Petrobras Shares Rise This Tuesday Amid Expectations Of Production Growth

Written by Paulo Nogueira

Published on 13/02/2019 at 08:39

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The Stock of Petróleo Brasileiro or Petrobras Was Traded Higher on Tuesday After a UBS Update.

Shares of Petrobras have risen over 23% since the beginning of the year, more than double the gains observed by the iShares MSCI Brazil ETF (EWZ) during the same period. The movement comes in the wake of a good year for the company in 2018. (Although it hasn’t always been smooth, with its CEO resigning last year and a truckers’ strike leading to a drop in diesel prices.)

Investors in Brazil in general are cautiously optimistic because large-scale corruption, exposed in the so-called “Operation Car Wash” investigation involving Petrobras officials and politicians, has been replaced by more business-friendly policies, boosting credibility.

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A Turnaround in the Story. UBS analyst Luiz Carvalho upgraded the stock to Buy from Neutral on Tuesday and raised his price target to 33 reais from 26 reais for the PETR4 shares – currently at 25.74 reais – traded on the São Paulo Stock Exchange.

With a new CEO at the helm of the oil producer, Carvalho is confident that the two pillars of Petrobras, growth and production deleveraging, are more likely to occur (although perhaps not as quickly as some investors would like).

Moving forward, Carvalho argues that “Petrobras has a bright future as long as the controlling shareholder keeps it independent and continues to divest.” (Petrobras remains state-controlled, but minority shareholders can appoint board members).

If the company can increase production at a reasonable rate and use its free cash flow to reduce debt, the shares of the state-owned company should benefit. And if Petrobras sells more assets faster than expected, around US $10 billion to US $25 billion, this could bring its net debt to earnings before interest, taxes, depreciation, and amortization below 1.5 times, potentially “unlocking significant equity value.” writes. Petrobras rose 5% to US $16.08 in recent trading.

Petrobras Shares Rise This Tuesday Amid Expectations Of Production Growth

The Stock of Petróleo Brasileiro or Petrobras Was Traded Higher on Tuesday After a UBS Update.

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Petrobras Shares Rise This Tuesday Amid Expectations Of Production Growth

The Stock of Petróleo Brasileiro or Petrobras Was Traded Higher on Tuesday After a UBS Update.

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