Allocation Brazil. Volatile Market with no Trend. Strategy / Brazil

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1 Strategy / Brazil Allocation Brazil Volatile Market with no Trend Focus spread over euro zone Last month, we correctly anticipated that the Greek problem would negatively dominate the markets. However, we did not anticipate that fears would spread severely over to other countries, especially the other PIIGS members (Portugal, Italy, Ireland and Spain). After the sharp negative effect on all markets worldwide, we believe that investors continue to be sensitive, with wounds still open and, in the absence of any concrete positive news in June, markets are likely to remain tense, volatile and with no definite short-term trend. This expectation only differs from our view for the previous month in the lack of trend. We chose our suggested portfolio last month to remain defensive, and believe this is also the best choice for June, which is why we have made hardly any modifications. We have only withdrawn Tim, which was the month s largest winner, and transferred its weight to CSN to keep the weight of the steel industry close to its weight in the Ibovespa. With this move, our portfolio has weights similar of those at the Ibovespa for the oil, mining, banks, steel, transportation and telecom industries, while we keep retail and utilities overweight. Euro zone pros and cons For the Euro zone, we highlight some important points. Positives: a) Economic activity in the main countries is not weak; b) Announcement of important measures directed toward stability in Portugal, Spain and Italy. Negatives: a) growth is likely to remain low for at least the next few years; b) risk rating downgrades might occur, particularly for banks, if tension continues at its current level or worsens and c) country debts are likely to stabilize at high levels. From 8 to 213, gross debt to GDP ratio will increase in most countries. Based on the assumptions of the European Commission, this ratio for Portugal should go from 66% to 9%, for Spain from 4% to 75%, Ireland from 44% to 93%, Italy from 16% to 118% and Greece from 99% to 135%. Signs from other regions remain positive In other regions, the economic trend continues to improve. In the US, the Fed revised its GDP growth estimate upwards to 3.5% for 21 and we believe recovery is likely to continue slowly but surely. In China, the economy continues strong and on the verge of overheating, although inflation has not surpassed the official 3% limit and we see no reason for any change in course. Finally, in Brazil we also see strong signs of good and unchanged economic activity. At the announcement on June 8 of 1Q GDP we expect a 2.5% non-annualized growth that, if confirmed, would strongly support our estimate of a 7.% growth for FY21. On June 9, we anticipate announcement of the IPCA inflation index for May, which we expect to reach.45% (for June figures we expect a sharp reduction to around.3% that, if confirmed, would increase confidence in the growth trend of the GDP). On the same day, we expect announcement of the official Selic interest rate, when we anticipate another.75% hike as part of a measure to avoid the deterioration of the outlook for inflation. Suggested Portfolio June/1 LONG/OVERWEIGHT Stock Ticker Traded Vol.* Weight % Bradesco BBDC CSN Sid Nac CSNA Drogasil DROG Guararapes GUAR Hering HGTX Petrobras PETR Tegma TGMA Tietê GETI Tractebel TBLE Vale VALE Vivo VIVO Total - - % SHORT/UNDERWEIGHT Stock Ticker previous month Totvs TOTS3 8.6% Source: Banif - Ixe Securities Research *Average trading volume (R$ mn) in the past 9 days Oswaldo Alcântara Telles Filho otelles@banifib.com.br Please refer to the end the report to analyst and firm disclosure June 1, 21

2 LONG /Overweight Suggested Portfolio Bradesco BBDC % 13.4% Catalyst: We anticipate that the strong 1Q1 results continue throughout the year. Additionally, we expect the insurance segment, which accounted for 1/3 of total net income, to continue robust over the year. Risk: expensive acquisitions CSN Sid Nac CSNA % 19.7% Catalyst: Three main ones. (1) Recovery in domestic apparent steel consumption, with an expected YoY growth of 23.8% in 21. (2) With the cost curve getting steeper under the new pricing system, CSN holds a privileged position as a low cost integrated producer due to its iron ore assets. (3) The company plans to expand its iron ore unit and unlock value by listing it separately. Risks: (1) a reduction of sales volume in the car market after the return of full taxation; (2) delays and excess costs to its expansion plans. (CSN has already resorted to third party purchases to increase supply and market share, which we view mainly as positive but unsustainable given the present price scenario). Drogasil DROG % 91.7% Catalyst: We continue to believe that strong growth in the drugstore market should continue to drive sales growth. The company has been successful in expanding whilst maintaining profitability. Additionally, its strong cash position gives it the option of strategic acquisitions. Risk: reduction in the profit margin Drogasil has maintained throughout its past growth. Guararapes GUAR % % Catalyst: SSS growth in 1Q of 12% confirmed the strong recovery trend since 3Q9. The quarterly bottom line was also exceptionally high, with increases in operational margins. The company plans to open 15 new stores in 21 and another 15 in 211, growths of 14 and 12%, respectively. Moreover, its current P/E at 15x using L12M profit is the lowest among retailers. Risks: a) low management transparency and b) low liquidity. Hering HGTX % 28.4% Catalyst: The company reported a high 27% SSS growth in 1Q1, associated with high operational margins, in continuation of its impressive growth performance since 8. Moreover, its current P/E at 2x using L12M profit is still one of the lowest among retailers, despite the consistent appreciation of the shares since the beginning of 9. Risk: The continued and high appreciation of the share price over the last one year poses a ST market risk. Stock x IBOV 4 4 Please refer to the end the report to analyst and firm disclosure Banif Ixe - June 1, 21 2

3 LONG /Overweight Suggested Portfolio Petrobras PETR % -11.% Catalyst: Petrobras has underperformed the Ibovespa by 35% since its last last peak in March 9. We believe that this is largely due to the uncertainties surrounding the announced capital increase. The timetable for this operation has started to become clearer, with the shareholders meeting on June 22 scheduled to make a decision on it. We believe in a rebound of the share price after the conclusion of this process, expected for July. The market, however, might react in advance of events. Risk: Presidential elections create a difficult political scenario and Congress still has some decisions to make in order to finalize the whole operation. Tegma TGMA % 72.2% Catalyst: prospects for Tegma s earnings in 21 remain strong. Transportation volumes are growing fast and the demand for efficient logistics should increase following GDP growth. In addition, the company should continue to distribute approximately 8% of profits in dividends, resulting in a dividend yield of 7 to 8% at current prices. Risk: Reduction in car sales after the end of tax stimulus. Tiete GETI % 18.3% Catalyst: The company reported good 1Q1 results and announced an intermediate dividend distribution of R$238 mn (% payout). Risk: Tiete needs to increase its generation capacity by 4MW to satisfy the terms of its agreement with the government of the State of São Paulo (regarding its privatization). However, new projects could prove less profitable Tractebel TBLE % 17.8% Catalyst: The share presents a good upside potential in relation to our YE1 target price of R$27.. The existing hydroelectric power plants, as well as those under construction, should offer higher profitability than the new projects recently auctioned by the Federal Government. Therefore, they could contribute to a better pricing of Tractebel s shares. Risk: The company could acquire a stake in the Jirau power plant, paying Suez (which is its controller) a price higher than estimated by the market. Stock x IBOV Please refer to the end the report to analyst and firm disclosure Banif Ixe - June 1, 21 3

4 LONG /Overweight Suggested Portfolio Vale VALE % 34.7% Catalyst: The best option to gain exposure to the iron ore market. Vale has finished its price negotiations successfully, with increases above 9% (reflected in 2Q1 results). In addition, iron ore spot prices point to a 35%QoQ increase in 3Q1. This, together with expected better volumes, points to solid results for the second and third quarters. Vale not only has top quality ore selling at a premium price, but still has capacity to bring a larger volume to the market (utilization was at 9% in 4Q9). Risks: Lower volumes and prices due to weaker recovery and the Chinese tightening measures. Worries on the European debt have hit the materials group hard in the past month and Vale s stock (vale5) has retreated 18% from its peak on April 14. We view this as an opportunity, acknowledging that further noise on the European front, together with China, could make Vale trade sidewise for a while. Vivo VIVO % 3.7% Catalyst: We believe that the soap-opera-like story involving Telefonica and Portugal Telefonica, on the acquisition of VIVO s control, will continue to boost the price of VIVO PN in June. Risk: If the fight between shareholders persists for a long period it could hurt the company s operational performance and future planning. Stock x IBOV Short /Overweight Suggested Portfolio Totvs TOTS % 91.3% Catalyst: Although we see TOTVS as a very good company in terms of management and corporate governance, according to our forecast model its share does not have an attractive upside potential or good multiples. In the last 12 months, TOTS3 went up 91%, against 17% for the Ibovespa. On a YTD basis, TOTS3 gained 12% and the Ibovespa lost 9%. Therefore, the share could register a profit taking movement in June. Please refer to the end the report to analyst and firm disclosure Banif Ixe - June 1, 21 4

5 Banif - Ixe (LONG) x Ibovespa May In 21 1% % -1% Banif-Ixe Ibovespa Source: Economática Weighted performance in May/1 VIVO4 VALE5 TCSL3 TBLE3 GETI4 TGMA3 PETR4 HGTX3 GUAR3 DROG3 CSNA3 BBDC4 8 Banif-Ixe IBOV Nov-8.24% -1.77% Dec % 2.61% 9 Banif-Ixe IBOV Jan % 4.66% Feb % -2.84% Mar % 7.18% Apr % 15.55% May % 12.49% Jun % -3.26% Jul-9 8.3% 6.41% aug % 3.15% Sept % 8.9% Oct-9.57%.5% Nov % 8.93% Dec-9 1.5% 1.87% 21 Banif-Ixe IBOV Jan % -4.65% Feb % 1.68% Mar-1 4.3% 5.82% Apr % -4.4% May % -6.64% In % -8.9% 12M 25.85% 18.% 18M 84.94% 71.54% Source: Economática and Banif - Ixe Securities Research -2% -1% % 1% 2% Source: Economática. Weighted performance of the stocks from the recommended portfolio Banif-Ixe x Ibovespa Evolution Banif-Ixe Ibovespa Short Ideas Performance 21 Banif-Ixe Jan % Feb-1 1.4% Mar % Apr % May % May April March February January In 21 12M -1% 5% 2% 35% % 65% 8% Please refer to the end the report to analyst and firm disclosure Banif Ixe - June 1, 21 5

6 Analyst Disclaimer and Important Report Disclosures: The analysts mentioned in this report hereby certify that: 1) all of the views accurately reflect his or her personal views about any or all of the subject securities or issuers; 2) no part of any of the analysts compensation is or will be directly or indirectly related to the specific recommendations or views expressed by the analyst(s) in this research; and 3) they do not hold securities issued by the company (ies) mentioned in this report that exceed 5% of their assets. Investment ratings are a function of Banif Banco de Investimento and Ixe Casa de Bolsa s expectations of a relative return to the expected performance of the main index of the country of origin. Ratings are: Buy for stocks viewed as having an upside bps higher than the expected performance of the index; a Neutral for stocks expected to have an upside between - bps and + bps to the expected performance of the index and; Sell for those stocks expected to have a performance bps below the expected performance of the index. It is important to note that a recommendation may differ from the rating system when the analyst believes that the stock may reach the appreciation / depreciation in the very short term. Rating Coverage Banking Relationship Last 12 Months BUY 51.% 2.% NEUTRAL 21.% % SELL 28.% % Banif Banco de Investimento and Ixe Casa de Bolsa are not currently having any investment banking or other business connections with the company (ies) mentioned in this report, however, investors should bear in mind that it is seeking or will seek to do so at any time and may receive compensation for services provided or have commercial relations with the company(ies) analyzed in this report, or with individuals, legal entities, funds, trusts or estates that act representing the same interest as the company(ies). Banif Banco de Investimento and IXE Casa de Bolsa, and/or its officers, directors, or shareholders, may from time to time have long or short positions in the financial instruments of the company mentioned in this document, or may serve in an advisory capacity with respect to such instruments. 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Juscelino Kubitschek, 17-15º São Paulo, SP Tel: Portugal - Lisbon Banif Banco de Investimento Rua Tierno Galvan, Torre 3, 14º. Lisbon, Portugal Tel : Mexico México City Ixe Grupo Financiero Paseo de La Reforma 5 Piso 48 Col. Cuauhtémoc C.P. 6, México, D.F. México Tel Brasil - Rio de Janeiro Banif Banco de Investimento S/A Praia de Botafogo 228-7º Andar Rio de Janeiro, RJ Tel: USA - Miami Banif Securities, Inc. 1 Brickell Bay Dr, Suite 296 Miami, FL Tel: Argentina - Buenos Aires Prisma Investment Esmeralda, 132 Buenos Aires Tel: Please refer to the end the report to analyst and firm disclosure Banif Ixe - June 1, 21 6