPR4 -3.6 WEGE3 -5 LIGT3 -5.2 KLBN11 -5.2 OMGE3 -5.5 TOTS3 -5.6 TIMP3 -6.2 SBSP3 -6.4 HYPE3 -8.3 MILS3 -9.2 LLIS3 -10.6 LPSB3 -11.8 AALR3 -12.2 TIET11 -12.7 ODPV3 -13.7 MRVE3 -16.4 ECOR3 -16.5 BRPR3 -16.7 MDIA3 -16.9 CSAN3 -17.2
Name Cosan Helbor CCR SA Estacio Part Marfrig Imc S/A Gafisa Ambev S/A Multiplus Lojas Marisa JSL Vulcabras Biosev BR Brokers Rossi Resid Fleury RaiaDrogasil Sao Carlos Ultrapar Tecnisa Technos Wiz S.A BRF SA Smiles Anima Oi Kroton Ser Educa Oi Minerva Qualicorp Cielo Biotoscana
Ticker YTD Performance (%) CSAN3 -17.2 HBOR3 -18.9 CCRO3 -20.2 ESTC3 -20.6 MRFG3 -20.6 MEAL3 -20.7 GFSA3 -20.8 ABEV3 -22.4 MPLU3 -23.7 AMAR3 -25.1 JSLG3 -25.6 VULC3 -27.4 BSEV3 -27.9 BBRK3 -29.3 RSID3 -29.5 FLRY3 -30 RADL3 -30.8 SCAR3 -30.9 UGPA3 -32.6 TCSA3 -33.5 TECN3 -35.2 WIZS3 -36.3 BRFS3 -38 SMLS3 -39.6 ANIM3 -39.8 OIBR4 -46.3 KROT3 -46.3 SEER3 -47.3 OIBR3 -51.3 BEEF3 -51.7 QUAL3 -53.4 CIEL3 -57.9 GBIO33 -59.6
194
Source: BTG Pactual, Bloomberg and Economatica
20.0 14.2 8.2
Utilities
0.0 8.3
Oil, Gas & Chemicals
11.6
Food & Beverage
21.1
Agribusiness
26.8
Financials ex-Banks
26.9
Steel
29.1
Ibrx-50
32.1
IBOV
36.8
Telco & Tech
37.2
Banks
41.2
Pulp, Paper & Wood
40.0
Real Estate
Infrastructure
60.0
Retail
63.7
Capital Goods
69.0
Mining
Healthcare
80.0
Education
120.0
Airlines & Mileage
180.0
Car Rental & Logistics
Performance by sector in 2017 2017 (%)
165.7
160.0
140.0
114.7
100.0
79.5 61.0
51.3
0.4
195
Brazilian stocks performances in 2017 Name
Ticker
2017 Performance (%)
Name
Ticker
2017 Performance (%)
Ticker
2017 Performance (%)
Name
Ticker
2017 Performance (%)
Magaz Luiza
MGLU3
511
Even
EVEN3
55.1
Name Embraer
EMBR3
27.3
Engie Brasil
EGIE3
9.6
Locamerica
LCAM3
230.8
Hypermarcas
HYPE3
54.8
Ibovespa
IBOV
26.9
Petrobras
PETR4
8.3
Gol
GOLL4
216
Oi
OIBR4
54.2
Ibrx 50
IBXL
26.8
Tran Paulist
TRPL4
8.2
Rossi Resid
RSID3
166.3
Fibria
FIBR3
53.7
Totvs
TOTS3
25.8
BBSeguridade
BBSE3
6.9
Tegma
TGMA3
165.7
RaiaDrogasil
RADL3
51.3
Linx
LINX3
25
Energias BR
ENBR3
5.4
Arezzo Co
ARZZ3
129.8
Banrisul
BRSR6
51.1
Copasa
CSMG3
25
Mills
MILS3
5.4
Usiminas
USIM5
122
Iguatemi
IGTA3
50.7
Wilson Sons
WSON33
24.9
Cielo
CIEL3
4.9
Estacio Part
ESTC3
111.3
Terra Santa
TESA3
48.9
Aliansce
ALSC3
24.8
CCR SA
CCRO3
4.8
Rumo S.A.
RAIL3
109.8
Le Lis Blanc
LLIS3
46.9
Direcional
DIRR3
23.9
Sao Martinho
SMTO3
0.6
Randon Part
RAPT4
109.6
Marcopolo
POMO4
46.3
Sabesp
SBSP3
23.8
Cesp
CESP6
0.5
Cvc Brasil
CVCB3
107
Natura
NATU3
45.2
BR Malls Par
BRML3
23.1
Lojas Americ
LAME4
0.4
Qgep Part
QGEP3
106.8
P.Acucar-Cbd
PCAR4
44.8
Multiplan
MULT3
22.1
Unicasa
UCAS3
0
Localiza
RENT3
106.1
MRV
MRVE3
43.7
Equatorial
EQTL3
21.9
Petrobras
PETR3
-0.2
B2W Digital
BTOW3
105.8
Lopes Brasil
LPSB3
43.3
Lojas Marisa
AMAR3
21.6
Technos
TECN3
-1.4
SLC Agricola
SLCE3
102.7
Kroton
KROT3
41.8
Sul America
SULA11
21.4
Copel
CPLE6
-2.3
Iochp-Maxion
MYPK3
101.7
BR Propert
BRPR3
41.7
Gerdau Met
GOAU4
21.1
AES Tiete E
TIET11
-3.3
PDG Realt
PDGR3
90.8
Porto Seguro
PSSA3
41.3
Telef Brasil
VIVT4
17.5
Light S/A
LIGT3
-3.9
Cia Hering
HGTX3
81.6
Santos Brp
STBP3
41.2
Brasil
BBAS3
16.8
Tecnisa
TCSA3
-4
Imc S/A
MEAL3
80.1
B3
BVMF3
41
Eneva
ENEV3
16.8
Cemig
CMIG4
-5.6
Sao Carlos
SCAR3
75.1
Oi
OIBR3
38
Sanepar
SAPR4
15.6
JSL
JSLG3
-8.1
Ser Educa
SEER3
71
M.Diasbranco
MDIA3
37.5
Brasilagro
AGRO3
15.4
Profarma
PFRM3
-9.1
Lojas Renner
LREN3
70.8
Duratex
DTEX3
36.8
Gerdau
GGBR4
15.2
Wiz S.A
WIZS3
-9.6
Celesc
CLSC4
70.5
Abc Brasil
ABCB4
34.7
Klabin S/A
KLBN4
14.4
Minerva
BEEF3
-9.9
Tim Part S/A
TIMP3
69.5
Bradesco
BBDC4
33.5
Santander BR
SANB11
14.3
JBS
JBSS3
-13.7
Qualicorp
QUAL3
69.3
Ambev S/A
ABEV3
33.4
CPFL Renovav
CPRE3
14.2
Valid
VLID3
-15.6
Fleury
FLRY3
69
Helbor
HBOR3
32.7
Multiplus
MPLU3
13.4
CPFL Energia
CPFE3
-22.6
Eztec
EZTC3
64.4
Odontoprev
ODPV3
31.5
Ultrapar
UGPA3
12.4
Sid Nacional
CSNA3
-22.8
Vale
VALE3
63.7
Usiminas
USIM3
31.1
Positivo Tec
POSI3
12.3
BRF SA
BRFS3
-24.1
Tupy
TUPY3
63.4
Gafisa
GFSA3
30.7
Cosan
CSAN3
11.6
OGX Petroleo
OGXP3
-28.4
Weg
WEGE3
58.5
ItauUnibanco
ITUB4
30.6
Taesa
TAEE11
11.5
BR Brokers
BBRK3
-32.9
Dasa
DASA3
56.1
Cyrela Realt
CYRE3
29.6
Alupar
ALUP11
10.8
BR Insurance
BRIN3
-39.3
Ecorodovias
ECOR3
55.5
Braskem
BRKM5
28.7
Marfrig
MRFG3
10.7
Biosev
BSEV3
-39.4
Source: BTG Pactual, Bloomberg and Economatica
196
Valuation maps
Valuation Summary
Company Company Company
Ticker Ticker
Ticker Rating Rating ShareShare Rating ShareShareShare TargetTarget Upside ShareUpsideMkt Cap Target Mkt CapADTV Upside ADTV Performance MktPerformance Capin USD inADTV USD Currency Currency PricePrice Currency
Price
EV/EBITDAEV/EBITDA EV/EBITDA
(USD bn) (USD bn) (USD mn) (USD mn)1day 1day (USD 1month bn)1month(USD YTD mn) YTD2018E 2018E 2018E 2019E
P/E
P/E P/E Div. Yield Div. Yield Div.P/BV Yield
P/BV Net Debt (USDP/BV bn) Net Debt (USD Net bn) Debt/EBITDA Net Debt/EBITDA Net Debt/EBITDA Origin
2019E 2019E 2018E
2018E 2019E 2018E 2019E 2018E2019E2018E 2019E 2018E 2018E 2019E
2019E 2019E 2018E
2018E 2019E 2018E 2019E 2018E2019E2018E 2019E 2018E 2019E2018E
2019E 2019E
Oil Oil YPF YPF
YPFYPFUSUS YPF NeutUS Neutral ral
USDUSD Neutral 14,3614,36 USD18,5 18,5 14,36 29% 29% 5,6 18,55,6 14,46 14,46 29% 0%
0% 5,6 -7%
-7% -36%14,46-36%3,4x 3,4x 3,4x3,7x
3,7x 3,7x 21,0x
21,0x n.a. 21,0x
n.a. 0,8% n.a. 0,8% 0,8%
0,8%0,8% 0,7x
0,8x 0,8% 0,7x
7,90,8x0,7x
8,17,9 0,8x 2,0x8,1
2,0x 2,2x2,0x
Argent 2,2x 2,2x ina
Ecopetrol Ecopetrol Ecopetrol
ECECUSUS
USDUSDSell 18,6918,69 USD14,5 14,5 18,69 -22% -22% 38,4 14,5 38,4 30,85 30,85 -22%-2%
-2%38,4 -8%
-8% 34%30,8534%4,4x 4,4x 4,4x4,8x
4,8x 4,8x 9,1x
9,1x 10,0x9,1x 10,0x 3,3% 10,0x 3,3% 7,6%
3,3%7,6% 2,0x
1,9x 7,6% 2,0x
9,81,9x2,0x
9,09,8 1,9x 0,9x9,0
0,9x 0,9x0,9x
Col0,9x ombi 0,9xa
Canacol CanacolEnergy Energy Energy
CNECNECNCN CNEBuyCN Buy
CADCAD Buy 4,16 4,16 CAD5,5 5,5
0% 0,5 5%
5% -13%0,86 -13%5,8x 5,8x 5,8x3,9x
3,9x 3,9x 13,2x
13,2x 6,5x 13,2x
0,0%0,0% 1,9x
1,5x 0,0% 1,9x
0,31,5x1,9x
0,30,3 1,5x 2,0x0,3
2,0x 1,3x2,0x
Col1,3x ombi 1,3xa
-0,3% -0,3%-7,5% -7,5%-12,6% -12,6%4,4x 4,4x 4,4x3,9x
3,9x 3,9x 13,2x
13,2x 8,3x 13,2x 8,3x 8,3x
1,9x
1,5x 1,9x
1,5x1,9x
2,0x 1,3x2,0x
1,3x 1,3x
ECSelUSlSell
32% 4,16 32% 0,5 5,50,5 0,86 0,86 32% 0%
Median Median Median
6,5x 0,0% 6,5x 0,0% 0,0%
1,5x 2,0x
Chemicals Chemicals Chemicals Ultrapar Ultrapar Alpek Alpek MEXICHEM MEXICHEM MEXICHEM
UGPA3 SellSell
BRLBRLSell 49,3049,30 BRL44,0 44,0 49,30 -11% -11% 7,1 44,07,1 30,37 30,37 -11%-2%
-2% 7,1 16%
16% -43%30,37-43%12,2x 12,2x 12,2x9,9x
9,9x 9,9x 28,4x
28,4x 22,6x 28,4x 22,6x 1,1% 22,6x 1,1% 2,2%
1,1%2,2% 2,8x
2,6x 2,2% 2,8x
2,32,6x2,8x
2,42,3 2,6x 3,0x2,4
3,0x 2,5x3,0x
Brazi 2,5x 2,5xl
ALPEKA ALPEKAMMMMALPEKA BuyBuy MM
UGPA3 UGPA3
MXNMXN Buy 23,9923,99MXN37,0 37,0 23,99 54% 54% 2,5 37,02,5 3,38 3,38 54% 1%
1% 2,5 -10% -10% 1%3,38 1% 5,6x 5,6x 5,6x6,0x
6,0x 6,0x 8,1x
8,1x 10,8x8,1x 10,8x 1,0% 10,8x 1,0% 3,0%
1,0%3,0% 1,6x
1,5x 3,0% 1,6x
1,51,5x1,6x
1,21,5 1,5x 2,0x1,2
2,0x 1,8x2,0x
Mexi 1,8x 1,8x co
1% 5,3 0%
0% 3%11,11 3% 6,8x 6,8x 6,8x6,3x
6,3x 6,3x 21,8x
21,8x 13,0x 21,8x 13,0x 3,9% 13,0x 3,9% 7,9%
3,9%7,9% 2,0x
2,0x 7,9% 2,0x
2,52,0x2,0x
2,32,5 2,0x 1,9x2,3
1,9x 1,7x1,9x
Mexi 1,7x 1,7x co
-0,8% -0,8%2,7% 2,7%-20,9% -20,9%8,9x 8,9x 8,9x7,9x
7,9x 7,9x 18,3x
18,3x 16,7x 18,3x 16,7x 16,7x
2,2x
2,1x 2,2x
2,1x2,2x
2,5x 2,2x2,5x
2,2x 2,2x
MEXCHEM* MEXCHEM*MMMEXCHEM* MM BuyBuyMM MXNMXN Buy 51,5851,58MXN75,7 75,7 51,58 47% 47% 5,3 75,75,3 11,11 11,11 47% 1%
Median Median Median
2,1x 2,5x
Agribusiness Agribusiness Agribusiness SLC SLCAgrícola Agrícola Agrícola
SLCE3 SLCE3
SLCE3 NeutNeutral ral
BRLBRL Neutral 46,4646,46 BRL52,0 52,0 46,46 12% 12% 1,1 52,01,1 9,95 9,95 12% -5%
-5% 1,1 -15% -15%56%9,95 56%9,2x 9,2x 9,2x7,2x
7,2x 7,2x 11,5x
11,5x 11,1x 11,5x 11,1x 4,6% 11,1x 4,6% 5,4%
4,6%5,4% 1,7x
1,6x 5,4% 1,7x
0,21,6x1,7x
0,20,2 1,6x 1,2x0,2
1,2x 1,0x1,2x
Brazi 1,0x 1,0xl
São SãoMartinho Martinho Martinho
SMTO3 SMTO3
SMTO3 BuyBuy
BRLBRLBuy 18,8018,80 BRL27,0 27,0 18,80 44% 44% 1,7 27,01,7 4,22 4,22 44% -1%
-1% 1,7 -4%
-4% -15%4,22 -15%5,3x 5,3x 5,3x4,6x
4,6x 4,6x 13,2x
13,2x 9,7x 13,2x
9,7x 2,2% 9,7x 2,2% 5,7%
2,2%5,7% 2,0x
1,8x 5,7% 2,0x
0,61,8x2,0x
0,50,6 1,8x 1,4x0,5
1,4x 1,1x1,4x
Brazi 1,1x 1,1xl
Cosan Cosan
CSAN3 CSAN3
CSAN3 BuyBuy
BRLBRLBuy 33,4233,42 BRL54,0 54,0 33,42 62% 62% 3,5 54,03,5 14,84 14,84 62% 0%
0% 3,5 -3%
-3% -29%14,84-29%6,1x 6,1x 6,1x4,9x
4,9x 4,9x 12,4x
12,4x 9,9x 12,4x
9,9x -5,0% 9,9x -5,0% 7,5%
-5,0% 7,5% 0,6x
0,6x 7,5% 0,6x
3,60,6x0,6x
3,43,6 0,6x 3,1x3,4
3,1x 2,4x3,1x
Brazi 2,4x 2,4xl
Adecoagro Adecoagro Adecoagro
AGRO AGROUSUS AGRO BuyUS Buy
USDUSD Buy 7,09 7,09 USD12,0 12,0 69% 7,09 69% 0,8 12,00,8 3,17 3,17 69% -1%
-1% 0,8 -1%
-1% -32%3,17 -32%4,9x 4,9x 4,9x4,8x
4,8x 4,8x 13,9x
13,9x 10,3x 13,9x 10,3x n.a. 10,3x n.a. n.a.
n.a.1,2x n.a.
1,1x n.a. 1,2x
0,61,1x1,2x
0,60,6 1,1x 2,1x0,6
2,1x 2,1x2,1x
Argent 2,1x 2,1x ina
BRLBRLBuy 3,25 3,25 BRL17,0 17,0 423% 3,25 423% 0,2 17,00,2
-2% 0,2 -14% -14%-39%
-25,2% 0,4x 0,7x
1,00,4x0,7x
0,91,0 0,4x 1,9x0,9
1,9x 1,6x1,9x
Brazi 1,6x 1,6xl
1,1x 1,2x
1,1x1,2x
1,9x 1,6x1,9x
1,6x 1,6x
Biosev Biosev Median Median Median
BSEV3 BSEV3
BSEV3 BuyBuy
423%-2%
-39%2,2x 2,2x 2,2x1,9x
1,9x 1,9x 1,3x
1,3x1,0x1,3x
-1,0% -1,0%-4,1% -4,1%-29,5% -29,5%5,3x 5,3x 5,3x4,8x
4,8x 4,8x 12,4x
12,4x 9,9x 12,4x 9,9x 9,9x
Source: BTG Pactual estimates
1,0x -19,3% 1,0x -19,3% -25,2% -19,3% -25,2% 0,7x 1,2x
1,1x 1,9x
198
Valuation Summary
Company Company Company
Ticker Ticker
Ticker Rating Rating
Share Share Rating ShareShareShare TargetTarget Upside Share UpsideMkt Cap Target Mkt CapADTV Upside ADTV Currency Currency PricePrice Currency
Price
(USD bn) (USD bn) (USD mn) (USD mn)1day
Performance MktPerformance Capin USD inADTV USD
EV/EBITDA EV/EBITDA EV/EBITDA
1day (USD 1month bn)1month (USD YTD mn) YTD2018E 2018E 2018E 2019E
2019E 2019E 2018E
P/E
P/E P/E Div. Yield
Div. Yield Div.P/BV Yield
2018E 2019E 2018E 2019E 2018E2019E2018E 2019E
2018E 2018E 2019E
2019E 2019E 2018E
P/BV Net Debt (USDP/BV bn) Net Debt (USD Net bn) Debt/EBITDA Net Debt/EBITDA Net Debt/EBITDA Origin 2018E 2019E 2018E 2019E 2018E2019E2018E 2019E 2018E 2019E 2018E
2019E 2019E
Utilities Utilities Utilities TRPL TRPL
TRPL4 TRPL4
TRPL4 BuyBuy
BRL BRL Buy 67,8767,87 BRL70,0 70,0
67,87 3% 3%
2,9 70,0 2,9
11,70 11,70 3% 0%
0% 2,9 4%
4% 3%11,70 3% 7,1x
7,1x 7,1x7,7x
7,7x 7,7x 9,8x
9,8x 9,8x 9,8x
9,8x 16,7% 9,8x 16,7% 10,2%
16,7% 10,2% 1,1x
10,2% 1,1x 1,1x
0,3 1,1x1,1x
0,20,3 1,1x 0,6x0,2
0,6x 0,6x0,6x
Brazil 0,6x 0,6x
Engie Engie
EGIE3 EGIE3
EGIE3 Neutral Neutral
BRL BRL Neutral 34,2534,25 BRL37,0 37,0
34,25 8% 8%
5,7 37,0 5,7
12,25 12,25 8% -1%
-1% 5,7 2%
2% 13%12,2513%7,4x
7,4x 7,4x6,5x
6,5x 6,5x 10,6x
10,6x 10,0x 10,6x
10,0x 17,9% 10,0x 17,9% 10,5%
17,9% 10,5% 4,5x
10,5% 4,6x 4,5x
2,2 4,6x4,5x
2,32,2 4,6x 2,1x2,3
2,1x 1,9x2,1x
Brazil 1,9x 1,9x
Taesa Taesa
TAEE11 TAEE11
TAEE11 BuyBuy
BRL BRL Buy 23,7123,71 BRL24,0 24,0
23,71 1% 1%
2,1 24,0 2,1
12,68 12,68 1% 0%
0% 2,1 3%
3% 6%12,68 6%10,7x 10,7x 10,7x 11,1x
11,1x 11,1x 9,2x
9,2x 11,8x 9,2x
11,8x 10,4% 11,8x 10,4% 7,7%
10,4% 7,7% 1,8x
1,8x 7,7% 1,8x
0,6 1,8x1,8x
0,70,6 1,8x 2,5x0,7
2,5x 2,8x2,5x
Brazil 2,8x 2,8x
Sabesp Sabesp Sabesp
SBSP3 SBSP3
SBSP3 BuyBuy
BRL BRL Buy 31,2231,22 BRL36,0 36,0
31,22 15% 15%
5,5 36,0 5,5
17,82 17,82 15% 0%
0% 5,5 10%
10% -20%17,82-20%5,0x
5,0x 5,0x4,5x
4,5x 4,5x 8,2x
8,2x 6,0x 8,2x
6,0x 3,1% 6,0x 3,1% 4,1%
3,1% 4,1% 1,1x
1,0x 4,1% 1,1x
2,0 1,0x1,1x
1,92,0 1,0x 1,4x1,9
1,4x 1,2x1,4x
Brazil 1,2x 1,2x
Light Light
LIGT3 LIGT3
LIGT3 BuyBuy
BRL BRL Buy 15,7015,70 BRL18,0 18,0
15,70 15% 15%
0,8 18,0 0,8
6,43
6,43 15% 1%
1% 0,8 -2%
-2% -19%6,43 -19%6,5x
6,5x 6,5x5,1x
5,1x 5,1x 15,3x
15,3x 6,3x 15,3x
6,3x 1,6% 6,3x 1,6% 4,0%
1,6% 4,0% 0,9x
0,8x 4,0% 0,9x
2,0 0,8x0,9x
1,92,0 0,8x 4,6x1,9
4,6x 3,6x4,6x
Brazil 3,6x 3,6x
MXNMXN Buy 73,2973,29MXN 107,0 107,0
73,29 46% 46%
5,6107,0 5,6
7,97
7,97 46% -1%
-1% 5,6 -3%
-3% -23%7,97 -23%10,8x 10,8x 10,8x 10,4x
10,4x 10,4x 12,8x
12,8x 11,6x 12,8x
11,6x 0,0% 11,6x 0,0% 0,0%
0,0% 0,0% 1,2x
1,1x 0,0% 1,2x
2,5 1,1x1,2x
2,72,5 1,1x 3,4x2,7
3,4x 3,4x3,4x
Mexico 3,4x 3,4x
IEnova IEnova IEnova
IENOVA* IENOVA* MMMM IENOVA* BuyBuy MM
Equatorial Equatorial Equatorial
EQTL3 EQTL3
EQTL3 BuyBuy
BRL BRL Buy 71,9171,91 BRL71,0 71,0
71,91 -1% -1%
3,7 71,0 3,7
20,76 20,76 -1% 0%
0% 3,7 0%
0% -5%20,76 -5%11,6x 11,6x 11,6x 12,3x
12,3x 12,3x 21,1x
21,1x 18,7x 21,1x
18,7x 1,2% 18,7x 1,2% 1,3%
1,2% 1,3% 2,7x
2,4x 1,3% 2,7x
1,1 2,4x2,7x
1,81,1 2,4x 2,6x1,8
2,6x 3,8x2,6x
Brazil 3,8x 3,8x
Energias Energias Energias do dodo Brasil Brasil Brasil
ENBR3 ENBR3
ENBR3 BuyBuy
BRL BRL Buy 14,0314,03 BRL16,0 16,0
14,03 14% 14%
2,2 16,0 2,2
15,07 15,07 14% 2%
2% 2,2 1%
1% -11%15,07-11%5,9x
5,9x 5,9x6,7x
6,7x 6,7x 9,2x
9,2x 14,8x 9,2x
14,8x n.a. 14,8x n.a. n.a.
n.a.1,1x n.a.
1,1x n.a. 1,1x
1,2 1,1x1,1x
1,31,2 1,1x 1,9x1,3
1,9x 2,2x1,9x
Brazil 2,2x 2,2x
Eletropaulo Eletropaulo Eletropaulo
ELPL3 ELPL3
ELPL3 BuyBuy
BRL BRL Buy 33,4033,40 BRL25,0 25,0
33,40 -25% -25%
1,4 25,0 1,4
0,16
0,16 -25%-4%
-4% 1,4 2%
2% 74%0,16 74%13,9x 13,9x 13,9x 11,4x
11,4x 11,4x n.a.
n.a. n.a.n.a.
n.a. 0,0% n.a. 0,0% 0,0%
0,0% 0,0% 3,3x
3,3x 0,0% 3,3x
1,9 3,3x3,3x
1,91,9 3,3x 7,8x1,9
7,8x 6,5x7,8x
Brazil 6,5x 6,5x
Sanepar Sanepar Sanepar
SAPR11 SAPR11
SAPR11 BuyBuy
BRL BRL Buy 56,6556,65 BRL86,0 86,0
56,65 52% 52%
1,5 86,0 1,5
6,28
6,28 52% -2%
-2% 1,5 3%
3% -14%6,28 -14%5,9x
5,9x 5,9x5,3x
5,3x 5,3x 6,8x
6,8x 5,7x 6,8x
5,7x 10,2% 5,7x 10,2% 8,8%
10,2% 8,8% 1,1x
1,0x 8,8% 1,1x
0,9 1,0x1,1x
1,00,9 1,0x 2,3x1,0
2,3x 2,1x2,3x
Brazil 2,1x 2,1x
Inversiones Inversiones Inversiones Aguas Aguas Aguas Metropolitanas Metropolitanas Metropolitanas
IAMIAM CI CI
IAM Neutral Neutral CI
CLP CLP Neutral1010,00 1010,00CLP 1.059,01.059,0 1010,00 5% 5%
1,51.059,0 1,5 1,34
1,34 5% -1%
-1% 1,5 2%
2% -17%1,34 -17%6,2x
6,2x 6,2x5,9x
5,9x 5,9x 13,2x
13,2x 12,3x 13,2x
12,3x 7,6% 12,3x 7,6% 8,2%
7,6% 8,2% 1,7x
1,7x 8,2% 1,7x
1,4 1,7x1,7x
1,41,4 1,7x 3,0x1,4
3,0x 2,9x3,0x
Chile 2,9x 2,9x
Copel Copel Copel
CPLE6 CPLE6
CPLE6 Neutral Neutral
BRL BRL Neutral 32,3432,34 BRL34,0 34,0
32,34 5% 5%
2,3 34,0 2,3
6,78
6,78 5% 2%
2% 2,3 12%
12% 16%6,78 16%6,0x
6,0x 6,0x4,7x
4,7x 4,7x 6,7x
6,7x 4,3x 6,7x
4,3x 7,4% 4,3x 11,7% 7,4%
7,4% 11,7% 0,6x
11,7% 0,5x 0,6x
2,2 0,5x0,6x
2,12,2 0,5x 2,9x2,1
2,9x 2,2x2,9x
Brazil 2,2x 2,2x
CSMG3 CSMG3
CSMG3 BuyBuy
BRL BRL Buy 54,1754,17 BRL51,0 51,0
Brazil 1,9x 1,9x
Copasa Copasa Copasa Colbun Colbun Colbun CESP CESP
54,17 -6% -6%
1,8 51,0 1,8
8,91
8,91 -6% -2%
-2% 1,8 5%
5% 16%8,91 16%6,6x
6,6x 6,6x5,8x
5,8x 5,8x 12,4x
12,4x 10,1x 12,4x
10,1x 8,5% 10,1x 8,5% 9,9%
8,5% 9,9% 1,1x
1,1x 9,9% 1,1x
0,8 1,1x1,1x
0,80,8 1,1x 2,1x0,8
2,1x 1,9x2,1x
CLP CLP Neutral140,94140,94CLP 163,0 163,0 140,94 16% 16%
3,6163,0 3,6
1,80
1,80 16% 2%
2% 3,6 4%
4% -3%1,80 -3%7,4x
7,4x 7,4x6,3x
6,3x 6,3x 17,2x
17,2x 15,6x 17,2x
15,6x 5,8% 15,6x 5,8% 2,9%
5,8% 2,9% 1,0x
0,9x 2,9% 1,0x
0,7 0,9x1,0x
0,40,7 0,9x 1,2x0,4
1,2x 0,7x1,2x
Chile 0,7x 0,7x
CESP6 BuyBuy
BRL BRL Buy 21,0021,00 BRL20,0 20,0
21,00 -5% -5%
1,8 20,0 1,8
8,16
8,16 -5% -1%
-1% 1,8 10%
10% 36%8,16 36%10,3x 10,3x 10,3x7,7x
7,7x 7,7x 20,0x
20,0x 21,0x 20,0x
21,0x 1,3% 21,0x 1,3% 1,2%
1,3% 1,2% 0,9x
0,9x 1,2% 0,9x
(0,0) 0,9x0,9x
(0,2) (0,0) 0,9x -0,1x(0,2)
-0,1x -0,8x-0,1x
-0,8x Brazil -0,8x
COLBUN COLBUN CI CICOLBUN Neutral Neutral CI CESP6 CESP6
Cemig Cemig Cemig
CMIG4 CMIG4
CMIG4 BuyBuy
BRL BRL Buy 12,7812,78 BRL10,0 10,0
12,78 -22% -22%
4,8 10,0 4,8
49,40 49,40 -22% 1%
1% 4,8 9%
9% 68%49,4068%10,5x 10,5x 10,5x9,1x
9,1x 9,1x 12,0x
12,0x 9,3x 12,0x
9,3x 2,1% 9,3x 2,1% 2,7%
2,1% 2,7% 1,2x
1,1x 2,7% 1,2x
4,4 1,1x1,2x
4,14,4 1,1x 5,0x4,1
5,0x 4,2x5,0x
Brazil 4,2x 4,2x
Alupar Alupar Alupar
ALUP11 ALUP11
ALUP11 BuyBuy
BRL BRL Buy 18,3018,30 BRL20,0 20,0
18,30 9% 9%
1,4 20,0 1,4
3,21
3,21 9% -1%
-1% 1,4 -1%
-1% -12%3,21 -12%n.a.
n.a. n.a.n.a.
n.a. n.a. n.a.
n.a. n.a.n.a.
n.a. 2,9% n.a. 2,9% 7,8%
2,9% 7,8% 1,3x
1,2x 7,8% 1,3x
0,8 1,2x1,3x
0,90,8 1,2x 2,6x0,9
2,6x 2,6x2,6x
Brazil 2,6x 2,6x
Aes AesTiete Tiete Tiete
TIET11 TIET11
TIET11 Neutral Neutral
BRL BRL Neutral 10,3410,34 BRL12,0 12,0
10,34 16% 16%
1,0 12,0 1,0
2,69
2,69 16% -1%
-1% 1,0 0%
0% -26%2,69 -26%6,9x
6,9x 6,9x4,8x
4,8x 4,8x 14,8x
14,8x 9,1x 14,8x
9,1x 7,6% 9,1x 10,9% 7,6%
7,6% 10,9% 2,7x
10,9% 2,7x 2,7x
0,8 2,7x2,7x
0,70,8 2,7x 3,0x0,7
3,0x 1,9x3,0x
Brazil 1,9x 1,9x
CLP CLP Neutral186,73186,73CLP 221,7 221,7 186,73 19% 19%
2,2221,7 2,2
1,80
1,80 19% 0%
0% 2,2 2%
2% -11%1,80 -11%7,1x
7,1x 7,1x7,8x
7,8x 7,8x 6,6x
6,6x 8,6x 6,6x
8,6x 8,0% 8,6x 8,0% 5,4%
8,0% 5,4% 0,9x
0,8x 5,4% 0,9x
3,5 0,8x0,9x
3,63,5 0,8x 4,3x3,6
4,3x 4,7x4,3x
Chile 4,7x 4,7x
AES AESGENER GENER GENER Eneva Eneva Eneva
AESGENER AESGENER CIAESGENER CI Neutral Neutral CI ENEV3 ENEV3
ENEV3 BuyBuy
BRL BRL Buy 15,8015,80 BRL16,0 16,0
15,80 1% 1%
1,3 16,0 1,3
1,87
1,87 1% 0%
0% 1,3 9%
9% -3%1,87 -3%5,1x
5,1x 5,1x5,7x
5,7x 5,7x 8,0x
8,0x 11,2x 8,0x
11,2x 0,0% 11,2x 0,0% 0,0%
0,0% 0,0% 0,8x
0,8x 0,0% 0,8x
1,0 0,8x0,8x
0,91,0 0,8x 2,3x0,9
2,3x 2,4x2,3x
Brazil 2,4x 2,4x
Omega Omega OmegaEnergia Energia Energia
OMGE3 OMGE3
OMGE3 BuyBuy
BRL BRL Buy 16,4516,45 BRL20,0 20,0
16,45 22% 22%
0,5 20,0 0,5
1,07
1,07 22% -1%
-1% 0,5 1%
1% -20%1,07 -20%8,2x
8,2x 8,2x8,9x
8,9x 8,9x 29,8x
29,8x 19,6x 29,8x
19,6x 3,2% 19,6x 3,2% 5,1%
3,2% 5,1% 1,1x
1,0x 5,1% 1,1x
0,4 1,0x1,1x
0,30,4 1,0x 3,5x0,3
3,5x 3,5x3,5x
Brazil 3,5x 3,5x
Enel EnelChile Chile Chile
ENIC ENIC USUS ENIC Neutral Neutral US
USDUSD Neutral 4,84 4,84 USD6,0 6,0
24% 4,84 24%
4,8 6,04,8
2,52
2,52 24% 0%
0% 4,8 8%
8% -13%2,52 -13%8,0x
8,0x 8,0x7,1x
7,1x 7,1x 12,9x
12,9x 10,7x 12,9x
10,7x 4,6% 10,7x 4,6% 5,0%
4,6% 5,0% 1,3x
1,2x 5,0% 1,3x
0,0 1,2x1,3x
0,00,0 1,2x 2,3x0,0
2,3x 1,9x2,3x
Chile 1,9x 1,9x
Engie EngieEnergia Energia Energia Chile Chile Chile
ECLECL CI CI
CLP CLP Buy 1293,80 1293,80CLP 1.328,01.328,0 1293,80 3% 3%
2,01.328,0 2,0 2,54
2,54 3% -1%
-1% 2,0 3%
3% -10%2,54 -10%8,3x
8,3x 8,3x5,7x
5,7x 5,7x 13,3x
13,3x 8,8x 13,3x
8,8x 3,0% 8,8x 3,0% 4,5%
3,0% 4,5% 1,0x
0,9x 4,5% 1,0x
0,9 0,9x1,0x
0,70,9 0,9x 2,5x0,7
2,5x 1,5x2,5x
Chile 1,5x 1,5x
CLP CLP Neutral377,76377,76CLP 482,0 482,0 377,76 28% 28%
3,4482,0 3,4
2,82
2,82 28% -1%
-1% 3,4 2%
2% -11%2,82 -11%9,9x
9,9x 9,9x9,6x
9,6x 9,6x 15,4x
15,4x 15,1x 15,4x
15,1x 6,5% 15,1x 6,5% 6,6%
6,5% 6,6% 3,6x
3,6x 6,6% 3,6x
1,3 3,6x3,6x
1,41,3 3,6x 2,8x1,4
2,8x 2,8x2,8x
Chile 2,8x 2,8x
3,3 35,0 3,3
6,61
6,61 -6% -1%
-1% 3,3 2%
2% 19%6,61 19%5,3x
5,3x 5,3x5,3x
5,3x 5,3x 20,4x
20,4x 18,3x 20,4x
18,3x 2,5% 18,3x 2,5% 2,7%
2,5% 2,7% 3,1x
2,9x 2,7% 3,1x
0,2 2,9x3,1x
0,20,2 2,9x 0,3x0,2
0,3x 0,4x0,3x
Brazil 0,4x 0,4x
4,8 17.700,0 4,8 1,17
1,17 28% 0%
0% 4,8 7%
7% -5%1,17 -5%8,6x
8,6x 8,6x8,1x
8,1x 8,1x 10,8x
10,8x 9,8x 10,8x
9,8x 3,9% 9,8x 3,9% 6,5%
3,9% 6,5% 1,4x
1,4x 6,5% 1,4x
0,0 1,4x1,4x
0,00,0 1,4x 3,3x0,0
3,3x 3,0x3,3x
Colombia 3,0x 3,0x
2,4%-9,9%
7,2x 7,2x6,6x
6,6x 6,6x 12,8x
12,8x 10,7x 12,8x
10,7x 10,7x
1,1x 1,1x
1,1x1,1x
2,5x 2,2x2,5x
2,2x 2,2x
Aguas Aguas AguasAndinas Andinas Andinas
ECL BuyCI Buy
AGUAS/A AGUAS/A CI CIAGUAS/A Neutral Neutral CI
Energisa Energisa Energisa
ENGI11 ENGI11
ENGI11 BuyBuy
BRL BRL Buy 37,2437,24 BRL35,0 35,0
Interconexión Interconexión Interconexión Eléctrica Eléctrica Eléctrica
ISAISA CBCB
ISABuy CB Buy
COPCOP Buy 13780,00 13780,00COP 17.700,0 17.700,013780,00 28% 28%
Median Median Median
37,24 -6% -6%
-0,5% -0,5% 2,4%
-9,9%7,2x
Source: BTG Pactual estimates
1,1x
1,1x 2,5x
199
Valuation Summary
Company Company Company
Ticker Ticker
Ticker Rating Rating
ShareShare Rating ShareShareShare TargetTarget Upside Share UpsideMkt Cap Target Mkt CapADTV Upside ADTV Currency Currency PricePrice Currency
Price
Performance MktPerformance Capin USD inADTV USD
EV/EBITDA EV/EBITDA EV/EBITDA
(USD bn) (USD bn) (USD mn) (USD mn)1day 1day (USD 1month bn)1month(USD YTD mn) YTD2018E 2018E 2018E 2019E
P/E
P/E P/E Div. Yield Div. Yield Div.P/BV Yield
2019E 2019E 2018E
2018E 2019E 2018E 2019E 2018E2019E2018E 2019E
2018E 2018E 2019E
2019E 2019E 2018E
P/BV Net Debt (USDP/BV bn) Net Debt (USD Net bn) Debt/EBITDA Net Debt/EBITDA Net Debt/EBITDA Origin 2018E 2019E 2018E 2019E 2018E2019E2018E 2019E 2018E 2019E 2018E
2019E 2019E
Mining Mining Mining Volcan Volcan Volcan
VOLCABC1 VOLCABC1 PEVOLCABC1 PE BuyBuyPE
PENPEN Buy 0,77 0,77 PEN1,6 1,6
113% 0,77 113% 0,9 1,60,9
0,48 0,48 113% 2%
2% 0,9 8%
8% -42%0,48 -42%5,2x
5,2x 5,2x4,3x
4,3x 4,3x 15,5x
15,5x 8,6x 15,5x
8,6x 2,7% 8,6x 2,7% 3,0%
2,7% 3,0% 1,4x
1,3x 3,0% 1,4x
0,7 1,3x1,4x
0,70,7 1,3x 2,3x0,7
2,3x 1,8x2,3x
1,8x Peru 1,8x
VALE VALE USUS VALEBuyUS Buy
USDUSD Buy 13,0413,04 USD 20,0 20,0
13,04 53% 53% 67,8 20,0 67,8 336,78 336,78 53% 0%
0% 67,8 -10%
-10%11% 336,7811%4,9x
4,9x 4,9x4,2x
4,2x 4,2x 8,5x
8,5x 5,7x8,5x
5,7x 5,1% 5,7x 11,8% 5,1%
5,1% 11,8% 1,5x
11,8% 1,4x 1,5x
14,5 1,4x1,5x
12,1 14,5 1,4x 0,9x12,1
0,9x 0,6x0,9x
Brazil 0,6x 0,6x
SQM SQM
SQM SQM USUS SQMBuyUS Buy
USDUSD Buy 43,3443,34 USD 57,1 57,1
43,34 32% 32% 11,4 57,1 11,4 32,70 32,70 32% 0%
0% 11,4 -1%
-1% -21%32,70-21%12,5x 12,5x 12,5x 11,2x
11,2x 11,2x 23,4x
23,4x 20,3x 23,4x
20,3x 4,2% 20,3x 4,2% 2,4%
4,2% 2,4% 5,2x
4,6x 2,4% 5,2x
0,4 4,6x5,2x
0,20,4 4,6x 0,4x0,2
0,4x 0,2x0,4x
Chile 0,2x 0,2x
Southern Southern Southern Copper Copper Copper
SCCO SCCO USUS SCCO SellUS Sell
USDUSD Sell 32,0832,08 USD 30,0 30,0
32,08 -6% -6% 24,8 30,0 24,8 37,87 37,87 -6% 0%
0% 24,8 -13%
-13%-31%37,87-31%8,1x
8,1x 8,1x8,6x
8,6x 8,6x 14,8x
14,8x 16,3x 14,8x
16,3x 3,7% 16,3x 3,7% 1,8%
3,7% 1,8% 3,7x
3,2x 1,8% 3,7x
4,9 3,2x3,7x
5,04,9 3,2x 1,3x5,0
1,3x 1,5x1,3x
1,5x Peru 1,5x
6,1x 6,1x 11,6x
11,6x 9,1x 11,6x
9,1x 6,4% 9,1x 6,4% 4,4%
6,4% 4,4% 1,3x
1,2x 4,4% 1,3x
8,4 1,2x1,3x
8,18,4 1,2x 1,7x8,1
1,7x 1,6x1,7x
Mexico 1,6x 1,6x 0,1x Peru 0,1x
Vale Vale
Grupo GrupoMexico Mexico Mexico
GMEXICOB GMEXICOB MMGMEXICOB MM Neutral Neutral MM MXNMXN Neutral 40,7840,78MXN 43,0 43,0
40,78 5% 5%
15,7 43,0 15,7 21,91 21,91 5% -1%
-1%15,7 -6%
-6% -34%21,91-34%6,1x
6,1x 6,1x6,1x
Cerro CerroVerde Verde Verde
CVERDEC1 CVERDEC1 PECVERDEC1 PE Neutral Neutral PE
USDUSD Neutral 21,3021,30 USD 31,0 31,0
21,30 46% 46%
7,5 31,0 7,5
0,06 0,06 46% 0%
0% 7,5 -1%
-1% -27%0,06 -27%5,5x
5,5x 5,5x4,5x
4,5x 4,5x 13,1x
13,1x 9,8x 13,1x
9,8x 3,8% 9,8x 3,8% 8,1%
3,8% 8,1% 1,4x
1,3x 8,1% 1,4x
0,6 1,3x1,4x
0,20,6 1,3x 0,4x0,2
0,4x 0,1x0,4x
Buenaventura Buenaventura Buenaventura
BVNBVN USUS
BVNBuyUS Buy
USDUSD Buy 15,1915,19 USD 16,9 16,9
15,19 11% 11%
3,9 16,9 3,9 17,10 17,10 11% 0%
0% 3,9 9%
9% 9%17,10 9%14,3x 14,3x 14,3x 12,4x
12,4x 12,4x 44,6x
44,6x 19,9x 44,6x
19,9x 0,4% 19,9x 0,4% 0,3%
0,4% 0,3% 1,3x
1,2x 0,3% 1,3x
0,3 1,2x1,3x
0,20,3 1,2x 1,0x0,2
1,0x 0,5x1,0x
0,5x Peru 0,5x
Bradespar Bradespar Bradespar
BRAP4 BRAP4
BRAP4 Neutral Neutral
BRL BRL Neutral 30,0030,00 BRL12,0 12,0
30,00 -60% -60% n.a. 12,0 n.a. 20,60 20,60 -60%-1%
-1% n.a. -14%
-14% -8%20,60 -8% n.a.
n.a. n.a.n.a.
n.a. n.a. n.a.
n.a.n.a.n.a.
n.a. n.a. n.a. n.a. n.a.
n.a.n.a.
n.a. n.a. n.a.
n.a. n.a.n.a.
n.a.n.a. n.a. n.a.n.a.
n.a. n.a. n.a.
Brazil n.a. n.a.
GBPGBP Buy 8,41 8,41 GBP12,4 12,4
47% 8,41 47%
2% 7,8 0%
0% -42%18,73-42%7,0x
7,0x 7,0x6,2x
6,2x 6,2x 17,2x
17,2x 15,1x 17,2x
15,1x 3,8% 15,1x 3,8% 1,9%
3,8% 1,9% 2,5x
2,2x 1,9% 2,5x
(0,1) 2,2x2,5x
(0,3) (0,1) 2,2x -0,1x(0,3)
-0,1x -0,2x-0,1x
Mexico -0,2x -0,2x
0,2% 0,2%-0,9% -0,9%-27,2% -27,2%6,6x
6,6x 6,6x6,2x
6,2x 6,2x 15,2x
15,2x 12,4x 15,2x
12,4x 12,4x
1,5x
1,3x 1,5x
1,3x1,5x
1,1x 1,0x1,1x
1,0x 1,0x
Fresnillo Fresnillo Fresnillo
FRES FRES LN LN FRES BuyLN Buy
7,8 12,4 7,8 18,73 18,73 47% 2%
Median Median Median
1,3x 1,1x
Metals Metals Usiminas Usiminas Usiminas
USIM5 USIM5
USIM5 BuyBuy
BRL BRL Buy 9,65 9,65 BRL14,0 14,0
45% 9,65 45%
3,1 14,0 3,1 44,49 44,49 45% 2%
2% 3,1 3%
3% -9%44,49 -9%5,4x
5,4x 5,4x4,5x
4,5x 4,5x 15,3x
15,3x 10,9x 15,3x
10,9x 0,0% 10,9x 0,0% 0,0%
0,0% 0,0% 0,8x
0,8x 0,0% 0,8x
0,8 0,8x0,8x
0,60,8 0,8x 1,3x0,6
1,3x 0,8x1,3x
Brazil 0,8x 0,8x
Ternium Ternium Ternium
TXTX USUS
TXBuy USBuy
USDUSD Buy 28,6828,68 USD 36,0 36,0
28,68 26% 26%
5,6 36,0 5,6 14,50 14,50 26% 3%
3% 5,6 -6%
-6% -6%14,50 -6%2,9x
2,9x 2,9x3,6x
3,6x 3,6x 4,4x
4,4x 5,7x4,4x
5,7x 0,0% 5,7x 0,0% 4,4%
0,0% 4,4% 1,0x
0,9x 4,4% 1,0x
2,0 0,9x1,0x
1,82,0 0,9x 0,7x1,8
0,7x 0,8x0,7x
Argentina 0,8x 0,8x
Gerdau Gerdau Gerdau
GGBR4 GGBR4
GGBR4 BuyBuy
BRL BRL Buy 15,3415,34 BRL23,0 23,0
15,34 50% 50%
6,7 23,0 6,7 59,78 59,78 50% -1%
-1% 6,7 -1%
-1% 8%59,78 8% 5,1x
5,1x 5,1x4,4x
4,4x 4,4x 10,4x
10,4x 7,6x 10,4x
7,6x 2,0% 7,6x 2,0% 1,9%
2,0% 1,9% 1,0x
0,9x 1,9% 1,0x
2,5 0,9x1,0x
1,72,5 0,9x 1,5x1,7
1,5x 0,9x1,5x
Brazil 0,9x 0,9x
CSN CSN
CSNA3 CSNA3
CSNA3 Neutral Neutral
BRL BRL Neutral 9,07 9,07 BRL11,0 11,0
21% 9,07 21%
3,2 11,0 3,2 18,66 18,66 21% -1%
-1% 3,2 -4%
-4% -8%18,66 -8%5,0x
5,0x 5,0x6,4x
6,4x 6,4x 4,5x
4,5x 5,6x4,5x
5,6x 0,0% 5,6x 0,0% 0,0%
0,0% 0,0% 1,6x
1,2x 0,0% 1,6x
6,7 1,2x1,6x
6,06,7 1,2x 3,3x6,0
3,3x 4,0x3,3x
Brazil 4,0x 4,0x
-7,0%5,1x
5,1x 5,1x4,5x
4,5x 4,5x 7,5x
7,5x 6,7x 7,5x
6,7x 6,7x
1,0x
0,9x 1,0x
0,9x1,0x
1,4x 0,9x1,4x
0,9x 0,9x
Median Median Median
0,4% 0,4%-2,5% -2,5%-7,0%
0,9x 1,4x
Pulp Pulpand and and paper paper paper &&Forestry Forestry & Forestry Suzano Suzano SuzanoPapel Papel Papel eeCelulose Celulose e Celulose
SUZB3 SUZB3
SUZB3 BuyBuy
BRL BRL Buy 37,5737,57 BRL65,0 65,0
37,57 73% 73% 13,0 65,0 13,0 59,57 59,57 73% 3%
3% 13,0 -7%
-7% 72%59,5772%8,2x
8,2x 8,2x3,8x
3,8x 3,8x 46,0x
46,0x 3,5x 46,0x
3,5x 1,3% 3,5x 1,3% 1,3%
1,3% 1,3% 4,0x
1,9x 1,3% 4,0x
2,3 1,9x4,0x
9,02,3 1,9x 1,3x9,0
1,3x 1,6x1,3x
Brazil 1,6x 1,6x
Klabin Klabin
KLBN11 KLBN11
KLBN11 BuyBuy
BRL BRL Buy 16,0016,00 BRL27,0 27,0
16,00 69% 69%
4,4 27,0 4,4 20,37 20,37 69% 0%
0% 4,4 -12%
-12%-19%20,37-19%7,5x
7,5x 7,5x6,0x
6,0x 6,0x n.a.
n.a. 8,4xn.a.
8,4x 4,2% 8,4x 4,2% 4,6%
4,2% 4,6% 2,8x
2,3x 4,6% 2,8x
3,2 2,3x2,8x
2,83,2 2,3x 3,1x2,8
3,1x 2,3x3,1x
Brazil 2,3x 2,3x
Fibria Fibria
FIBR3 FIBR3
FIBR3 BuyBuy
BRL BRL Buy 66,8466,84 BRL71,0 71,0
66,84 6% 6%
9,5 71,0 9,5 33,66 33,66 6% 0%
0% 9,5 -3%
-3% 29%33,6629%6,1x
6,1x 6,1x5,3x
5,3x 5,3x 7,3x
7,3x 7,6x7,3x
7,6x 0,0% 7,6x 0,0% 0,0%
0,0% 0,0% 1,9x
1,7x 0,0% 1,9x
2,5 1,7x1,9x
1,82,5 1,7x 1,3x1,8
1,3x 0,9x1,3x
Brazil 0,9x 0,9x
Duratex Duratex Duratex
DTEX3 DTEX3
DTEX3 BuyBuy
BRL BRL Buy 11,9511,95 BRL13,0 13,0
11,95 9% 9%
2,1 13,0 2,1
4,45 4,45 9% 2%
2% 2,1 -6%
-6% 11%4,45 11%8,4x
8,4x 8,4x8,2x
8,2x 8,2x 24,4x
24,4x 17,1x 24,4x
17,1x 1,5% 17,1x 1,5% 2,0%
1,5% 2,0% 1,6x
1,5x 2,0% 1,6x
0,4 1,5x1,6x
0,30,4 1,5x 1,3x0,3
1,3x 0,8x1,3x
Brazil 0,8x 0,8x
Copec Copec
COPEC COPEC CI CI COPEC BuyBuy CI
CLP CLP Buy 8848,90 8848,90CLP 12.000,0 12.000,0 8848,90 36% 36% 16,9 12.000,0 16,9 9,22 9,22 36% 1%
1% 16,9 -8%
-8% -17%9,22 -17%7,9x
7,9x 7,9x7,2x
7,2x 7,2x 13,4x
13,4x 11,7x 13,4x
11,7x 2,4% 11,7x 2,4% 3,1%
2,4% 3,1% 1,5x
1,4x 3,1% 1,5x
6,4 1,4x1,5x
6,46,4 1,4x 2,1x6,4
2,1x 1,9x2,1x
Chile 1,9x 1,9x
CMPC CMPC
CMPC CMPC CCCC CMPC Neutral Neutral CC
CLP CLP Neutral2256,40 2256,40CLP 2.786,02.786,0 2256,40 23% 23%
1% 8,3 -7%
-7% -1%6,71 -1%6,0x
6,0x 6,0x5,9x
5,9x 5,9x 14,8x
14,8x 11,9x 14,8x
11,9x 2,6% 11,9x 2,6% 2,4%
2,6% 2,4% 1,0x
0,9x 2,4% 1,0x
2,8 0,9x1,0x
2,22,8 0,9x 1,5x2,2
1,5x 1,2x1,5x
Chile 1,2x 1,2x
7,7x 7,7x6,0x
6,0x 6,0x 14,8x
14,8x 10,1x 14,8x
10,1x 10,1x
1,8x
1,6x 1,8x
1,6x1,8x
1,4x 1,4x1,4x
1,4x 1,4x
Median Median Median
8,32.786,0 8,3 6,71 6,71 23% 1%
1,0% 1,0%-6,9% -6,9%4,9%
4,9%7,7x
Source: BTG Pactual estimates
1,6x 1,4x
200
Valuation Summary Company Company Company
Ticker Ticker
Ticker Rating Rating
Share Share Rating ShareShareShare TargetTarget Upside Share UpsideMkt Cap Target Mkt CapADTV Upside ADTV Currency Currency PricePrice Currency
Price
(USD bn) (USD bn) (USD mn) (USD mn)1day
Performance MktPerformance Capin USD inADTV USD
EV/EBITDA EV/EBITDA EV/EBITDA
P/E
P/E P/E Div. Yield
Div. Yield Div.P/BV Yield
1day (USD 1month bn)1month (USD YTD mn) YTD2018E 2018E 2018E 2019E
2019E 2019E 2018E
2018E 2019E 2018E 2019E 2018E2019E2018E 2019E
2018E 2018E 2019E
2019E 2019E 2018E
P/BV Net Debt (USDP/BV bn) Net Debt (USD Net bn) Debt/EBITDA Net Debt/EBITDA Net Debt/EBITDA Origin 2018E 2019E 2018E 2019E 2018E2019E2018E 2019E 2018E 2019E 2018E
2019E 2019E
Industrials, Industrials, Industrials, Cement Cement Cement and andHeavy Heavy and Contruction Heavy Contruction Contruction Grupo Grupo GrupoArgos Argos Argos
GRUPOARG GRUPOARG CB GRUPOARG CB Neutral NeutralCB COPCOP Neutral16440,00 16440,00COP 19.900,0 19.900,016440,00 21% 21%
Cemex Cemex CemexLatAm LatAm LatAm Holdings Holdings Holdings
CLHCLH CBCB
CLHBuyCB Buy
COPCOP Buy 4000,00 4000,00COP 7.000,07.000,0 4000,00 75% 75%
Cemex Cemex Cemex
CXCX USUS
CXBuy USBuy
USDUSD Buy 4,62 4,62 USD9,5 9,5
Cementos Cementos Cementos Argos Argos Argos Graña Grañayy Montero yMontero Montero
USDUSD Buy 3,13 3,13 USD7,4 7,4
2,97 21% 0%
0% 4,4 6%
6% -25%2,97 -25%8,8x
8,8x 8,8x7,1x
7,1x 7,1x 15,0x
15,0x 9,3x 15,0x
9,3x 2,1% 9,3x 2,1% 2,2%
2,1% 2,2% 0,8x
0,8x 2,2% 0,8x
4,2 0,8x0,8x
3,94,2 0,8x 3,3x3,9
3,3x 2,8x3,3x
Colombia 2,8x 2,8x
0,77.000,0 0,7 0,57
0,57 75% -4%
-4% 0,7 -26%
-26%-66%0,57 -66%5,9x
5,9x 5,9x5,6x
5,6x 5,6x 8,7x
8,7x 9,4x 8,7x
9,4x n.a. 9,4x n.a. n.a.
n.a.0,4x n.a.
0,4x n.a. 0,4x
0,8 0,4x0,4x
0,80,8 0,4x 3,1x0,8
3,1x 3,0x3,1x
Colombia 3,0x 3,0x
52,23 52,23 106%-2%
-2% 6,8 -7%
-7% -38%52,23-38%5,6x
5,6x 5,6x4,7x
4,7x 4,7x 8,1x
8,1x 7,0x 8,1x
7,0x 0,0% 7,0x 0,0% 2,1%
0,0% 2,1% 0,7x
0,6x 2,1% 0,7x
9,6 0,6x0,7x
8,69,6 0,6x 3,6x8,6
3,6x 2,9x3,6x
Mexico 2,9x 2,9x
1,21 43% -1%
-1% 3,0 0%
0% -42%1,21 -42%11,1x 11,1x 11,1x9,1x
9,1x 9,1x 70,2x
70,2x 26,0x 70,2x
26,0x 3,8% 26,0x 3,8% 1,3%
3,8% 1,3% 1,3x
1,2x 1,3% 1,3x
2,1 1,2x1,3x
2,02,1 1,2x 4,4x2,0
4,4x 3,4x4,4x
Colombia 3,4x 3,4x
0,33 136%-2%
-2% 0,4 2%
1,9% 0,4% 0,6x
0,6x 0,4% 0,6x
0,5 0,6x0,6x
0,50,5 0,6x 2,2x0,5
2,2x 3,0x2,2x
3,0x Peru 3,0x
0,7x 0,8x
0,7x0,8x
3,4x 2,9x3,4x
2,9x 2,9x Brazil 1,0x 1,0x
106% 4,62 106% 6,8 9,56,8
CEMARGOS CEMARGOS CB CEMARGOS CB Neutral NeutralCB COPCOP Neutral6980,00 6980,00COP 10.000,0 10.000,0 6980,00 43% 43% GRAM GRAM USUS GRAM BuyUS Buy
4,4 19.900,0 4,4 2,97
3,0 10.000,0 3,0 1,21
136% 3,13 136% 0,4 7,40,4
0,33
Median Median Median
-1,2% -1,2%-3,4%
2% 13%0,33 13%4,7x
4,7x 4,7x6,1x
6,1x 6,1x 22,8x
22,8x 8,1x 22,8x
8,1x 1,9% 8,1x 1,9% 0,4%
-3,4%-40,0% -40,0% 7,4x
7,4x 7,4x6,4x
6,4x 6,4x 11,8x
11,8x 9,4x 11,8x
9,4x 9,4x
0,8x
0,7x 3,4x
Telecom Telecom Telecom and andand media media media Valid Valid
VLID3 VLID3
VLID3 BuyBuy
BRL BRL Buy 18,1218,12 BRL26,0 26,0
18,12 43% 43%
0,3 26,0 0,3
2,28
2,28 43% -1%
-1% 0,3 10%
10% -15%2,28 -15%5,4x
5,4x 5,4x5,1x
5,1x 5,1x 12,9x
12,9x 9,0x 12,9x
9,0x 3,2% 9,0x 3,2% 6,4%
3,2% 6,4% 1,2x
1,2x 6,4% 1,2x
0,1 1,2x1,2x
0,10,1 1,2x 1,3x0,1
1,3x 1,0x1,3x
Totvs Totvs
TOTS3 TOTS3
TOTS3 Neutral Neutral
BRL BRL Neutral 28,0028,00 BRL30,0 30,0
28,00 7% 7%
1,2 30,0 1,2
5,04
5,04 7% -3%
-3% 1,2 8%
8% -20%5,04 -20%13,1x 13,1x 13,1x 11,8x
11,8x 11,8x 21,7x
21,7x 18,4x 21,7x
18,4x 1,1% 18,4x 1,1% 2,3%
1,1% 2,3% 3,3x
3,1x 2,3% 3,3x
0,0 3,1x3,3x
0,00,0 3,1x 0,4x0,0
0,4x 0,1x0,4x
Brazil 0,1x 0,1x
Time TimeFor For For Fun FunFun (T4F) (T4F)(T4F)
SHOW3 SHOW3
SHOW3 BuyBuy
BRL BRL Buy 7,00 7,00 BRL15,0 15,0
114% 7,00 114% 0,1 15,0 0,1
0,31
0,31 114%-1%
-1% 0,1 1%
1% -16%0,31 -16%2,8x
2,8x 2,8x2,0x
2,0x 2,0x 7,2x
7,2x 6,3x 7,2x
6,3x 0,0% 6,3x 0,0% 0,0%
0,0% 0,0% 1,3x
1,1x 0,0% 1,3x
(0,1) 1,1x1,3x
(0,1) (0,1) 1,1x -2,5x(0,1)
-2,5x -2,8x-2,5x
-2,8x Brazil -2,8x
TIM TIMPart Part Part
TIMP3 TIMP3
TIMP3 BuyBuy
BRL BRL Buy 12,0812,08 BRL16,0 16,0
12,08 32% 32%
14,79 14,79 32% 0%
0% 7,5 -1%
-1% -20%14,79-20%4,7x
4,7x 4,7x4,3x
4,3x 4,3x 16,8x
16,8x 12,6x 16,8x
12,6x 0,4% 12,6x 0,4% 3,6%
0,4% 3,6% 1,5x
1,4x 3,6% 1,5x
0,3 1,4x1,5x
0,00,3 1,4x 0,2x0,0
0,2x 0,0x0,2x
Brazil 0,0x 0,0x
Oi OiS.A. S.A. S.A.
OIBR3 OIBR3
OIBR3 BuyBuy
BRL BRL Buy 1,32 1,32 BRL3,9 3,9
195% 1,32 195% 0,2 3,90,2
6,04
6,04 195%-2%
-2% 0,2 -24%
-24%-59%6,04 -59%3,5x
3,5x 3,5x3,8x
3,8x 3,8x n.a.
n.a. n.a.n.a.
n.a. n.a. n.a. n.a. n.a.
n.a.0,1x n.a.
0,2x n.a. 0,1x
5,0 0,2x0,1x
4,55,0 0,2x 3,0x4,5
3,0x 2,6x3,0x
Brazil 2,6x 2,6x
Telefonica Telefonica Telefonica Brasil Brasil Brasil
VIVT4 VIVT4
VIVT4 BuyBuy
BRL BRL Buy 47,9047,90 BRL60,0 60,0
47,90 25% 25%
20,8 60,0 20,8 22,28 22,28 25% 1%
1% 20,8 4%
4% -9%22,28 -9%5,5x
5,5x 5,5x5,3x
5,3x 5,3x 16,1x
16,1x 15,3x 16,1x
15,3x 5,6% 15,3x 5,6% 6,1%
5,6% 6,1% 1,2x
1,2x 6,1% 1,2x
1,3 1,2x1,2x
1,21,3 1,2x 0,3x1,2
0,3x 0,3x0,3x
Brazil 0,3x 0,3x
AXTELCPO AXTELCPO MMAXTELCPO MM Neutral Neutral MM MXNMXN Neutral n/a n/a MXN4,0 4,0
n.a. n/a n.a.
n.a. 4,0n.a.
n.a. n.a.
n.a. n.a. n.a.
n.a. n.a.
n.a. n.a.n.a.
n.a. n.a. n.a.
n.a. n.a.n.a.
n.a. n.a. n.a. n.a. n.a.
n.a.n.a. n.a.
n.a. n.a. n.a.
0,3n.a.n.a.
n.a.0,3 n.a. 2,1xn.a.
2,1x n.a.2,1x
Mexico n.a. n.a.
31,14 16% 16%
1,3 36,0 1,3
10,07 10,07 16% -3%
-1,5x Brazil -1,5x
Axtel*** Axtel*** Axtel*** Linx Linx
-3% 1,3 22%
22% 25%10,07 25%29,9x 29,9x 29,9x 25,3x
25,3x 25,3x 42,0x
42,0x 43,4x 42,0x
43,4x 0,4% 43,4x 0,4% 0,8%
0,4% 0,8% 4,3x
4,1x 0,8% 4,3x
(0,1) 4,1x4,3x
(0,1) (0,1) 4,1x -1,4x(0,1)
-1,4x -1,5x-1,4x
SONDA SONDA CI CI SONDA Neutral Neutral CI
CLP CLP Neutral1074,00 1074,00CLP 1.341,01.341,0 1074,00 25% 25%
1,41.341,0 1,4 1,42
1,42 25% -2%
-2% 1,4 5%
5% -18%1,42 -18%8,3x
8,3x 8,3x7,4x
7,4x 7,4x 18,0x
18,0x 15,5x 18,0x
15,5x 2,6% 15,5x 2,6% 3,1%
2,6% 3,1% 1,7x
1,6x 3,1% 1,7x
0,1 1,6x1,7x
0,00,1 1,6x 0,4x0,0
0,4x 0,1x0,4x
Chile 0,1x 0,1x
America America America Movil Movil Movil
AMXL AMXL MMMM AMXL Neutral Neutral MM
MXNMXN Neutral 14,3714,37MXN 13,5 13,5
46,7 13,5 46,7 32,73 32,73 -6% 4%
4% 46,7 6%
6% -16%32,73-16%5,1x
5,1x 5,1x4,8x
4,8x 4,8x 16,8x
16,8x 14,1x 16,8x
14,1x 2,2% 14,1x 2,2% 2,4%
2,2% 2,4% 2,8x
2,6x 2,4% 2,8x
27,0 2,6x2,8x
25,4 27,0 2,6x 1,9x25,4
1,9x 1,8x1,9x
Mexico 1,8x 1,8x
CLP CLP Neutral5576,20 5576,20CLP 7.300,07.300,0 5576,20 31% 31%
2,57.300,0 2,5 2,10
2,10 31% 0%
0% 2,5 2%
2% -27%2,10 -27%6,6x
6,6x 6,6x5,6x
5,6x 5,6x 34,9x
34,9x 16,7x 34,9x
16,7x 0,6% 16,7x 0,6% 0,6%
0,6% 0,6% 1,2x
1,2x 0,6% 1,2x
2,4 1,2x1,2x
2,42,4 1,2x 3,3x2,4
3,3x 2,8x3,3x
Chile 2,8x 2,8x
MXNMXN Neutral 54,1154,11MXN 75,0 75,0
7,8 75,0 7,8
9,97 39% 3%
3% 7,8 -6%
-6% -28%9,97 -28%6,5x
6,5x 6,5x6,1x
6,1x 6,1x 25,3x
25,3x 27,4x 25,3x
27,4x 1,0% 27,4x 1,0% 0,6%
1,0% 0,6% 1,7x
1,6x 0,6% 1,7x
4,1 1,6x1,7x
3,74,1 1,6x 2,3x3,7
2,3x 2,0x2,3x
Mexico 2,0x 2,0x
-1,0% -1,0% 4,2%
4,2%-18,5% -18,5% 5,5x
5,5x 5,5x5,3x
5,3x 5,3x 17,4x
17,4x 15,4x 17,4x
15,4x 15,4x
1,4x 1,5x
1,4x1,5x
0,9x 0,3x0,9x
0,3x 0,3x
Televisa Televisa Televisa
LINX3 BuyBuy
ENTEL ENTEL CI CI ENTEL Neutral Neutral CI TLEVICPO TLEVICPO MMMM TLEVICPO Neutral Neutral MM
BRL BRL Buy 31,1431,14 BRL36,0 36,0
n.a. n.a.
SONDA SONDA SONDA Entel Entel
LINX3 LINX3
7,5 16,0 7,5
14,37 -6% -6% 54,11 39% 39%
9,97
Median Median Median
1,5x
1,4x 0,9x
Airlines Airlines Airlines && Mileage & Mileage Mileage Multiplus Multiplus Multiplus
MPLU3 MPLU3
MPLU3 No No Rating Rating
BRLNo BRLRating24,8624,86 BRLn/a n/a
24,86 n.a. n.a.
1,0 n/a1,0
2,54
2,54 n.a. -1%
-1% 1,0 -3%
-3% -35%2,54 -35%5,0x
5,0x 5,0x5,0x
5,0x 5,0x 11,1x
11,1x 11,2x 11,1x
11,2x 9,4% 11,2x 9,4% 8,9%
9,4% 18,6x 8,9%
18,6x 8,9% 18,6x
(0,5) 18,6x 18,6x
(0,5) (0,5) 18,6x-3,9x(0,5)
-3,9x -4,4x-3,9x
-4,4x Brazil -4,4x
Smiles Smiles Smiles
SMLS3 SMLS3
SMLS3 Neutral Neutral
BRL BRL Neutral 43,5543,55 BRL50,0 50,0
43,55 15% 15%
1,4 50,0 1,4
13,79 13,79 15% -2%
-2% 1,4 15%
15% -49%13,79-49%5,9x
5,9x 5,9x4,5x
4,5x 4,5x 9,2x
9,2x 8,2x 9,2x
8,2x 2,7% 8,2x 2,7% 3,1%
2,7% 3,1% 5,3x
3,6x 3,1% 5,3x
(0,5) 3,6x5,3x
(0,6) (0,5) 3,6x -2,5x(0,6)
-2,5x -2,7x-2,5x
-2,7x Brazil -2,7x
LATAM** LATAM** LATAM**
LTMLTM USUS
LTMBuyUS Buy
USDUSD Buy 10,4310,43 USD 14,0 14,0
10,43 34% 34%
6,4 14,0 6,4
5,07
5,07 34% 1%
1% 6,4 13%
13% -25%5,07 -25%7,0x
7,0x 7,0x5,9x
5,9x 5,9x 30,7x
30,7x 14,2x 30,7x
14,2x 2,1% 14,2x 2,1% 2,1%
2,1% 2,1% 1,7x
1,6x 2,1% 1,7x
9,6 1,6x1,7x
9,49,6 1,6x 4,2x9,4
4,2x 3,7x4,2x
Chile 3,7x 3,7x
GOL** GOL** GOL**
GOLL4 GOLL4
GOLL4 BuyBuy
BRL BRL Buy 22,0022,00 BRL24,0 24,0
22,00 9% 9%
2,0 24,0 2,0
31,38 31,38 9% 4%
4% 2,0 6%
6% 28%31,38 28%9,1x
9,1x 9,1x6,4x
6,4x 6,4x n.a.
n.a. 15,5x n.a.
15,5x 0,0% 15,5x 0,0% 0,0%
0,0% -1,5x 0,0%
-1,7x 0,0% -1,5x
3,6 -1,7x -1,5x
3,53,6 -1,7x 5,2x3,5
5,2x 4,2x5,2x
Brazil 4,2x 4,2x
Copa** Copa** Copa**
CPA CPA USUS
CPABuyUS Buy
USDUSD Buy 77,4077,40 USD 125,0 125,0
77,40 61% 61%
3,3125,0 3,3
43,40 43,40 61% -3%
-3% 3,3 -4%
-4% -41%43,40-41%6,5x
6,5x 6,5x5,6x
5,6x 5,6x 8,8x
8,8x 8,2x 8,8x
8,2x 4,5% 8,2x 4,5% 4,9%
4,5% 4,9% 1,4x
1,3x 4,9% 1,4x
1,1 1,3x1,4x
0,91,1 1,3x 1,5x0,9
1,5x 1,2x1,5x
1,2x Peru 1,2x
Avianca Avianca Avianca Holdings Holdings Holdings
AVHAVH USUS
AVHBuyUS Buy
USDUSD Buy 4,47 4,47 USD 10,0 10,0
124% 4,47 124% 0,6 10,0 0,6
0,42
-7% 0,6 -15%
-15%-41%0,42 -41%7,5x
7,5x 7,5x7,8x
7,8x 7,8x n.a.
n.a. 5,7xn.a.
5,7x 1,0% 5,7x 1,0% 2,6%
1,0% 2,6% 0,5x
0,4x 2,6% 0,5x
4,0 0,4x0,5x
4,34,0 0,4x 4,6x4,3
4,6x 4,8x4,6x
Colombia 4,8x 4,8x
-1,3% -1,3% 1,5%
1,5%-37,9% -37,9% 6,7x
6,7x 6,7x5,8x
5,8x 5,8x 10,1x
10,1x 9,7x 10,1x
9,7x 9,7x
1,4x 1,5x
1,4x1,5x
2,8x 2,4x2,8x
2,4x 2,4x
Median Median Median
0,42 124%-7%
1,5x
1,4x 2,8x
Capital Capital CapitalGoods Goods Goods Randon Randon Randon
RAPT4 RAPT4
RAPT4 Neutral Neutral
BRL BRL Neutral 9,17 9,17 BRL9,0 9,0
9,17 -2% -2%
0,8 9,00,8
5,01
5,01 -2% -2%
-2% 0,8 4%
4% 10%5,01 10%10,9x 10,9x 10,9x9,3x
9,3x 9,3x 19,9x
19,9x 13,4x 19,9x
13,4x 1,1% 13,4x 1,1% 3,4%
1,1% 3,4% 2,1x
1,9x 3,4% 2,1x
0,3 1,9x2,1x
0,20,3 1,9x 2,3x0,2
2,3x 1,9x2,3x
Brazil 1,9x 1,9x
Marcopolo Marcopolo Marcopolo
POMO4 POMO4
POMO4 BuyBuy
BRL BRL Buy 4,13 4,13 BRL5,5 5,5
33% 4,13 33%
1,0 5,51,0
2,83
2,83 33% -2%
-2% 1,0 -1%
-1% -11%2,83 -11%18,5x 18,5x 18,5x 13,2x
13,2x 13,2x 25,8x
25,8x 14,0x 25,8x
14,0x 1,1% 14,0x 1,1% 3,6%
1,1% 3,6% 1,8x
1,7x 3,6% 1,8x
0,1 1,7x1,8x
0,10,1 1,7x 2,0x0,1
2,0x 1,1x2,0x
Brazil 1,1x 1,1x
Iochpe-Maxion Iochpe-Maxion Iochpe-Maxion
MYPK3 MYPK3
MYPK3 BuyBuy
BRL BRL Buy 22,8722,87 BRL33,0 33,0
22,87 44% 44%
0,9 33,0 0,9
5,28
5,28 44% -4%
-4% 0,9 0%
0% -11%5,28 -11%5,0x
5,0x 5,0x4,1x
4,1x 4,1x 19,8x
19,8x 8,7x 19,8x
8,7x 2,0% 8,7x 2,0% 2,0%
2,0% 2,0% 1,3x
1,1x 2,0% 1,3x
0,5 1,1x1,3x
0,40,5 1,1x 1,7x0,4
1,7x 1,3x1,7x
Brazil 1,3x 1,3x
Embraer Embraer Embraer
ERJERJ USUS
ERJBuyUS Buy
USDUSD Buy 21,3321,33 USD 26,0 26,0
21,33 22% 22%
3,9 26,0 3,9
21,24 21,24 22% -2%
-2% 3,9 -1%
-1% -11%21,24-11%6,2x
6,2x 6,2x5,1x
5,1x 5,1x 19,1x
19,1x 12,1x 19,1x
12,1x 2,2% 12,1x 2,2% 3,5%
2,2% 3,5% 0,9x
0,9x 3,5% 0,9x
1,3 0,9x0,9x
1,21,3 0,9x 1,9x1,2
1,9x 1,4x1,9x
Brazil 1,4x 1,4x
TUPY TUPY
TUPY3 TUPY3
TUPY3 BuyBuy
BRL BRL Buy 21,8021,80 BRL25,0 25,0
21,80 15% 15%
0,8 25,0 0,8
3,10
3,10 15% -1%
-1% 0,8 5%
5% 8%3,10 8% 5,9x
5,9x 5,9x5,3x
5,3x 5,3x 10,8x
10,8x 8,9x 10,8x
8,9x 6,2% 8,9x 10,2% 6,2%
6,2% 10,2% 1,7x
10,2% 1,8x 1,7x
0,2 1,8x1,7x
0,30,2 1,8x 1,4x0,3
1,4x 1,4x1,4x
Brazil 1,4x 1,4x
WEG WEG
WEGE3 WEGE3
WEGE3 Neutral Neutral
BRL BRL Neutral 17,3717,37 BRL21,0 21,0
17,37 21% 21%
9,4 21,0 9,4
15,54 15,54 21% -1%
-1% 9,4 -8%
-8% -19%15,54-19%20,4x 20,4x 20,4x 17,6x
17,6x 17,6x 27,7x
27,7x 24,5x 27,7x
24,5x 1,8% 24,5x 1,8% 2,0%
1,8% 2,0% 5,0x
4,5x 2,0% 5,0x
(0,1) 4,5x5,0x
(0,1) (0,1) 4,5x -0,2x(0,1)
-0,2x -0,1x-0,2x
-0,1x Brazil -0,1x
0,2%-11,3% -11,3% 6,2x
5,3x 5,3x 19,8x
19,8x 12,1x 19,8x
12,1x 12,1x
1,7x 1,7x
1,7x1,7x
1,9x 1,4x1,9x
1,4x 1,4x
Median Median Median
-1,9% -1,9% 0,2%
Source: BTG Pactual estimates
6,2x 6,2x5,3x
1,7x
1,7x 1,9x
201
Valuation Summary Com pany
Ticker
Rating
Share
Share
Currency
Price
Target
Upside
Mkt Cap
ADTV
(USD bn)
(USD m n)
EV/EBITDA 2018E
P/E
Div. Yield
P/BV
Net Debt/EBITDA
2019E
2018E
2019E
2018E
2019E
2018E
2019E
2018E
2019E
Car Rental & Logistics Tegm a
TGMA3
Buy
BRL
24.80 25,92
29.0 29,0
17% 12%
0.4 0,4
2.19 2,33
8.9x 9,2x
7.8x 8,1x
14.8x 15,4x
12.8x 13,4x
4.7% 4,5%
5.4% 5,1%
3.3x 3,5x
3.1x 3,2x
0.2x 0,2x
0.5x 0,5x
Localiza
RENT3
Buy
BRL
27.83 27,95
30.0 35,0
25% 8%
4.9 4,8
33.31 36,52
14.6x 14,9x
12.5x 12,7x
26.1x 28,7x
19.9x 21,8x
0.7% 0,9%
1.1% 1,0%
5.8x 6,0x
4.8x 5,0x
2.6x 3,0x
2.6x 3,2x
Unidas
LCAM3
Buy
BRL
29.25 33,40
38.0 38,0
30% 14%
0.9 1,0
1.06 1,43
7.1x 7,6x
6.2x 6,6x
17.6x 20,1x
10.6x 12,1x
1.4% 1,2%
1.4% 1,2%
2.1x 2,3x
1.8x 2,0x
3.4x 3,4x
3.3x 3,3x
Movida
MOVI3
Buy
BRL
8.03 7,62
8.0 8,0
0% 5%
0.6 0,5
1.36 1,75
7.6x 7,3x
6.8x 6,6x
20.9x 19,8x
14.7x 13,9x
1.2% 1,3%
1.7% 1,8%
1.6x 1,5x
1.5x 1,4x
n.a.
n.a.
11.7x 12,1x
10.2x 10,4x
20.4x 22,0x
16.4x 17,6x
4.6x 4,8x
3.9x 4,1x
1.4x 1,6x
1.5x 1,8x n.a.
Median Infrastructure RUMO
RAIL3
Buy
BRL
17.74 16,40
21.0 21,0
18% 28%
7.3 6,6
28.87 34,51
11.2x 10,6x
9.4x 8,8x
n.a.
36.4x 33,7x
0.0% 0,0%
0.0% 0,0%
3.4x 3,1x
3.2x 2,9x
n.a.
Mills
MILS3
Neutral
BRL
3.25 3,74
7.0 7,0
115% 87%
0.2 0,2
0.71 0,86
3.6x 4,1x
2.8x 3,2x
26.5x 30,5x
10,5x 9.1x
-2.3% -2,0%
2.3% 2,0%
0.5x 0,6x
0.5x 0,6x
n.a.
n.a.
Ferreycorp
FERREYC1 PE
Buy
PEN
2.38 2,30
3.1 3,1
30% 35%
0.7 0,7
0.52 0,55
5.8x 6,7x
5.2x 5,1x
8.2x 8,9x
7.2x 6,9x
5.6% 5,8%
4.9% 4,5%
1.0x 1,0x
1.0x 0,9x
1.9x 2,8x
1.6x 1,6x
EcoRodovias
ECOR3
Buy
BRL
9.14 9,52
12.0 12,0
31% 26%
1.3 1,4
6.87 7,44
4.8x 4,9x
4.4x 4,5x
9.1x 9,5x
7.1x 7,4x
6.6% 6,3%
14.2% 13,6%
5.0x 5,2x
5.0x 5,2x
2.2x 2,2x
2.0x 2,0x
CCR
CCRO3
Buy
BRL
11.22 12,22
21.0 21,0
87% 72%
6.0 6,3
21.63 25,72
5.4x 5,8x
4.5x 4,8x
10,7x 9.8x
8.0x 8,7x
7.1% 6,5%
10.0% 9,2%
2.3x 2,5x
2.2x 2,4x
1.6x 1,6x
1.3x 1,3x
5.4x 5,8x
4.5x 4,8x
10,1x 9.5x
8.0x 8,7x
2.3x 2,5x
2.2x 2,4x
1.9x 2,2x
1.6x 1,6x
16.4x 17,9x
10,8x 9.9x
n.a.
29.2x 31,8x
-0.1% -0,1%
0.9% 0,8%
1.9x 2,1x
1.8x 2,0x
0.3x 0,3x
0.2x 0,2x
6.4x 5,7x
5.9x 5,3x
12.8x 11,2x
10.8x 9,5x
3.9% 4,5%
4.6% 5,3%
1.5x 1,3x
1.4x 1,2x
-1.3x -1,3x
-1.2x -1,2x
4.6x 4,5x
4.3x 4,3x
16.1x 15,9x
15.0x 14,8x
3.1% 3,1%
3.3% 3,4%
0.8x 0,8x
0.8x 0,8x
-1.1x -1,1x
-0.9x -0,9x
5.4x 5,8x
4.5x 4,8x
11.3x 11,0x
10.8x 9,5x
1.9x 2,1x
1.8x 2,0x
0.3x 0,3x
0.2x 0,2x
3.5x 3,5x
2.7x 2,6x
7.0x 7,0x
5.8x 5,7x
5.3% 5,3%
7.8% 7,9%
1.2x 1,2x
1.1x 1,1x
-1.5x -1,5x
-1.5x -1,5x
Median Ports Santos Brasil Wilson Sons
STBP3
Buy
BRL
3.88 4,22
4.6 4,6
19% 9%
0.7 0,7
1.00 1,18
WSON33
Buy
BRL
44.99 40,25
47.0 47,0
17% 4%
0.8 0,7
SMSAAM CI
Neutral
CLP
57.60 58,00
67.0 67,0
16%
0.8 0,8
0.35 0,34
SER
SEER3
Buy
BRL
16.15 16,07
36.5 36,5
126% 127%
0.5 0,5
2.98 3,13
Qualicorp
QUAL3
Neutral
BRL
13.90 13,95
17.0 17,0
22%
1.0 1,0
13.78 13,75
3.0x 3,0x
2.7x 2,7x
5.9x 5,9x
5.4x 5,4x
15.1% 15,0%
16.8% 16,7%
1.7x 1,7x
1.7x 1,7x
-1.2x -1,2x
-1.2x -1,2x
OdontoPrev
ODPV3
Neutral
BRL
14.64 13,58
15.0 15,0
10% 2%
2.0 1,9
5.22 8,13
17.7x 16,3x
15.4x 14,2x
28.0x 25,9x
22.3x 20,7x
3.4% 3,7%
4.6% 5,0%
7.4x 6,9x
8.0x 7,4x
-1.1x -1,1x
-0.8x -0,8x
Hapvida
HAPV3
Buy
BRL
27.00 29,63
32.0 32,0
19% 8%
4.8 5,1
7.87 8,68
18.5x 20,3x
16.1x 17,7x
22.6x 24,8x
19.6x 21,5x
1.2% 1,1%
1.2% 1,1%
5.0x 5,5x
4.2x 4,6x
0.0x 0,0x
0.0x 0,0x -1.0x -1,0x
SAAM Median Healthcare and Education
Kroton
KROT3
Neutral
BRL
10.86 9,54
17.5 17,5
61% 83%
4.6 4,0
22.73 26,86
6.9x 5,9x
6.6x 5,7x
9.4x 8,3x
9.2x 8,0x
n.a.
n.a.
1.1x 0,9x
1.0x 0,9x
-0.9x -0,9x
LABB MM
Neutral
MXN
11.71 11,62
23.4 23,4
100% 101%
0.6 0,6
2.47 2,34
5.7x 5,7x
5.2x 5,2x
7.4x 7,3x
7.1x 7,0x
0.0% 0,0%
0.0% 0,0%
1.5x 1,5x
1.3x 1,3x
1.4x 1,4x
Fleury
FLRY3
Buy
BRL
20.23 20,03
29.0 29,0
43% 45%
1.7 1,6
10.60 10,43
9.9x 9,8x
9.0x 8,9x
17.4x 17,2x
16.6x 16,4x
n.a.
n.a.
3.7x 3,7x
3.7x 3,7x
0.8x 0,8x
0.8x 0,8x
Estácio
ESTC3
Buy
BRL
23.36 24,32
41.0 41,0
76% 69%
1.9 1,9
21.04 22,22
6.1x 6,4x
5.1x 5,4x
8.6x 9,0x
7.3x 7,6x
2.1% 2,1%
2.9% 2,8%
2.1x 2,2x
1.7x 1,8x
-0.5x -0,5x
-1.0x -1,0x
Ânim a Educação
ANIM3
Neutral
BRL
17.50 16,85
29.0 29,0
66% 72%
0.4 0,4
1.20 1,21
6.6x 6,4x
5.5x 5,3x
10.0x 9,6x
8.3x 8,0x
6.9% 7,2%
8.0% 8,3%
1.9x 1,8x
1.8x 1,7x
0.5x 0,5x
Alliar
AALR3
Buy
BRL
11.93 13,00
19.5 19,5
63% 50%
0.4 0,4
0.72 0,78
6.8x 7,3x
5.9x 6,3x
15.3x 16,7x
11.9x 13,0x
n.a.
n.a.
1.0x 1,1x
1.0x 1,1x
1.9x 1,9x
1.6x 1,6x
Grupo Biotoscana
GBIO33
Buy
BRL
9.06 8,33
33.0 33,0
264% 296%
0.3 0,2
0.57 0,58
3.7x 3,4x
2.8x 2,5x
6.2x 5,7x
4.9x 4,5x
n.a.
n.a.
1.2x 1,1x
1.0x 1,0x
-0.1x -0,1x
-0.4x -0,4x
6.6x 6,4x
5.5x 5,4x
9.4x 9,0x
8.3x 8,0x
1.9x 1,8x
1.7x 1,7x
-0.5x -0,5x
-0.8x -0,8x -0.1x -0,1x
Genom m a Lab
Median
1.3x 1,3x
0.4x 0,4x
Retail Walm ex
WALMEX* MM
Neutral
MXN
50.77 50,00
49.0 49,0
-3% -2%
43.7 43,1
37.29 41,91
14.3x 14,1x
13.4x 13,2x
25.9x 25,5x
24.0x 23,7x
3.2% 3,2%
2.6% 2,7%
5.3x 5,3x
4.9x 4,9x
-0.2x -0,2x
VVAR11
Neutral
BRL
14.75 14,58
25.0 25,0
69% 71%
1.7 1,6
17.95 19,35
6.6x 6,5x
5.1x 5,1x
97.7x 96,6x
21.6x 21,3x
0.0% 0,0%
0.0% 0,0%
2.2x 2,2x
2.0x 2,0x
1.4x 1,4x
Technos
TECN3
Neutral
BRL
2.21 2,30
6.0 6,0
171% 161%
0.0 0,0
0.05 0,06
6.8x 7,0x
6.0x 6,1x
9.3x 9,6x
9.5x 9,9x
0.0% 0,0%
0.0% 0,0%
0.4x 0,4x
0.3x 0,4x
3.1x 3,1x
2.7x 2,7x
Soriana
SORIANAB MM
Neutral
MXN
n/a
46.0 46,0
n.a.
n.a.
0.15 0,15
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
-0.7x -0,7x
-0.8x -0,8x
RADL3
Buy
BRL
63.20 63,14
80.0 80,0
27%
5.5 5,4
23.20 24,26
17.0x 17,0x
14.1x 14,1x
36.4x 36,3x
28.2x 28,2x
1.1% 1,1%
1.2% 1,2%
6.0x 6,0x
5.3x 5,3x
0.4x 0,4x
0.3x 0,3x
NATU3
Neutral
BRL
38.37 43,99
29.0 29,0
-24% -34%
4.3 4,9
16.68 19,67
10.8x 12,2x
10,2x 9.0x
23.1x 26,4x
16.9x 19,4x
3.0% 2,6%
4.1% 3,6%
11.5x 13,2x
10,9x 9.5x
1.3x 1,3x
1.0x 1,0x
MELI US
Buy
USD
319.00 333,51
390.0 390,0
22% 17%
14.1 14,7
256.19 233,14
n.a.
n.a.
n.a.
n.a.
0.0% 0,0%
0.0% 0,0%
100,3x 95.9x
111.4x 116,5x
-4.4x -4,4x
Via Varejo
Raia Drogasil Natura MercadoLibre
1.3x 1,3x
2.6x 2,6x
Marisa
AMAR3
Sell
BRL
5.89 5,43
8.0 8,0
36% 47%
0.3 0,3
1.21 1,36
7.3x 6,9x
5.4x 5,1x
n.a.
23.8x 21,9x
0.0% 0,0%
0.0% 0,0%
1.3x 1,2x
1.2x 1,1x
2.1x 2,1x
1.4x 1,4x
Magazine Luiza
MGLU3
Buy
BRL
160.00 167,50
151.0 151,0
-10% -6%
8.0 8,2
57.11 58,67
22.9x 24,0x
19.4x 20,3x
49.8x 52,1x
42.3x 44,3x
0.7% 0,7%
0.9% 0,8%
12.8x 13,4x
10.7x 11,2x
-0.8x -0,8x
-1.0x -1,0x
Lojas Renner
LREN3
Buy
BRL
38.80 39,66
35.0 35,0
-10% -12%
7.3 7,3
34.53 38,70
17.1x 17,5x
13.7x 14,0x
30.3x 31,0x
23.7x 24,2x
1.0% 1,0%
1.6% 1,6%
7.2x 7,4x
6.1x 6,2x
0.4x 0,4x
0.2x 0,2x 1.3x 1,3x
Lojas Am ericanas Liverpool Le Lis Blanc SMU InRetail
LAME4
Buy
BRL
18.13 19,95
23.0 23,0
27% 15%
7.6 8,2
20.80 22,62
10.8x 11,8x
8.1x 8,8x
40.7x 44,8x
23.0x 25,3x
0.4% 0,4%
1.2% 1,1%
5.5x 6,1x
4.7x 5,2x
1.8x 1,8x
LIVEPOLC MM
Neutral
MXN
127.36 124,98
155.0 155,0
22% 24%
n.a.
3.53 3,64
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
LLIS3
Buy
BRL
27.18 27,26
44.0 44,0
62% 61%
0.4 0,4
0.03 0,04
5.0x 5,0x
4.1x 4,1x
10.7x 10,7x
9.7x 9,7x
1.1% 1,1%
3.5% 3,5%
0.6x 0,6x
0.6x 0,6x
1.2x 1,2x
0.7x 0,7x
SMU CI
Buy
CLP
186.90 189,90
209.0 230,0
12% 21%
1.5 1,5
0.68 0,62
11.1x 10,9x
9.7x 9,9x
41.1x 29,5x
23.3x 22,8x
0.0% 0,0%
0.0% 0,0%
1.6x 1,5x
1.5x 1,5x
3.7x 3,8x
3.0x 3,2x
0.77 0,79
12.3x 12,2x
INRETC1 PE
Buy
USD
28.32 28,90
26.0 35,0
21% -8%
2.9 3,0
11.3x 10,3x
28.8x 41,8x
22.6x 19,2x
-0.7% 0,0%
-0.9% -0,8%
2.2x 2,3x
2.1x 2,1x
3.9x 3,9x
3.6x 3,3x
IMC
MEAL3
Buy
BRL
7.27 6,89
13.0 13,0
79% 89%
0.3 0,3
1.91 1,90
6.5x 6,1x
4.9x 4,6x
17.2x 16,3x
11.6x 11,0x
1.5% 1,5%
2.2% 2,3%
1.1x 1,0x
1.0x 1,0x
-1.0x -1,0x
-1.3x -1,3x
Hyperm arcas
HYPE3
Buy
BRL
30.56 31,53
29.0 29,0
-5% -8%
5.1 5,1
12.72 14,84
12.3x 12,8x
10.5x 10,9x
18.0x 18,5x
15.5x 16,0x
1.8% 1,7%
2.0% 2,0%
1.7x 1,8x
1.6x 1,7x
-1.1x -1,1x
-1.4x -1,4x
HGTX3
7.91 9,53
14.0x 15,0x
12.5x 13,4x
15.5x 16,6x
14.1x 15,1x
5.8% 5,4%
6.4% 6,0%
3.3x 3,5x
3.2x 3,4x
-0.5x -0,5x
-0.4x -0,4x
Hering Grupo Sanborns Grupo Pão de Açúcar Forus Falabella
Neutral
BRL
25.31 27,15
26.0 26,0
-4% 3%
1.1 1,1
GSANBOB1 MM
Sell
MXN
n/a
22.0 22,0
n.a.
n.a.
0.04 0,04
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
PCAR4
Buy
BRL
81.39 82,50
80.0 80,0
-2% -3%
5.7 5,6
31.63 34,73
8.2x 8,3x
7.2x 7,3x
29.3x 29,7x
23.7x 24,0x
0.9% 0,8%
2.1% 2,1%
2.0x 2,0x
1.9x 2,0x
-0.1x -0,1x
-0.3x -0,3x
FORUS CI
Neutral
CLP
1880.20 1880,00
2,300.0 2.300,0
22%
0.7 0,7
0.87 0,78
12.0x 12,0x
10.8x 10,8x
18.2x 18,2x
16.0x 16,0x
2.1% 2,1%
2.3% 2,3%
2.2x 2,2x
2.0x 2,0x
0.1x 0,1x
0.1x 0,1x
CLP
5221.70 5060,70
5,300.0 5.300,0
1% 5%
19.0 18,1
23.00 24,35
13.9x 13,6x
12.8x 12,5x
25.6x 24,9x
21.5x 20,8x
1.0% 1,0%
1.2% 1,2%
2.8x 2,7x
2.6x 2,5x
CVCB3
Buy
BRL
57.76 61,65
60.0 60,0
-3% 4%
2.2 2,3
15.28 16,93
13.4x 14,3x
10.5x 11,1x
28.9x 30,9x
20.1x 21,4x
0.8% 0,8%
1.7% 1,6%
8.2x 8,7x
6.5x 6,9x
0.9x 0,9x
0.5x 0,5x
Chedraui
CHDRAUIB MM
No Rating
MXN
39.01 37,39
n/a
n.a.
1.9 1,8
0.82 0,70
2.6x 2,5x
1.9x 1,8x
6.0x 5,7x
5.1x 4,9x
0.0% 0,0%
0.0% 0,0%
0.8x 0,8x
0.7x 0,7x
-0.9x -0,9x
-1.1x -1,1x
Cencosud
CENCOSUD CI
Neutral
CLP
1338.20 1231,00
1,850.0 1.850,0
38% 50%
5.7 5,1
6.44 6,26
8.1x 7,8x
7.8x 7,4x
16.3x 15,0x
14.9x 13,7x
3.0% 3,2%
3.0% 3,2%
0.9x 0,9x
0.9x 0,8x
3.4x 3,4x
3.2x 3,2x
B2W Digital
BTOW3
Buy
BRL
36.08 37,15
34.0 34,0
-6% -8%
4.3 4,3
23.77 30,12
40.0x 41,1x
25.1x 25,8x
n.a.
n.a.
0.0% 0,0%
0.0% 0,0%
4.5x 4,6x
4.6x 4,7x
4.1x 4,1x
2.2x 2,2x
Arezzo
ARZZ3
Buy
BRL
49.59 52,89
58.0 58,0
17% 10%
1.2 1,2
3.67 4,24
18.6x 19,9x
15.3x 16,4x
26.6x 28,4x
21.8x 23,2x
1.6% 1,5%
2.3% 2,1%
5.8x 6,2x
5.1x 5,4x
-1.0x -1,0x
-1.1x -1,1x
Burger King Brasil
BKBR3
Buy
BRL
17.97 18,35
21.0 21,0
17% 14%
1.0 1,0
3.89 4,61
11.1x 11,4x
8.5x 8,7x
38.2x 39,0x
21.7x 22,2x
0.5% 0,5%
1.2% 1,1%
2.4x 2,4x
2.2x 2,3x
-0.7x -0,7x
-0.6x -0,6x
VULC3
Buy
BRL
6.60 6,61
14.0 14,0
112%
0.4 0,4
0.78 0,84
EXITO CB
Buy
COP
13760.00 12200,00
17,000.0 17.000,0
24% 39%
1.9 1,7
1.13 1,56
CVC
Vulcabras Alm acenes Exito
FALAB CI
Neutral
Median
Source: BTG Pactual estimates
4.8x 4,8x
2.7x 2,7x
2.6x 2,6x
4.1x 4,1x
7.4x 7,4x
6.0x 6,0x
0.0% 0,0%
4.2% 4,2%
1.6x 1,6x
1.3x 1,3x
-0.5x -0,5x
-0.6x -0,6x
7.0x 6,8x
7.2x 7,0x
19.2x 17,1x
15.2x 13,4x
1.8% 2,0%
2.6% 2,9%
1.2x 1,1x
1.5x 1,3x
1.4x 1,4x
1.3x 1,3x
11.1x 11,9x
10,0x 9.4x
25.8x 26,0x
21.5x 20,8x
2.2x 2,3x
2.1x 2,1x
0.4x 0,4x
0.4x 0,4x
202
Valuation Summary
Company
Ticker
Rating
Share
Share
Currency
Price
Target
Upside
Mkt Cap
ADTV
(USD bn)
(USD mn)
2018E
EV/EBITDA 2019E
2018E
P/E 2019E
2018E
Div. Yield 2019E
2018E
P/BV 2019E
2018E
Net Debt/EBITDA 2019E
Food and Beverage Vina Concha y Toro
CONCHA CI
Buy
CLP
1331.30 1372,90
1,500.0 1.500,0
13% 9%
1.5 1,5
1.60 1,70
13.8x 14,1x
10.7x 10,9x
21.6x 22,3x
15.4x 15,9x
1.9% 1,8%
2.6% 2,5%
1.8x 1,9x
1.8x 1,8x
2.8x 2,8x
2.1x 2,1x
Arca Continental
AC* MM
Buy
MXN
105.24 104,84
145.0 145,0
38%
9.1 9,0
6.37 6,73
8.5x 8,9x
7.8x 7,6x
14.5x 20,7x
13.1x 16,0x
2.6% 2,1%
3.3% 2,3%
2.0x 1,7x
1.8x 1,6x
0.9x 1,3x
0.7x 1,0x
Minerva
BEEF3
Buy
BRL
5.71 5,14
14.0 14,0
145% 172%
0.3 0,3
3.23 3,01
5.0x 5,0x
4.7x 4,7x
4.2x 3,8x
4.6x 4,1x
0.8% 0,9%
3.7% 4,1%
13.8x 12,4x
12.8x 11,5x
4.1x 4,1x
3.9x 3,9x
Marfrig
MRFG3
Buy
BRL
6.38 5,81
8.5 8,5
33% 46%
1.0 0,9
5.93 5,29
5.9x 5,8x
2.9x 3,1x
n.a.
6.4x 8,1x
-2.4% -4,1%
3.8% 2,4%
3.8x 7,0x
2.4x 4,2x
3.8x 4,0x
1.8x 2,1x
M. Dias Branco
MDIA3
Neutral
BRL
43.00 43,30
45.0 45,0
5% 4%
3.8 3,8
5.54 6,11
15.3x 15,4x
11.1x 11,2x
25.2x 25,5x
19.3x 19,5x
1.1% 1,1%
1.3% 1,3%
2.5x 2,6x
2.4x 2,5x
0.7x 0,7x
0.6x 0,6x
JBS
JBSS3
Neutral Buy
BRL
11.15 12,00
10.0 15,0
-10% 25%
8.0 8,2
25.26 27,39
5.6x 5,4x
5.8x 5,0x
8.6x 6,6x
9.2x 5,9x
2.9% 3,8%
2.7% 4,2%
1.0x 1,1x
1.0x 1,1x
3.0x 3,2x
3.1x 3,0x
HERDEZ* MM
Buy
MXN
39.65 41,33
46.0 46,0
16% 11%
0.8 0,9
0.72 0,74
4.9x 5,1x
8.6x 8,9x
14.3x 14,9x
11.9x 12,4x
4.6% 4,4%
2.5% 2,4%
2.0x 2,1x
1.1x 1,1x
2.5x 2,5x
-2.6x -2,6x
Grupo Bimbo
BIMBOA MM
Buy
MXN
38.12 38,45
55.0 55,0
44% 43%
8.8 8,9
5.46 5,70
7.7x 7,7x
n.a.
18.8x 18,9x
16.3x 16,4x
5.3% 5,3%
6.1% 6,1%
2.4x 2,5x
2.2x 2,2x
2.2x 2,2x
n.a.
Gruma
GRUMAB MM
Buy
MXN
229.37 217,90
305.0 305,0
33% 40%
4.9 4,7
8.57 8,94
9.6x 9,2x
9.1x 8,7x
17.6x 16,7x
16.5x 15,7x
2.2% 2,4%
2.6% 2,8%
3.6x 3,4x
3.2x 3,0x
1.5x 1,5x
1.3x 1,3x
FEMSA
FMX US
No Rating
USD
86.80 84,61
n/a
n.a.
n.a.
38.61 44,22
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
Coca-Cola FEMSA
KOF US
Neutral
USD
60.58 60,63
90.0 90,0
49% 48%
126.4 126,5
6.79 6,72
63.3x 63,3x
60.4x 60,3x
n.a.
n.a.
-0.3% -0,3%
-0.3% -0,3%
19.9x 19,9x
18.7x 18,7x
1.4x 1,4x
1.2x 1,2x
CCU
CCU CI
Sell
CLP
8800.00 8762,40
9,000.0 9.000,0
2% 3%
4.9 4,7
5.42 4,81
5.8x 5,8x
8.7x 8,7x
10.9x 10,8x
18.4x 18,3x
4.6% 4,6%
2.7% 2,7%
2.6x 2,6x
2.4x 2,4x
-0.1x -0,1x
-0.1x -0,1x
BRF
BRFS3
Neutral
BRL
22.50 22,68
21.0 25,0
10% -7%
4.8 4,7
27.37 32,06
17,1x 9.9x
8.0x 7,6x
n.a.
52,4x n.a.
-2.2% -2,8%
0.2% 0,5%
1.9x 2,0x
1.9x 2,0x
3.6x 6,5x
2.9x 2,9x
Andina
ANDINAB CI
Neutral
CLP
2357.20 2552,10
3,400.0 3.400,0
44% 33%
3.3 3,5
2.48 3,09
8.1x 8,7x
7.2x 7,7x
17.3x 18,7x
14.8x 16,0x
3.5% 3,2%
4.0% 3,7%
2.8x 3,0x
2.8x 3,0x
1.6x 1,6x
1.4x 1,4x
Ambev
ABEV3
Neutral
BRL
16.50 16,32
17.0 17,0
3% 4%
68.2 65,9
79.58 84,39
11.6x 11,4x
10.7x 10,6x
20.1x 19,9x
17.4x 17,2x
4.5% 4,5%
6.1% 6,2%
4.8x 4,7x
4.9x 4,8x
-0.3x -0,3x
-0.3x -0,3x
Nutresa
NUTRESA CB
Neutral
COP
23400.00 23500,00
29,000.0 29.000,0
24% 23%
3.4 3,4
0.75 0,70
11.7x 11,7x
10.2x 10,2x
21.2x 21,3x
18.1x 18,2x
2.4% 2,4%
2.5% 2,5%
1.2x 1,2x
1.1x 1,1x
2.2x 2,2x
1.7x 1,7x
Alicorp
ALICORC1 PE
Buy
PEN
n/a
13.0 13,0
n.a.
n.a.
1.14 1,15
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
2.1x 2,1x
1.6x 1,6x
Andina
ANDINAB CI
Neutral
CLP
2357.20 2552,10
3,400.0 3.400,0
44% 33%
3.3 3,5
2.48 3,09
8.1x 8,7x
7.2x 7,7x
17.3x 18,7x
14.8x 16,0x
3.5% 3,2%
4.0% 3,7%
2.8x 3,0x
2.8x 3,0x
1.6x 1,6x
1.4x 1,4x
Alsea
ALSEA* MM
Buy
MXN
48.96 51,21
70.0 70,0
43% 37%
2.0 2,1
7.47 8,05
9.1x 9,4x
8.2x 8,5x
37.2x 38,9x
28.5x 29,8x
0.9% 0,8%
2.0% 1,9%
3.7x 3,9x
3.5x 3,7x
2.6x 2,6x
2.3x 2,3x
Lala
LALAB MM
Neutral
MXN
17.00 20,18
24.5 24,5
44% 21%
2.1 2,5
1.36 1,39
8.0x 8,9x
7.0x 7,8x
19.6x 23,3x
14.0x 16,6x
3.6% 3,0%
3.6% 3,0%
1.6x 1,9x
1.5x 1,8x
3.2x 3,2x
2.7x 2,7x
8.5x 8,9x
8.4x 8,6x
17.4x 18,8x
15.4x 16,0x
2.6x 2,6x
2.4x 2,5x
2.1x 2,1x
1.4x 1,4x
Herdez
Median
Source: BTG Pactual estimates
203
Valuation Summary
Company
Ticker
Rating
Share
Share
Currency
Price
Target
Upside
Mkt Cap
ADTV
(USD bn)
(USD mn)
2018E
EV/EBITDA 2019E
P/E 2018E
Div. Yield
P/BV
Net Debt/EBITDA
2019E
2018E
2019E
2018E
2019E
2018E
2019E
Banks Santander Mexico
BSMXB MM
Buy
MXN
24.62 25,32
39.0 31,0
58% 22%
8.2 8,5
7.81 9,25
n.a.
n.a.
8.5x 8,8x
8.7x 8,9x
5.5% 5,4%
5.8% 5,6%
1.4x 1,4x
1.3x 1,3x
n.a.
n.a.
Santander Chile
BSAN CI
Neutral
CLP
51.43 52,44
52.0 52,0
-1% 1%
14.5 14,5
7.79 7,77
n.a.
n.a.
15.8x 16,2x
14.8x 15,1x
4.1% 4,0%
4.4% 4,3%
3.0x 3,0x
2.8x 2,8x
n.a.
n.a.
Santander Brasil
SANB11
Neutral
BRL
41.78 43,42
37.5 47,0
-10% 8%
41.5 42,2
17.52 18,69
n.a.
n.a.
12.8x 13,3x
11.6x 12,1x
3.0% 2,9%
3.2% 3,1%
1881.6x 1917,1x
1665.9x 1697,4x
n.a.
n.a.
Itau Unibanco
ITUB4
Buy
BRL
34.61 35,78
52.0 42,0
50% 17%
59.2 89,7
171.06 184,99
n.a.
n.a.
13,7x 8.8x
11,9x 7.7x
7.9% 5,1%
7.8% 5,0%
2.1x 3,3x
2.1x 3,3x
n.a.
n.a.
Intercorp Financial Services
IFS PE
Buy
USD
39.00 41,36
48.0 48,0
23% 16%
4.4 4,7
0.58 0,70
n.a.
n.a.
12.2x 12,9x
10,3x 9.7x
3.6% 3,4%
4.1% 3,8%
2.0x 2,2x
1.8x 1,9x
n.a.
n.a.
GFINBURO MM
Neutral
MXN
26.67 27,01
35.0 28,0
31% 4%
8.8 8,9
4.69 4,84
n.a.
n.a.
10.5x 10,6x
10,0x 9.9x
1.8% 1,8%
2.0% 1,9%
1.2x 1,2x
1.1x 1,1x
n.a.
n.a.
GGAL AR
Buy
ARS
104,85 93.20
163.0 163,0
75% 55%
3.7 4,0
4.60 4,05
n.a.
n.a.
11.1x 12,5x
8.6x 9,7x
0.3% 0,3%
0.9% 0,8%
2.5x 2,8x
2.0x 2,2x
n.a.
n.a.
Gentera
GENTERA* MM
Buy
MXN
13.87 14,14
24.0 19,0
73% 34%
1.1 1,1
3.34 3,67
n.a.
n.a.
7.7x 7,9x
7.1x 7,2x
6.4% 6,3%
7.4% 7,3%
1.3x 1,4x
1.2x 1,3x
n.a.
n.a.
Davivienda
PFDAVVND CB
Buy
COP
32780.00 33400,00
38,000.0 38.000,0
16% 14%
4.7 4,8
1.14 0,89
n.a.
n.a.
10,0x 9.8x
8.3x 8,5x
2.4% 2,4%
3.1% 3,0%
1.3x 1,4x
1.2x 1,2x
n.a.
n.a.
Credicorp
BAP US
Buy
USD
223.67 218,54
238.0 238,0
6% 9%
17.8 17,4
37.22 37,08
n.a.
n.a.
14.0x 13,7x
12.2x 11,9x
2.0% 2,0%
2.5% 2,6%
2.4x 2,4x
2.1x 2,1x
n.a.
n.a.
ITAUCORP CI
Neutral
CLP
6.32 6,46
7.5 7,5
19% 16%
4.8 4,9
3.69 3,50
n.a.
n.a.
16.5x 16,9x
13.3x 13,6x
0.7% 0,7%
2.4% 2,4%
1.0x 1,0x
0.9x 0,9x
n.a.
n.a.
Bradesco
BBDC4
Buy
BRL
36.80 38,84
38.0 48,0
24% 3%
64.8 66,8
131.15 145,01
n.a.
n.a.
12.8x 13,5x
10.5x 11,1x
3.8% 3,6%
4.4% 4,2%
2.1x 2,2x
1.9x 2,0x
n.a.
n.a.
Banrisul
BRSR6
Neutral
BRL
20.90 22,05
19.0 23,0
-9% 4%
2.2 2,3
6.24 7,81
n.a.
n.a.
8.1x 8,2x
7.3x 7,5x
4.9% 8,8%
5.5% 5,4%
1.2x 1,3x
1.1x 1,2x
n.a.
n.a.
Regional
RA MM
Neutral
MXN
88.88 87,60
134.0 109,0
51% 24%
1.4 1,4
3.12 3,09
n.a.
n.a.
9.3x 9,2x
8.4x 8,3x
1.9% 1,9%
3.2% 3,3%
1.7x 1,6x
1.5x 1,4x
n.a.
n.a.
BanBajio
BBAJIOO MM
Buy
MXN
38.04 36,92
51.0 43,0
34% 16%
2.2 2,2
5.34 5,52
n.a.
n.a.
9.0x 8,8x
8.7x 8,4x
1.7% 1,8%
3.3% 3,4%
1.6x 1,5x
1.4x 1,4x
n.a.
n.a.
Banorte
GFNORTEO MM
Buy
MXN
97.00 91,68
163.0 122,0
68% 33%
13.3 12,6
56.18 62,94
n.a.
n.a.
8.8x 8,4x
7.3x 6,9x
4.5% 4,8%
5.7% 6,0%
1.6x 1,5x
1.4x 1,3x
n.a.
n.a.
PFBCOLO CB
Neutral
COP
33320.00 32420,00
32,500.0 32.500,0
-2% 0%
10.0 9,8
5.50 4,79
n.a.
n.a.
11.1x 10,8x
8.8x 8,6x
3.1% 3,2%
3.6% 3,7%
1.3x 1,3x
1.2x 1,2x
n.a.
n.a.
PINE4
Neutral
BRL
2.45 2,30
4.0 4,0
63% 74%
0.1 0,1
0.03 0,04
n.a.
n.a.
3.3x 3,1x
n.a.
16.9% 18,0%
n.a.
0.2x 0,2x
n.a.
n.a.
n.a.
Banco Macro
BMA AR
Buy
ARS
170.00 159,25
312.0 312,0
84% 96%
3.1 2,8
2.62 1,59
n.a.
n.a.
8.4x 7,9x
6.7x 6,2x
1.5% 1,6%
2.4% 2,5%
1.9x 1,8x
1.6x 1,5x
n.a.
n.a.
Banco do Brasil
BBAS3
Neutral
BRL
44.45 44,08
39.0 52,0
-12% 18%
33.1 32,1
138.56 148,97
n.a.
n.a.
9.3x 9,3x
6.4x 6,4x
4.1% 4,1%
5.2% 5,2%
1.2x 1,2x
1.1x 1,1x
n.a.
n.a.
Banco ABC
ABCB4
Buy
BRL
16.00 16,64
19.0 22,0
19% 32%
0.8 0,8
1.31 1,67
n.a.
n.a.
6.8x 7,0x
6.1x 6,0x
6.6% 6,4%
7.4% 7,5%
0.9x 0,9x
0.8x 0,8x
n.a.
n.a.
10,0x 9.3x
8.6x 8,7x
1.6x 1,5x
1.4x 1,4x n.a.
Inbursa Grupo Galicia
ItauCorpbanca
Bancolombia Banco Pine
Median Financials ex-banks SulAmerica
SULA11
Neutral
BRL
25.38 28,86
24.5 30,0
-3% 4%
2.6 2,9
7.54 9,93
n.a.
n.a.
11.4x 12,2x
10.0x 11,1x
2.2% 2,1%
2.5% 2,2%
1.6x 1,8x
1.4x 1,6x
n.a.
Porto Seguro
PSSA3
Neutral
BRL
53.58 52,50
52.0 52,0
-3% -1%
4.6 4,4
11.01 10,87
n.a.
n.a.
14.4x 14,1x
12.6x 12,3x
6.4% 6,5%
4.8% 4,9%
2.4x 2,3x
2.2x 2,2x
n.a.
n.a.
Cielo
CIEL3
Neutral
BRL
9.27 9,26
11.0 11,0
19%
6.6 6,5
32.01 38,13
4.6x 4,6x
5.7x 5,7x
7.1x 7,1x
9.4x 9,4x
13.9% 13,9%
9.9% 9,9%
1.6x 1,6x
1.6x 1,6x
0.6x 0,6x
0.6x 0,6x
Grupo Aval
PFAVAL CB
Neutral
COP
1060.00 1000,00
1,260.0 1.260,0
19% 26%
7.4 7,0
1.77 1,87
n.a.
n.a.
11.0x 10,4x
9.4x 8,8x
5.3% 5,6%
5.9% 6,2%
1.4x 1,3x
1.3x 1,2x
n.a.
n.a.
Grupo Sura
GRUPOSUR CB
Neutral
COP
32500.00 32880,00
41,900.0 41.900,0
29% 27%
5.9 6,0
5.58 5,53
n.a.
n.a.
10,0x 9.9x
8.2x 8,3x
1.6% 1,6%
1.7% 1,7%
0.7x 0,7x
0.7x 0,7x
n.a.
n.a.
B3SA3
Buy
BRL
26.59 27,70
27.0 32,0
16% 2%
14.3 14,5
66.04 72,84
16.0x 16,1x
14.0x 14,5x
17.6x 18,6x
16.3x 16,6x
2.9% 2,9%
3.7% 3,6%
2.2x 2,3x
2.1x 2,2x
-0.7x -0,7x
-0.8x -0,8x
IRB Brasil RE
IRBR3
Neutral
BRL
73.89 76,00
65.0 72,0
-12% -5%
6.1 6,1
14.30 16,10
n.a.
n.a.
20.0x 19,7x
16.9x 16,4x
3.7% 3,8%
4.4% 4,6%
7.1x 7,2x
6.4x 6,5x
n.a.
n.a.
BB Seguridade
BBSE3
Buy
BRL
26.83 27,29
33.0 33,0
23% 21%
14.1 14,0
25.61 30,83
n.a.
n.a.
13.5x 13,9x
13.3x 13,7x
10,1% 5.7%
6.1% 6,0%
5.5x 7,6x
5.1x 6,9x
n.a.
n.a.
Wiz
WIZS3
Neutral
BRL
7.30 7,11
10.0 10,0
37% 41%
0.3 0,3
1.21 1,23
0.0x 0,0x
0.0x 0,0x
0.0x 0,0x
0.0x 0,0x
13.7% 14,0%
14.2% 14,5%
31.6x 30,8x
26.6x 25,9x
n.a.
n.a.
4.6x 4,6x
5.7x 5,7x
11.4x 12,2x
10.0x 11,1x
2.2x 2,3x
2.1x 2,2x
-0.1x 0,0x
-0.1x -0,1x
B3
Median
Source: BTG Pactual estimates
204
Valuation Summary
Company
Ticker
Rating
Share
Share
Currency
Price
Target
Upside
Mkt Cap
ADTV
(USD bn)
(USD mn)
EV/EBITDA 2018E
2019E
P/E 2018E
Div. Yield 2019E
2018E
P/BV
Net Debt/EBITDA
2019E
2018E
2019E
2018E
2019E -5.7x -5,7x
Housing Tecnisa
TCSA3
Neutral
BRL
1.26 1,37
2.1 2,1
67% 53%
0.1 0,1
0.63 0,77
n.a.
n.a.
n.a.
n.a.
0.0% 0,0%
0.0% 0,0%
0.5x 0,5x
0.5x 0,6x
-2.8x -2,8x
MRV
MRVE3
Buy
BRL
12.25 11,96
18.0 18,0
47% 51%
1.4 1,4
13.57 15,02
7.9x 7,7x
5.8x 5,7x
7.9x 7,7x
5.7x 5,6x
6.3% 6,5%
12.3% 12,6%
0.9x 0,9x
0.9x 0,9x
0.5x 0,5x
0.0x 0,0x
Lopes
LPSB3
Neutral Buy
BRL
4.29 4,93
3.6 6,7
-16% 36%
0.1 0,2
0.40 0,48
3.5x n.a.
14,0x 2.8x
17.4x n.a.
11.2x n.a.
-0.3% 0,0%
6.1% 0,0%
10,2x 0.7x
0.7x 8,9x
-0.8x -2,2x
-0.9x -0,5x
Helbor
HBOR3
Neutral
BRL
1.36 1,59
2.0 2,0
47% 26%
0.2 0,2
0.48 0,69
n.a.
33.5x 35,2x
n.a.
25.1x 29,4x
0.0% 0,0%
0.0% 0,0%
0.5x 0,6x
0.5x 0,5x
-35.4x -35,4x
17.8x 17,8x
Javer
JAVER* MM
Buy
MXN
16.90 16,90
20.2 20,2
19%
0.2 0,2
0.02 0,03
6.7x 6,7x
5.7x 5,7x
12.1x 12,1x
9.1x 9,1x
0.0% 0,0%
3.4% 3,4%
2.1x 2,1x
1.8x 1,8x
2.1x 2,1x
1.6x 1,6x
Gafisa
GFSA3
Neutral
BRL
13.96 16,20
17.0 17,0
22% 5%
0.2 0,2
4.24 5,13
n.a.
14.3x 15,5x
n.a.
24.8x 28,7x
0.0% 0,0%
0.0% 0,0%
0.5x 0,6x
0.5x 0,6x
-17.5x -17,5x
7.1x 7,1x
Eztec
EZTC3
Neutral
BRL
23.46 24,69
23.0 23,0
-2% -7%
1.0 1,0
2.71 3,02
n.a.
21.7x 23,1x
31.5x 33,2x
15.4x 16,2x
4.8% 4,6%
7.1% 6,8%
1.5x 1,6x
1.5x 1,6x
-16.4x -16,4x
-4.8x -4,8x
Even
EVEN3
Buy
BRL
5.37 6,08
7.0 7,0
30% 15%
0.3 0,3
1.06 1,45
n.a.
45.2x 48,6x
n.a.
18.2x 20,6x
0.0% 0,0%
3.9% 3,4%
0.6x 0,7x
0.6x 0,7x
-14.5x -14,5x
13.1x 13,1x
Direcional
DIRR3
Buy
BRL
7.31 7,68
7.5 7,5
-2% 3%
0.3 0,3
1.53 1,75
59.5x 61,6x
14.6x 15,2x
n.a.
13.4x 14,1x
3.9% 3,7%
5.2% 5,0%
0.7x 0,8x
0.7x 0,7x
13.4x 13,4x
2.5x 2,5x
Cyrela
CYRE3
Buy
BRL
14.34 15,21
16.0 16,0
12% 5%
1.4 1,5
11.04 12,82
37.2x 39,1x
12.9x 13,6x
29.5x 31,2x
10.5x 11,2x
8.0% 7,5%
16.8% 15,8%
1.0x 1,0x
1.1x 1,1x
4.8x 4,8x
1.1x 1,1x
Consorcio ARA
ARA* MM
Neutral
MXN
n/a
7.0 7,0
n.a.
n.a.
0.25 0,25
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
-0.1x -0,1x
0.0x 0,0x
Brasil Brokers
BBRK3
Neutral
BRL
5.40 7,00
2.1 2,1
-61% -70%
0.3 0,3
0.35 0,32
12.4x 16,4x
12,8x 9.7x
24.8x 32,1x
17.4x 22,6x
2.9% 2,3%
5.0% 3,8%
1.9x 2,4x
1.8x 2,4x
-1.5x -1,5x
-1.3x -1,3x
10.1x 16,4x
13.6x 14,6x
21.1x 31,2x
14.4x 16,2x
0.7x 0,9x
0.7x 0,9x
-1.2x -1,9x
0.5x 0,5x
Median Commercial Properties Parque Arauco
PARAUCO CI
Buy
CLP
1565.10 1602,40
n.a
n.a.
2.1 2,1
1.71 1,73
16.9x 17,2x
15.2x 15,4x
17.7x 18,1x
15.7x 16,0x
1.4% 1,4%
3.2% 3,1%
1.6x 1,7x
1.6x 1,6x
5.6x 5,6x
4.9x 4,9x
Multiplan
MULT3
Buy
BRL
23.05 23,79
23.3 23,3
-2% 1%
1.2 1,2
13.59 15,74
5.6x 5,8x
4.9x 5,0x
10.0x 10,3x
8.8x 9,1x
5.0% 4,9%
5.7% 5,5%
0.8x 0,9x
0.8x 0,8x
0.7x 0,7x
0.3x 0,3x
Iguatemi
IGTA3
Buy
BRL
39.36 39,55
42.0 42,0
7% 6%
1.8 1,8
10.81 12,62
15.3x 15,4x
13.5x 13,5x
25.8x 25,9x
22.3x 22,4x
1.7% 1,7%
2.1% 2,1%
2.4x 2,4x
2.3x 2,3x
2.6x 2,6x
2.0x 2,0x
Fibra Uno
FUNO11 MM
Buy
MXN
21.36 21,94
36.5 36,5
71% 66%
4.0 4,1
14.50 14,00
10.8x 11,0x
10.1x 10,2x
10.1x 10,3x
9.0x 9,2x
10.3% 10,0%
11.9% 11,6%
0.6x 0,6x
0.6x 0,6x
4.6x 4,6x
4.3x 4,3x
IRSA IyR
IRS US
Buy
USD
12.99 13,04
27.7 27,7
113% 112%
0.0 0,0
1.64 1,41
5.5x 5,5x
3.4x 3,4x
0.0x 0,0x
0.0x 0,0x
0.4% 0,4%
0.4% 0,4%
1.0x 1,1x
0.8x 0,9x
6.9x 6,9x
4.5x 4,5x
IRSA Propiedades Comerciales
IRCP US
Buy
USD
20.80 19,47
47.0 47,0
126% 141%
0.7 0,6
0.19 0,18
43.7x 42,4x
25.7x 25,0x
36.1x 35,0x
52.4x 50,9x
0.1% 0,1%
0.1% 0,1%
2.6x 2,6x
2.2x 2,2x
2.9x 2,9x
2.1x 2,1x
FIBRAMQ MM
Buy
MXN
19.12 17,61
30.0 30,0
57% 70%
0.5 0,5
1.42 1,50
8.7x 8,4x
8.3x 8,0x
4.0x 3,7x
7.0x 6,4x
8.4% 9,1%
8.9% 9,7%
0.4x 0,4x
0.4x 0,4x
5.0x 5,0x
4.7x 4,7x
CCPR3
Neutral
BRL
8.90 8,43
15.0 15,0
69% 78%
0.2 0,2
0.11 0,15
9.6x 9,5x
8.8x 8,7x
12.1x 11,4x
8.3x 7,8x
2.1% 2,2%
2.8% 2,9%
0.8x 0,8x
0.8x 0,7x
5.5x 5,5x
5.0x 5,0x
Terrafina
TERRA13 MM
Buy
MXN
24.13 25,41
n.a
n.a.
0.7 0,8
1.78 1,82
11.8x 12,3x
n.a.
n.a.
n.a.
9.2% 8,7%
n.a.
0.7x 0,8x
n.a.
3.3x 3,3x
n.a.
BR Malls
BRML3
Buy
BRL
12.22 13,14
13.0 13,0
-1% 6%
2.7 2,9
19.67 23,13
13.0x 13,9x
11.9x 12,6x
18.0x 19,4x
15.6x 16,8x
1.4% 1,3%
3.0% 2,8%
1.0x 1,1x
1.0x 1,0x
1.8x 1,8x
1.5x 1,5x
CELSIA CB
Neutral
COP
4000.00 3930,00
5,050.0 5.050,0
26% 28%
0.9 0,9
0.44 0,36
7.8x 7,7x
7.8x 7,7x
23.6x 23,1x
23.7x 23,3x
4.3% 4,3%
4.6% 4,7%
0.9x 0,9x
0.9x 0,9x
2.7x 2,7x
2.7x 2,7x
ALSC3
Buy
BRL
17.55 18,67
19.0 19,0
8% 2%
0.9 1,0
2.51 2,75
13.3x 13,9x
12.0x 12,6x
30.8x 32,8x
22.4x 23,8x
1.5% 1,4%
2.2% 2,1%
1.4x 1,5x
1.4x 1,4x
3.8x 3,8x
3.2x 3,2x
Fibra Shop
FSHOP13 MM
Buy
MXN
8.45 8,32
16.0 16,0
89% 92%
0.2 0,2
0.17 0,14
12.5x 12,5x
12.0x 12,0x
9.5x 9,3x
8.2x 8,1x
10.7% 10,8%
11.7% 11,9%
0.4x 0,4x
0.4x 0,4x
8.0x 8,0x
7.8x 7,8x
Vesta
VESTA* MM
Buy
MXN
24.49 26,33
33.0 33,0
35% 25%
0.7 0,8
2.11 2,12
13.5x 14,1x
13.0x 13,5x
n.a.
n.a.
4.6% 4,3%
5.7% 5,3%
0.7x 0,8x
0.7x 0,8x
5.6x 5,6x
6.1x 6,1x
11.8x 12,3x
11.0x 11,1x
14.9x 14,8x
12.3x 12,6x
0.9x 0,9x
0.9x 0,9x
3.8x 3,8x
3.7x 3,7x
Fibra MQ CCP
Celsia Aliansce
Median
Source: BTG Pactual estimates
205
Disclaimer
206
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