APBR (ord) APBRA (pref) Petrobras Brasil

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http://seekingalpha.com/article/3106396 ... 0dbe5&dr=1



Conrado Foglio Bonda
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Petrobras Is My Favorite Idea That Everyone Knows, But No One Understands
Apr. 27, 2015 2:18 PM ET | 8 comments | About: Petrobras - Petroleo Brasileiro S.A. (PBR)

Disclosure: The author is long PBR. (More...)
Summary

The consolidated financial statement audited by PwC is finally out. Petrobras wrote off $ 2.5B corresponding to malfeasance and $ 16.7B in impairment charges.
Royal Dutch Shell's CEO Ben van Beurden met with Dilma Rousseff and, after the meeting, declared confidence in Petrobras' ability to turn things around.
Petrobras is heavily discounted, and the questions remains... Is the market overly pessimistic about the Brazilian Giant?

More often than not, an image is worth a thousand words. A $ 70 billion acquisition speaks for itself. CEO Ben van Beurden declared in a recent interview:

We have taken into account the impact that any of today's news will have on the development of existing fields as well as the Libra field going forward, and these risks have been fully factored into the commercial arrangements we have done with BG.

Ever since the "Napoleon of Oil", Royal Dutch's first Chairman Henri Deterding, beat Standard Oil in the race to merge with Shell, any acquisition move made by the Dutch leviathan should be followed closely. Royal Dutch Shell (NYSE:RDS.B) is confident that Petrobras (NYSE:PBR) will straighten up and fly right, and that confidence comes in the form of a huge investment in the BG Group and therefore in its Brazilian assets. BG owns interest in the Santos Basin, especifically in the Lula, Iara, Iracema, Lapa and Sapinhoá fields, which account for 95% of the Group's reserves in Brazil. Total reserves are estimated at 6 billion boe and the economic breakeven at less than $ 40 / bbl.

PBR has been on a roll last month, surging by almost 71% since March 24th. The stock has gained momentum with heavy volume trading during the last 48 hours.

(click to enlarge)Stock Price

source: Morningstar

There's a huge amount of information, discerning views and opinions, therefore I will try to address each issue in topics.

1. Corruption. PBR is going through a turbulent period, to say the least. Several former Executives and Government Officials are under investigation for allegedly implementing an illegal cartel with suppliers and contractors that enabled insiders to receive bribes and commissions. The "Lava-Jato" corruption scandal is one of the most intense and controversial corruption scandals in recent history. Former Executives Pedro Barusco and Paulo Roberto Costa, both turned state evidence, explained the whole scheme in a Parliamentary Inquiry Commission. PBR has since written off $ 2.5B of capitalized costs corresponding to amounts that the company overpaid to fund the scheme. The investigation seems to be moving forward with the Federal Police carrying arrest warrants in several States (Paraná, Bahia, Ceará, Pernambuco, São Paulo, Rio de Janeiro).

2. Impairment. Impairment losses are without a doubt the strongest indicator of project management ineptitude. Almost $ 12B out of the $ 17B impaired correspond to Comperj and Abreu Lima refineries. Project planning deficiencies and the use of a higher discount rate were responsible for these charges.

source: Investidorpetrobras.com.br

3. Production. PBR was able to increase production in 5.3% yoy, reaching 2,669,000 barrels of oil equivalent per day (boed) in 2014. In March 2015, output in the pre-salt layer of the Santos and Campos Basins, averaged 672,000 barrels per day (bpd), a 70% rise from March's 2014 output of 395,000 barrels per day (bpd).

(click to enlarge) source: Investidorpetrobras.com.br

Brazil runs an oil fuel deficit, which is constrained not only due to crude production but also as a result of limited refining throughput. Fuel deficit is expected to continue for at least a decade.

(click to enlarge)

According to the U.S. Energy Information Administration:

Brazil's liquid fuels consumption continues to surpass its production. In 2013, Brazil's demand for liquid fuels broke the 3.0 million bbl/d mark, while its domestic production continued to remain relatively unchanged at about 2.7 million bbl/d. EIA projects that consumption will continue to be greater than production through 2015. [...] According to the ANP, Brazil had a total of 2.2 million bbl/d of crude oil refining capacity at 16 refineries in 2013. Petrobras operates 13 facilities that produce 2.0 million bbl/d of product. [...] Petrobras plans to increase its Brazilian refining capacity to more than 3.2 million bbl/d by 2020 and by 3.9 million bbl/d by 2030 to meet anticipated domestic demand.

5. Debt and cash flow. PBR has a very high - in my opinion - debt/equity ratio, however, most of its debt matures after 2020. Debt is manageable if the company focuses its efforts in cash flow generation and non-performing asset divestiture.

(click to enlarge)

source: Investidorpetrobras.com.br

PBR will be generating positive cash flow and is planning several divestments, thus excluding immediate threats in terms of solvency and liquidity. The cash flow below assumes oil price for 2015 at $ 60 / bbl.

(click to enlarge)

source: Investidorpetrobras.com.br

Bond spread tightening shows that the market has a positive view of recent developments and expects PBR to be able to honour its commitments.

Ok, is it a buy then? At $ 9.50, I think that the stock is undervalued. After the write-down and impairment charges, PBR has a tangible book value per share of approximately $ 22.50 ($ 294B TBV per 13.04B outstanding shares). In this very interesting article, an investor raised an intriguing question. Why would someone opt to buy PBR when there are better alternatives such as Exxon (NYSE:XOM) or Chevron (NYSE:CVX)? I would say that, in normal conditions, the answer is a no-brainer, go with XOM, CVX. However, none of those companies are trading at such a discount, considerable below TBV.

(click to enlarge) source: Ycharts.com

The market is so pessimistic about PBR, that the stock is trading - on a Price/Book basis - significantly below regional peers such as Ecopetrol (NYSE:E) and YPF SA (NYSE:YPF). The discount was certainly warranted insofar executives engaged in malfeasance and the government has been influencing management decisions much more than in recent years. I don't expect the scenario to change radically, but recent events have shown that the stock has been unduly punished.

While history teaches us about trends and cycles, an important part of investing relies on making assumptions about future events. I don't expect PBR to have better management than its peers, I just expect the company to improve upon itself. Brazil's future depends on the capacity of its national oil company to boost production, cover the energy deficit gap and eventually become a net crude exporter. PBR has the technical capability to accomplish this goal, as the production boost in the pre-salt basins have shown.

Additional disclosure: The information displayed above is for educational purposes and is not an investment recommendation. Reader engagement in the comments section is encouraged and more than welcome. Readers are also encouraged to perform their own due diligence.
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[pablete]

Prometedor cierre, veremos mañana

[ElNegro]

ccl acá $ 11,70 para otras $ 12,11

[fernando9248]

Que bronca hoy no estuve y ayer no actualice el sl y volo toda mi tenencia cuando llego a 52 es tarde para volver a entrar? que opinan desde ya muchas gracias

Si estubiese afuera esperaria por la definicion de mañana. Dado que podras comprar en breve mas barato o mas caro. Pero a futuro le veo bastante recorrido positivo, con lo que si el mercado toma a bien el nuevo CEO, esto afianzaria la salida de tendencia alzista. Consideraria tambien que la empresa esta barata comparandola con las equivalentes dado que esta pasando por un mal momento, por esto, hay que comprar barato y cuando empieza a subir. Si baja de 10 a 5(Hablando de ADRs) perdes el 100% y si sube a 20 ganas. Aca tenes mas posibilidades de que suba mucho mas que Chevron por ej que es una empresa mas segura.
Igual, mi mejor consejo y experioencia es que nadie tiene la vaca atada, y cada uno corre por la suya.
Abrazo

[viskyconfafafa]

Amén que no se si termino la baja, tengo dudas. Me suena que hay retest de los 8,8.

coincido, vamos a ir navegando la franja 8.8 y los 10,4.

obviamente de pasarlo voladura

[furzio]

brasil cerro positivo ese changui que bajo fue por devaluacion del brl. Esperemo mañana salga alguna buena noticia de la reunion.

[ElNegro]

DEMASIADO BIEN!!! Podía haber cerrado en lo mas bajo do mondo pero

[viskyconfafafa]

me llamo atilio creo qe se eqivoca paisano

usted se llama guillermo y no me jorobe o le meto el caballo en el tuje.

saludos y mis respetos.

[Dostoievsky]

Amén que no se si termino la baja, tengo dudas. Me suena que hay retest de los 8,8.

[Dostoievsky]

cerraste lo lanzado che?

No, la porción lanzada en 66,4 me la quiero quedar a largo, cerrar hoy no tiene sentido, están carísimos esos lotes.

[resero]

me llamo atilio creo qe se eqivoca paisano

[ElNegro]

ccl acá $ 11,70 para otras $ 12

[andys260]

Muchisimas gracias gente !!!! lo analizare una diferencia se le hizo igualmente

[viskyconfafafa]

como andan pasisanos qe cuentan

hola guillermo, todo bien?

[resero]

como andan pasisanos qe cuentan