BofA upgrades Petrobras shares to “Buy” on Thursday

BofA (Bank of America) raised its recommendation for Petrobras shares from “Neutral” to “Buy” this Thursday (June 27, 2024). In a report distributed to clients, the target price for preferred shares rose from R$42 to R$47, while the target for ADRs traded in New York was raised from US$16.80 to US$17.90.

The increase in the recommendation contributes to the performance of Petrobras’ shares on the Brazilian stock exchange and on Wall Street (USA). On B3 (São Paulo Stock Exchange), preferred shares rose 0.78% to R$37.38 at 12:17 p.m., while common shares rose 1.25% to R$39.58. On the New York Stock Exchange, ADRs advanced 0.63% to US$14.30.

Analysts Caio Ribeiro, Leonardo Marcondes and Mariana Leite assess that the departure of Jean Paul Prates for the entry of Magda Chambriard as CEO of the state-owned oil company should not bring significant changes.

On the contrary, after the troubled transition, analysts point out that the latest news about Petrobras helped to alleviate market concerns about corporate governance, the maintenance of the current fuel price policy and dividends.

Chambriard’s goal of accelerating the oil company’s investment under a more nationalist profile is unlikely to materialize.

BofA believes that capex is unlikely to increase significantly from the levels presented in the company’s latest strategic plan, indicating that currently, unlike during the president’s other terms Luiz Inácio Lula da Silva (PT), there are strategy and risk analysis departments at Petrobras that assess whether new projects overcome profitability obstacles before becoming investments.

As a result, cash returns should remain attractive and the payment of extraordinary dividends more likely, even with the possibility of mergers and acquisitions, as in the case of the repurchase of the Rlam refinery in the State of Bahia.

Based on the price scenario of the Petroleum Brent at US$86 per barrel in 2024 and US$80 per barrel in 2025, the projected cash flow to shareholders (FCFE) is US$20.9 billion (23% yield) this year and US$13.3 billion (15% in revenue) next year, FCFE is more attractive than its global competitors.

In relation to dividends, BofA estimates a high probability that the remaining R$22 billion in the capital reserve – referring to the fourth quarter of 2023 – will be paid as dividends in 2024. In this way, a yield of 4.5 would be added % for 2024 in the bank’s base scenario.

BofA said the end of the pending tax disputes with the government at CARF (Administrative Council for Tax Appeals) was on very favorable terms for Petrobras.

Furthermore, the Brazilian government and the Petrobras board see close approval by environmental agencies for the exploration of reserves in the Equatorial Margin, the new oil frontier in Brazil that covers the coast of the Northeast and North regions of the country.

With information from Investing Brasil.