Allocation Brazil. Positive Outlook. Strategy / Brazil. Suggested Portfolio - January/10

Transcription

1 Strategy / Brazil Allocation Brazil Positive Outlook Although subject to volatility, we are more positive about the stock market in January 2010, compared with last month. The news flow will definitely be positive throughout the year, given the easy comparison with 9 (GDP in 2010 should grow between 5 to 6% YoY). Moreover, it is an election year in Brazil, which normally means more government spending and higher economic activity. In addition, investments in infrastructure should grow to support events such as World Cup (2014) and Olympic Games (2016), not including the oil industry that is boosting capex in the presalt fields and spending more on gas. Last but not least, we believe the country will continue to attract capital from foreigners and locals, such as pension funds, which should also divert more resources to equities - riskier assets in general - in search for higher returns, as the fixed income (interest rate) should not be enough to meet their actuarial required returns. In summary, before the samba (Carnival) in February, we believe the positive flow and expectation of improvement should drive the market. Elections + low interest rate + growth = more flow Elections for president, state governors and Congress will take place in October On one hand, this means more spending, higher economic activity and ensuing more company profits. On the other hand, we believe this could mean stress to investors from mid-year onward, as the presidential candidate Jose Serra (from the opposition) may change the current economic policies and uncertainties mean more risk. Even to a smaller degree than in other LatAm/EM countries. Moreover, nothing of significant importance in Congress will be approved from 2Q10 on. Thus, with current visibility, investors should be cautiously optimistic. Interest rates should move up in 2010 and there is little doubt that it will happen. The debate is about intensity and timing. In any scenario, it should remain low compared with historical levels and continue to stimulate local investors to take more risks (i.e. equities). Bear in mind that most debts in Brazil are based on fixed rates and a more restrictive monetary policy does not mean less available income in the short term. Suggested Portfolio - January/10 LONG/OVERWEIGHT Stock Ticker Traded Vol.* Weight % Bematech BEMA Bradesco BBDC Brasil Telecom BRTO BRF Brasil Foods BRFS CBD - Pao Acucar PCAR Eletropaulo ELPL Itau-Unibanco ITUB Klabin KLBN OGX Petroleo OGXP Petrobras PETR Usiminas USIM Vale VALE Total - - % SHORT/UNDERWEIGHT Stock Ticker Recomm. previous month CSN Sid. Nac. CSNA3 Underw. -3.6% Net Servicos NETC4 Underw. -0.7% UOL UOLL4 Underw. 0.1% Source: Banif - Ixe Securities Research, * Average trading volume (R$mn) in the past 90 days. We believe the news flow will be positive in most economies and the easy comparison should be a good support for equities. Brazil is and should continue to be a hot spot for investments, given the size of the domestic market and events to take place in 2014 (FIFA s World Cup). Risk aversion could continue In the past days of the year, risk aversion increased at global level, triggered by Dubai s debt negotiation. Later on, several countries had their credit ratings downgraded. The euro lost ground against the dollar, as well as EM currencies. It is an adjustment of expectations regarding fiscal imbalances and a higher focus on risk management. We would not be surprised if this movement continues. We are cautiously optimistic looking ahead. Please refer to the end the report to analyst and firm disclosure January 04, 9

2 LONG /Overweight Suggested Portfolio Bematech BEMA % Catalyst: Positive news flow coming from investments from retailers (potential increase in BEMA3 s sales) and 4Q09 confirming its recovery trend. Trades at attractive multiples. Risk: limited liquidity. Stock x IBOV Bradesco BBDC % Catalyst: The bank should benefit from the economic growth and ensuing credit expansion in the country. It has a solid balance sheet and the benefit from its strong insurance arm. Risk: Investors negative sentiment towards financial institutions at global level. Brasil Telecom BRTO % Catalyst: We believe the discount to TNLP4 is exaggerated. BRTO4 will likely be exchanged to TMAR7 in the 1Q10, which will increase its liquidity and help to lower the discount to TNLP4. BRTO4 is the most attractive stock in the sector. Risk: Delay from the CVM to approve the exchange to TMAR7. BRF Brasil Foods BRFS % Catalyst: Positive news flow and favorable outlook for We believe the sector will benefit from strong Christmas sales and 4Q is already seasonally the strongest of the year. Risk: Price of grains (cost pressure). CBD Pão Açúcar PCAR % Catalyst: Christmas sales should point to a strong Retailers should be on investors radar given the robust economic activity this year. Moreover, earnings outlook should incorporate synergies from recent acquisitions. Risk: Fiercer competition, new CEO, ST difficulties to coordinate efforts from new acquisitions. Eletropaulo ELPL % Catalyst: Dividends to be announced within the 1Q10. The total yield for the 2H09 should amount to 10% or more. It has a defensive profile against a possible volatile market. Risk: Unexpected nonoperating losses in 4Q09. 2 Please refer to the end the report to analyst and firm disclosure Banif Ixe - January 04, 9 2

3 LONG /Overweight Suggested Portfolio Itau Unibanco ITUB % Catalyst: ITUB is well positioned to benefit from the high growth in credit to consumers (car, retail, credit card) and mortgage. We also expect more gains from synergies and its increasing international exposure. Risk: Possible negative sentiment towards financials at global level. Klabin KLBN % Catalyst: The expected boom in consumption and outlook for 2010 makes Klabin an indirect winner from this movement. Risk: Higher costs and weaker than expected monthly sector data. Stock x IBOV OGX Petroleo OGXP % Catalyst: It should join the Ibovespa. Its holding company is planning an IPO, which should draw attention to the stock. Risk: Oil prices trending lower in the month. Not joining the Ibovespa. 3 2 Petrobras PETR % Catalyst: We recommend being market weight vis-à-vis the Ibovespa. Risk: Lower oil prices in January/10 and initial debate over possible political interference. The presidential election will be in October. Usiminas USIM % Catalyst: The stock is still lagging its peer CSN. USIM should present a positive sales performance in Sales volume in 1Q10 should already be similar to precrisis levels. Risk: Steel prices come down in the beginning of the year given weak economic figures in Asia or US. 2 Please refer to the end the report to analyst and firm disclosure Banif Ixe - January 04, 9 3

4 LONG /Overweight Suggested Portfolio Vale VALE % Catalyst: Iron ore prices in the spot market already indicate a positive trend going forward. While we initially expected a 10% price adjustment for LT contracts, we now revised to a range between +15 to 20%. Risk: Negative data and sentiment for commodities in general. Stock x IBOV SHORT /Underweight CSN Sid. Nac. CSNA % Catalyst: We recommend UNDERWEIGHT the stock, versus the Ibovespa. We believe the stock should be penalized by the uncertainty surrounding the offer to buy Cimpor. CSN might enter a bidding contest or even just raise the offer to conclude the deal. Risk: Provide details of expected gains with the transaction and disclose that it will not raise the offer to buy Cimpor. 2 Net Serviços NETC % Catalyst: We recommend UNDERWEIGHT the stock, versus the Ibovespa. Negative news flow regarding competition and potential threats. In Europe, telcos are gaining market share from pay TV operators and even if this does not happen in Brazil, it could put some pressure on NETC s margin. Risk: ST results still with a positive evolution. UOL UOLL % Catalyst: We recommend UNDERWEIGHT the stock, versus the Ibovespa. Revenues from the online advertisement are improving but it is not enough to compensate for the negative outlook from the subscription business segment. Risk: M&A in the sector. Please refer to the end the report to analyst and firm disclosure Banif Ixe - January 04, 9 4

5 Banif - Ixe (LONG) x Ibovespa Source: Economática Weighted performance in December/09 VALE5 TLPP4 SUZB5 PETR4 PCAR5 MMXM3 KLBN4 ITUB4 EQTL3 ELPL6 CSNA3 BTOW3 BRTO4 BPNM4 December In 9 80% 60% 40% 20% 0% Banif-Ixe Ibovespa 8 Banif-Ixe IBOV jun % % jul % -8.48% aug % -6.43% set % % oct % % nov % -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 % 6.41% aug % 3.15% sep % 8.90% oct % 0.05% nov % 8.93% dec % 1.87% In % 81.88% 12M 87.05% 81.88% 18M 13.04% 5.05% Source: Economática and Banif - Ixe Securities Research -1% 0% 1% 2% Source: Economática. Weighted performance of the stocks from the recommended portfolio Banif-Ixe x Ibovespa Evolution Banif-Ixe Ibovespa December November October September August July June May April March February January In 9 12M Please refer to the end the report to analyst and firm disclosure Banif Ixe - January 04, 9 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 0 bps higher than the expected performance of the index; a Neutral for stocks expected to have an upside between -0 bps and +0 bps to the expected performance of the index and; Sell for those stocks expected to have a performance 0 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 51.0% 2.0% NEUTRAL 21.0% 0% SELL 28.0% 0% 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. This document is for information purposes only and was made by Banif Banco de Investimento and Ixe Casa de Bolsa. Under no circumstances should this document be used or considered as an offer to sell or a solicitation to buy the securities or other instruments mentioned in it. The information in this document has been obtained from sources believed reliable, but both Banif Banco de Investimento and Ixe Casa de Bolsa makes no representations concerning the truth or accuracy of the content or substance of this report, or of the future market value of any securities, notes, or private claims mentioned within. Opinions expressed herein constitute the current judgment of the author as of the date published and are subject to change without notice, and Banif Banco de Investimento and Ixe Casa de Bolsa makes no representations that they will endeavor to update their analysis upon any change of circumstances. The products mentioned in this document is not directed to, or intended for distribution to or use by any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or which would subject either Banif Banco de Investimento or Ixe Casa de Bolsa, or its subsidiaries or affiliates to any registration or licensing requirement with such jurisdiction. Additional Information for US Readers: Banif Banco de Investimento and IXE Securities Inc., are registered broker-dealers. The research was prepared Non-US research analysts that are not registered or qualified as research analysts with the NYSE and or FINRA, but sarify the registration and qualification requirements or other research-related standards of a non-us jurisdiction. Any US Person receiving this report and wishing to effect any transaction in any security discussed in this report should do so with Banif-Ixe Securities, at 140 East 45th Street, 2 nd floor, New York, NY. Additional Information for European Readers: Banif Securities, a subsidiary of Banif Banco de Investimento S.A and Ixe Casa de Bolsa, an affiliate of Ixe Securities Inc., granted authorization to Banif Banco de Investimento S.A., to distribute this report through its London Branch to investors who are market counterparties and intermediate customers, pursuant to FSA rules and regulations. If you do not, or cease to, fall within the definition of market counterparty or intermediate customer, you should not rely upon the information contained herein and should notify Banif Banco de Investimento S.A., London Branch immediately. The information contained herein does not apply and should not be relied upon by, private customers. USA - New York Ixe Securities 140 East 45th Street, 2 nd floor New York, NY Tel: Portugal - Lisbon Banif Banco de Investimento Rua Tierno Galvan, Torre 3, 14º. Lisbon, Portugal Tel : USA - Miami Banif Securities, Inc. 1 Brickell Bay Dr, Suite 2906 Miami, FL Tel: Mexico México City Ixe Grupo Financiero Paseo de La Reforma 5 Piso 48 Col. Cuauhtémoc C.P. 060, México, D.F. México Tel USA - New York Banif Securities, Inc. 40 Wall Street, 33 nd Floor New York, NY 05 Tel: Brasil - São Paulo Banif Banco de Investimento S/A Av. Juscelino Kubitschek, º São Paulo, SP Tel: Brasil - Rio de Janeiro Banif Banco de Investimento S/A Praia de Botafogo 228-7º Andar Rio de Janeiro, RJ Tel: Argentina - Buenos Aires Prisma Investment Esmeralda, 1320 Buenos Aires Tel: Please refer to the end the report to analyst and firm disclosure Banif Ixe - January 04, 9 6